When working with professionals, you should make sure a number of important points are outlined in a written agreement. This will help prevent misunderstandings and disagreements and will serve as a backup if a dispute should arise.
A contractor may propose a "time and materials" contract instead of a fixed-price contract. "Time and materials" means that the contractor charges in fees that are a percentage of the cost of materials and labor.
While this sounds enticing, it can become a budget booby trap. Under this form of contract, the homeowner bears the risk of changing costs in materials such as lumber, drywall, doors, and windows and is playing roulette with the amount of time a particular job will take.
If, for example, something unforeseen comes up, such as unusual drainage problems or a large granite slab where the foundation should go, the homeowner bears the cost of the additional time and labor. Generally, a fixed-price contract protects you from these cost increases.
A contract is a legal agreement that obligates the people who sign it to perform specific acts. Note the word "specific." Make sure that any contract you sign spells out exactly what you expect of the work from any professional you hire. Following are some of the elements you should include:
Start and finish dates. You may want to include the phrase '"time is of the essence," which may give you added leverage if a delay leads to a dispute.
The right to settle disputes by arbitration. In the event of a dispute, arbitration can often be speedier and less costly than a court proceeding.
A warranty of at least one year on all work and materials. Some states require a contractor to warranty his or her work for at least five years (10 years for hidden problems).
A payment schedule. No matter how highly recommended a contractor comes, it is important to provide continual incentives for completing work—and to protect yourself from someone who might disappear with your money—by phasing payments. Check with your state contractors board for recommended practices. If speed is important, you may want to include a late penalty clause and/or a bonus for early completion.
Detailed job and materials descriptions. After deciding on materials, spell out those choices in your contract. If you want flooring made of 3-inch-wide No. 1 maple, put it in writing. Be sure that contractual allowances will cover the cabinets, fixtures, appliances, and materials you want.
A waiver of subcontractor liens. In some states, subcontractors can place a lien on your property if the general contractor fails to pay them. To protect yourself from this consequence, specify that final payment will not be made until the contractor gives you an unconditional release of these rights from all subcontractors and suppliers who provided services or materials.
If amendments, or "change orders," are made along the way, make sure the documents are initialed by both parties before any new materials are purchased or work has begun.
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