How to Sign a Contract with a Contractor

Construction Deal XXL
  • Intermediate

Always carefully plan your home improvement projects. Consider your budget. Save pictures of styles and projects you like and make a note of the brand names and models. Review them with your contractor. A high-quality style faucet means something different to you and to your contractor. Walk with your contractor through one of his completed projects and tell him what you like and don't like. Get accurate plans or blueprints. Study them carefully and make certain they show your project accurately. Approve the completed plans before starting work.

If you decide to wear the hat of a general contractor, you, not the people you hire, are responsible for the overall job. If your subcontractors do not take out the permits, it is your problem. If they do not have worker's compensation insurance you must. Unless you have the experience, time, and skills to do it right, it may not be wise to be your own general contractor. You should also find out from your contractor's liability insurance that the company is properly covered for that type of work.

Always use a written contract. Written contracts protect you and the contractor. The single biggest cause of claims is the lack of a contract, a poor contract, or a contract no one pays attention to. Put agreements, including all changes, in writing, and all changes approved with signatures and duly dated.

Generally, the more detailed a contract is the fewer problems that come up later. A big project should have a detailed contract, not "Remodel bathroom $9875.00" Make sure you understand what the contract includes and does not include. Don't sign it unless both parties understand everything.

We must assume you have read our sections above and checked references and understand payment options. Contract requirements vary by state. Even if your state does not require a written agreement, ask for one. A contract spells out the who, what, where, when, and cost of your project. The agreement should be clear, concise, and complete. Before you sign a contract, make sure it contains:

The contractor’s name, address, phone, and license number, if required.

The payment schedule for the contractor, subcontractors, and suppliers.

An accurate start and completion date with an acceptable tolerance margin.

The contractor’s obligation to obtain all necessary permits.

How change orders will be handled. A change order—common on most remodeling jobs—is a written authorization to the contractor to make a change or addition to the work described in the original contract. It could affect the project’s cost and schedule in which case it should be specified and duly approved by both parties. Remodelers often require payment for change orders before work begins.

A detailed list of all materials including color, model, size, brand name, and product.

Warranties covering materials and workmanship. The names and addresses of the parties honoring the warranties—contractor, distributor, or manufacturer—must be identified. The length of the warranty period and any limitations also should be spelled out.

What the contractor will and will not do. For example, is site clean-up and trash hauling included in the price? Ask for a "broom clause." It makes the contractor responsible for all clean-up work, including spills and stains.

Oral promises also should be added to the written contract, duly dated and signed.

A written statement of your right to cancel the contract within three business days if you signed it in your home or at a location other than the seller’s permanent place of business. During the sales transaction, the salesperson (contractor) must give you two copies of a cancellation form (one to keep and one to send back to the company) and a copy of your contract or receipt. The contract or receipt must be dated, show the name and address of the seller, and explain your right to cancel.

If changes in the plans or the contract occur during the project, put them in writing as amendments to the contract, including any differences in cost. These change orders should be dated and signed by both you and the contractor. Change orders are a major source of misunderstandings and cost overruns.
Make changes in writing. People change their minds during a building project. If changes are made at the right time, the cost and length of the job may not be affected. Delay, however, can mean costly changes.

For remodeling and new home projects, allow at least a 10 percent increase for changes from the contract and increases in material cost.
Communicate. Talk to your contractor during the project. many disputes happen because people fail to communicate at every step of the project. If in doubt, talk it out. There are no stupid questions you can ask your contractor.

Obtain building permits. Construction of new homes and many home improvements require building permits from the local building department. Usually, contractors obtain the permits because they know permits are required. But ultimately, the owner is responsible for making sure the required permits are obtained. Make sure a final inspection is done when the work is completed.

Pay in installments. Legitimate contractors are entitled to a sizable down payment--a third to a fourth of the total cost of the contract is common. Find a balance where the contractor has enough money to buy materials and finish work, and you have enough at the finish date to ensure satisfactory completion.

Don't let your payments get ahead of the work completed. Also, make sure with the supplier that all goods and supplies delivered to your address have been paid up, as if something should go wrong, the supplier is legally entitled to put a legal hold on your construction project at that address.

Some contractors run out of money before work is done. The business will then bid on more jobs to get more money. Unfortunately, a few scam businesses have no intention of completing work once they have received payment. For bigger projects, you can establish an escrow account at a bank. Make payments in stages as the work is completed and has passed the inspections.