Do You Need A Contract for Home Improvement Projects?
By: Danny Lipford
Do you need a contract for your next home improvement remodeling project? The short answer is yes. With the exception of emergencies, when the scope of the work is clearly defined and you’re in a hurry, insist on a contract for any work done on your home.
It doesn’t have to be a lawyer-approved formal document loaded with legal jargon. Instead, it should be a written agreement that outlines your expectations, how the contractor plans to fulfill them and clear guidelines for payment.>
Why You Need a Contract
Why is a contract so important? Nearly anyone involved with remodeling—professional contractors and homeowners alike—can recount a story or two about good projects that turned sour because the homeowner and contractor worked under different assumptions. These misunderstandings would never have happened if a contract had been drawn up before the job got under way.
After nailing down the scope of the work and the price during the design and bidding phase, the contractor writes a contract that formalizes exactly what he promises for his price. No matter the size of the job, the contractor should give you a day or two (preferably a week) to look over the contract, have an attorney review it, ask questions and make changes if necessary. Both you and your contractor should agree to everything in the contract before it is signed.
If a contractor rushes you in any way or exerts pressure on you to read and sign the contract as soon as it’s presented, or if he proposes working with no contract at all, you should consider working with someone else.
What a Contract Should Include
Scope of the Work
All contracts should explicitly state all the work to be done. Each part of the job should be explained, including framing, electrical, plumbing, sheathing, siding, roofing, and all finish work. If blueprints exist, the contract should refer to them. This section should be written in clear layperson’s terms. Question anything you don’t understand.
This section should also cover what materials you intend to salvage and reuse; areas in which you will supply the labor; what will be an extra charge; and how payment will be handled for extras, like repairing a broken faucet, leaky pipe, faulty outlet or broken window.
Most contractors will be happy to take on this extra work for a fee, and it’s usually a bargain for the homeowner, since workers, tools, and materials are already on site.
In this section, the contractor should make you aware of known problems, such as a cracked sidewalk that will be repaired as part of the agreed-upon price. Write this section if your contractor does not.
There are code-required minimums for many materials—such as framing lumber, sheathing, and electrical components. But be sure to specify your choices when you want material that’s beyond what codes call for or is a higher grade than is commonly used.
The contract should also specify the brand names, model numbers and colors of appliances, lighting and bath fixtures, along with the name and grade of building materials, like roofing and finish lumber.
If some items are not specified at the time the contract is written, the contract should list the specific spending allowances. For example, you may want to set aside $3,000 of the budget for appliances or $200 for a light fixture in the powder room. Make your contractor aware of the quality level you expect; always ask whether your allowances are sufficient.
A contract should state the start date for work, which is easy to determine. Many homeowners also want to bind the contractor to a finish date. A contractor will rarely agree to an end date, especially if there’s a financial penalty. You can expect a target end date, and a good contractor will come as close as possible to it.
Before deciding to go to the mat over an ironclad finish date, remember that you can give the contractor an incentive to finish the job and move on by withholding final payment until the project is completed. He’ll have outstanding bills he wants to cover with this final payment, which may be as much as a third of the total.
Also, remember that a completion date can force the contractor to cut corners to finish on time. Years from now, you won’t recall a slight delay, but you’ll have to live with rushed drywall seams forever.
A contract should specify application or building techniques, especially if they vary from standard practice. For example, if you want old shingles carted to the curb by wheelbarrow instead of having a Dumpster placed on your lawn, make that clear. If you want paint brushed on and not sprayed, specify that in writing.
A change order is an authorization for work beyond the scope of the contract. Say you decide once the job is in progress that you want a pocket door instead of a swinging door or an extra window in the kitchen. Only you can approve change orders, which are then billed on a “cost-plus” basis (labor plus materials plus markup). A contract should specify up front the change-order labor rate and the markup, and how they are billed. Make sure this section states that you will pay only for preapproved work.
How money changes hands should be carefully stipulated in the contract, with an outline of payment methods. To protect you it should also include a clause that makes the contract void if financing is unobtainable.
Most contractors bid a firm price, and the money is released in “stage draws,” where payment is due when certain milestones of the job are completed. Here’s one possible scenario: The first payment is due at signing the contract, the second when the foundation is finished, the third when the drywall is up and the final one at the completion of the job.
Another billing method is cost-plus, in which you’re billed monthly. It’s often hard to keep track of cost-plus, so I recommend avoiding it.
For most jobs, the first payment is due upon signing the contract, but some states limit this amount. For example, in California first payments are limited to 10% of the job total or $1,000, whichever is less. Though some contractors ask for more up front if custom products have to be ordered, 10% is typical. For jobs costing less than $1,500, a 15% advance is often used.
It’s easy to lose the contractor’s attention once you write the final check, so make the final payment at least 10% of the total as an incentive for him to complete the job to your liking. Make clear that the final payment will be issued only after all inspections and change orders are done and the final punchlist has been completed.
The contract should require the contractor to present proof of insurance for general liability insurance and workers’ compensation (if the contractor has employees) before the job starts. The contract should also require the contractor to verify insurance and workers’ comp for his subcontractors.
With disposal costs running higher each year, be sure it’s clear who’s responsible for debris. Some contractors assume it goes to the curb, but your town might not pick up there or charge you extra to do so.
A contract clause should indicate who, if anyone, can use your phone. Also, if you don’t want workers using your bathrooms, say so in the contract, though you’ll end up paying to bring a portable toilet on site.
Finally, it should be clear who’s responsible for damage to your walks, driveway and yard. Don’t assume, for example, the contractor will repair any damage to your lawn. He may be assuming you knew that heavy equipment would harm it.
Is The Work Done Right?
Most contractors can’t provide a flawless job, and you can always find mistakes in their work. Questions over who fixes these problems can easily escalate into hard-to-resolve disputes if you can’t find an objective guide that indicates the job has been done within acceptable limits.
The National Association of Home Builders has published such a guide, written specifically for homeowners and remodelers. Residential Construction Performance Guidelines establishes the minimum quality that’s acceptable on a wide range of jobs. Many contracts simply refer to it by name as the arbiter of disagreements.
- Hiring a Contractor for Home Remodeling Projects (article)
- Sensible Remodeling Payment Plans (article)
- Avoiding Contractor Scams (article)
- How to Hire a Handyman (video)