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Remodeling Contracts Protect Building Contractors and Homeowners

Detail the Work Description, Payment Timeline, Funding, Start Date, Bonding and Insurance

© 2011 by ; all rights reserved; content may not be copied, rewritten, or republished without author’s written permission. Author’s Google profile

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Spreading and working freshly poured concrete.

This article was updated on 02/27/20.

It used to be that you could seal a business deal with a handshake. Well, OK, maybe that wasn't such a good idea. But we now live in a society that settles virtually every misunderstanding with a lawsuit.

With that in mind, everyone involved in a new construction or a roofing remodeling job have to protect themselves legally. These days funding budgets are considerable and everyone is trying to squeeze the nickel.

Basics of the Builder/Owner Contract

The bid is usually accepted before the construction contract is hammered out. Although the primary points of the signed bid are the bundled costs and the scope of the work outlined, the contract itself delves into the actual details of the project.

Almost all reputable contractors have a basic boilerplate set of forms that they base their work on, but as the homeowner, you have the responsibility to ensure topics are spelled out in detail.

That being said it’s always important for the homeowner to have a lawyer review it in detail. Let’s address some of the standard items that should be included. Keep in mind that the exact and precise details will depend on where the home is located and who does the work, but the following are the essentials.

The Description of Work to be Performed

This section must go the level of detail that the scope of your job demands. For instance, there’s a dramatic difference between fixing drywall holes and matching orange peel texture compared to the job of a kitchen remodel. Trivia: drywall is a generic term, Sheetrock™ is a brand name.)

Also, the manufacturers of the building materials should be spelled out in this section. For example, if you pay for energy efficient replacement windows and pay for them, then that is exactly what you should get, rather than contractor-grade ones.

You must monitor it as well. When I bought my home, I hired a painter to paint the interior. The bid and contract specified Behr but I caught him using some inferior paint. I stopped the job immediately. Not only did he have to buy the right material, he had to start over and eat the cost of the cheap stuff. Sad but true.

Construction Funding and the Schedule of Payments

This language needs to specify all relevant information identifying the lender providing the money, be it the owner, a banking institution, or another financial establishment. The absolute minimum is the company (or individual) name, physical address, and point of contact. This protects the contractor.

The payment schedule is critical, especially for smaller operators. In the building trades, these payments are “draws”. They’re basically money paid for the percentage of work completed. Remember how I stopped the paint job? Stepping around the contract allowed me to stop draws as well. This is why this section is so important.

In most situations, a draw depends on city building inspectors signing off on your building permits and your satisfaction. Of course, inspections don’t apply to all trades, but it almost always does for electrical and plumbing work.

HVAC jobs that involve refrigerant charging or recovery may not require permits or inspections but do require licenses. Structural framing may require pulling a permit depending on in which state or municipality the structure is located.

Verify Bonding, Contractors Liability Insurance, and Workers Compensation

These are the types of insurance that should be identified during the bid selection process, but it is essential that the homeowner gets it down in writing here. Be sure it spells out the financial amount of coverage and the company providing the insurance to the contractor.

This is key to protect the homeowner from worker’s injury claims as well as mechanic’s liens. Either of these legal actions could take their toll in thousands of dollars.

Finally, Set Out the Terms and Conditions

This part of the contract is where the legal verbiage takes off the gloves. It is typically a numbered or bulleted list and it spells out the legalistic details of all the sections covered so far.

Additionally, it might mention the procedures to follow should any legal action transpire, what occurs if either party goes bankrupt, and any other details not covered already. If caution is taken while negotiating and drawing up the contract, both the builder and homeowner should have a rewarding remodeling experience.

Hopefully, being armed with this knowledge on how remodeling contracts protect both the owner and the contractor will result in a favorable outcome on your home improvement project.

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About the Author:

Photo of Kelly R. SmithKelly R. Smith was a commercial carpenter for 20 years before returning to night school at the University of Houston where he earned a Bachelor’s Degree in Computer Science. After working at NASA for a few years, he went on to develop software for the transportation and financial and energy trading industries. He has been writing, in one capacity or another, since he could hold a pencil. As a freelance writer now, he specializes in producing articles and blog content for a variety of clients. His personal blog is at I Can Fix Up My Home Blog where he muses on many different topics.

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