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.
The best way to avoid legal hassles or misunderstandings between you and your contractor is to have a clear, binding contract that outlines everyone’s expectations and responsibilities. This contract, signed by both you and your contractor, should specify in detail all of the work to be done and the materials to be used, the completion schedule, and how payments will be made.
Here’s a closer look at what should be specified:
1Both your and the contractor’s names and addresses.
2Details of all work to be performed. Be sure your plans are thought through completely. A contractor will charge you for changes and modifications that are not in the plans, particularly those that will require more work or more expensive materials. Charges for changes and extras can send your budget through the roof.
3Start and completion dates. You may want to consider a penalty clause if the job isn’t completed on time (excluding delays for strikes, material shortages, or natural disasters). But if you do, also insert a bonus clause to pay the builder more if the job is finished ahead of schedule.
4Details about the materials to be used, including brand names, model numbers, and quality markings. The more detail, the better. Avoid the term “or equal,” unless you make it clear that substitutions can’t be made without your approval. If you set up a separate budget for particular items, such as plumbing fixtures, that you have not picked out yet, do some research to be sure that the budget figure is high enough to purchase the items you ultimately choose.
5Detail when and how payments will be made. Do not pay more than 10% or $1,000—whichever is lower-upfront. Making an initial payment, and then paying in installments as the work progresses, is a common practice, but don’t let the finished work fall behind the payments. Prompt payment gives the contractor incentive to keep making progress; remember, money is your only leverage for getting things done. By the same token, don’t make early payments or more than enough to cover materials delivered to the job (it’s fair game to request copies of invoices) or you may discover that your contractor has suddenly disappeared.
6Detail responsibilities, such as demolition and trash collection. Will there be a dumpster on the job? If so, where will it be dropped. Even a small dumpster will ruin a lawn and sink into an asphalt driveway on a hot day. Leaving it at the curb is a good idea, but not all towns allow it. Where will the contractor stage materials—lumber piles, cabinets, roofing, plywood—when they arrive? If anything is stolen, who will be responsible? For safety sake, make it the contractor’s responsibility to have the crew clean up the site at the end of every day. And make sure arrangements are made for portable facilities, unless you want workmen traipsing through your house to use your bathrooms.
7Don’t sign a completion statement or pay the final payment until the job is complete and has passed final inspection.