Should I Have a Contract with My Contractor?

Most home improvement, renovation, and construction projects are overflowing with moving parts. Planning and budgeting are just the beginning—once the project gets underway, you have to coordinate timelines, subcontractors, and supplies. To help a project go smoothly, many people enlist the professional skills of contractors to complete specific tasks, or even general contractors (GCs) to oversee all aspects of an operation.

While a contractor will guide the project in a safe and efficient way, having someone in charge of work in your home opens the door to potential issues if the project isn’t completed to your liking. That’s one reason it’s crucial you have a contract with any contractor before any work begins.

What Does a Contractor Do?

General contractors are project managers. They maintain communication lines to make sure supplies arrive on time, subcontractors are hired and scheduled, work is completed in an efficient way, permits are filed, inspections are completed, and the project meets the client’s goals.

A GC is also a central contact point. Since all information flows through the GC, they save the client time by providing one point of contact. Coordinating with multiple suppliers and subcontractors can take up a lot of bandwidth. On smaller jobs, a contractor can be anyone from a deck builder to a roofer to a landscaper, and your communications might be mostly one-on-one.

What Is a Contract?

At the most basic level, a contract is a legally binding agreement between you and your contractor. It offers a line of defense if something goes wrong during the project. It’s important to remember, though, that a contract is intended to protect both parties.

A written agreement gives you proof of everything you and your contractor have discussed in regard to the project. It also protects the contractor if you fail to pay or hold up other obligations outlined by the contract.

In general, a contract will outline the scope of the work, the price, and timelines.

What Happens before the Contract?

Initial interactions with your contractor don’t require a contract. In fact, you should never hastily sign a contract until you’re comfortable with all the details. Before a contract is even discussed, you’ll have lots of communication with the contractor.

In most cases, you’ll talk about every detail of the job. This is your chance to present that binder of design clippings from magazines and the internet. It’s also when you discuss timelines and costs for the project, and have an opportunity to ask any and all questions that come to mind.

With all the information in hand, a contractor will then provide a written estimate or quote.

Proposal Versus Contract

There’s a critically important distinction between a proposal and a contract. A proposal is an offer made by the contractor. There may be details about the job in the proposal, but it is not a commitment and is not as binding as a contract.

A contract has certain elements that make it legally binding, including an offer (the proposal), consideration, acceptance of the offer, and mutual agreement between you and your contractor.

How to Acquire a Contract

There are several ways to go about acquiring a viable, and enforceable contract. You can head to the internet for a simplified form and fill in the details. Similarly, you can source a contract from an office supply store. Many people look to their lawyers to draw up the proper paperwork.

However, the majority of the time, your contractor will present a contract to you.

In fact, in many states, it’s a requirement that the contractor does so. Each state in the U.S. has its own laws regarding when a contract is required, often dependent on the type of work or total estimated dollar amount.

For example, in Oregon, a written contract must be provided for all residential work that exceeds $2,000. If the original contract price is less than $2,000, but the price rises over $2,000 during the project, the contractor must provide the owner with a written contract within five days.

What’s Included in a Contract?

The contract will cover all the details you’ve discussed with your contractor, and much more.

First, it will outline the basics, such as the name, address, phone number, and CCB license number of the contractor, as well as the details of the relationship between the contractor and yourself. It will similarly list the customer’s name and the address where the work will be done.

The contract should adequately describe the scope of the project with a complete listing of the work to be done as well as who will perform the work. Be sure this section includes who will be responsible for acquiring required permits. Any sketches or professional blueprints should also be attached.

Other details, such as the specific materials that will be used, the cost of those materials, and the delivery timeline estimates should also be outlined. It will also delineate the process regarding clean up, waste removal, and what will happen to extra supplies.

For example, a contractor may remove leftover paint and lumber from the bill or leave the extra supplies onsite for the homeowner.

The contract should be very specific as to the details of your particular job and not just a general, or universal, form. For example, materials lists may include the specific number of each type of timber board, boxes of flooring, or outlets.

If they're known, it will also include make and model or product numbers, color selections, and sizes. Subcontractor pricing will include work by electricians, plumbers, flooring installers, drywallers, painters, etc. There may be other costs related to equipment rentals and details regarding who will pay for those rentals.

It will cover expected timelines for delivery of products as well as work completion. This is also where your deadlines, as well as any associated penalties, would be written out.

While the contractor will provide their best estimate of costs, he or she will also expect payment from you, which will also be included in the contractual agreement. This will include required deposits and detailed payment schedules.

It should also include a clause about what will happen to the money if the contractor or subcontractor fails to complete the job or incurs unreasonable delays. There are a variety of ways this can be written up, some of which are detailed further down in this article.

In addition to specifics about the cost and scope of the project, the contract will summarize the property owner’s rights as it pertains to the project. This should include information about how to change the terms of the contract, mediate disputes, and file a claim with the applicable agencies.

It covers the responsibilities of both parties, how to terminate a contract, and any special conditions in regards to confidentiality or nondisclosure.

New homes have specific contractual requirements, including that the contractor provides the homeowner with a home warranty and a maintenance schedule.

Above the standard contract, there may be additional inclusions specific to the job or outside the scope of the predetermined categories on the contract.

These include topics like following building code standards, addressing unstable ground, how refunds will be distributed, exceptions for incomplete work, damage caused by work crews, required repairs in response to inspection requirements, processes for unintended or excessive delays, etc.

When the Contract Terms Change

Every step of the way, the contract is the guideline for progress. If anything changes, the contract needs to reflect the new terms. This regularly happens as a result of changing subcontractors, material delays, the client changing aspects of the project, newly discovered obstacles, etc.

For the best protection for all parties involved, the new contract should be signed by the customer, the contractor, and a notary and be attached to the original contract(s).

Types of Contract Terms

As mentioned, a contract can be laid out in a variety of ways. Some contracts are guided by industry standards, but the contractor and the customer have the final say on any agreements.

The Lump-Sum Contract

For small jobs, a contractor may speak with you, take a few measurements, hit up his calculator, and give you a price. This price is binding for the most part and is a simple way to proceed quickly with uncomplicated projects.

However, it will typically not detail material and labor costs, so it will benefit you to get a few estimates. An example of a lump sum contract is when a contractor builds a fence to your standards and you pay him or her the initially quoted amount.

This is commonly used for contractors performing a specific job such as painting, roofing, or installing flooring.

It is not a commonly-used type of contract for more complex projects with many variables, since the real cost of the project can change for myriad reasons, costing the contractor out of pocket if the cost is above the lump sum amount.

Cost-Plus or Time-And-Materials Contracts

This type of contract basically means you agree on payment terms as a percentage of the materials cost. So a 10% fee on a job with $20,000 in material costs would run you a total of $22,000.

This isn’t a common format, but if presented to you, know that it somewhat encourages your contractor to spend, since his percentage will then be higher.

Upset Price

One way to keep the benefits of a cost-plus agreement while eliminating the concerns of overspending is to put a maximum price on the job. If the contractor goes over budget, you are not responsible for those costs. This is known as an upset price.

Hourly Rate

Some contractors will simply charge an hourly rate. Be very selective in who you enter into this type of contract with. Outside hiring neighborhood kids to help with small projects, it’s almost always better to have a solid price agreement upfront.

Draw

Draws, or partial payments for work, are common in the construction industry. It’s reasonable to place a small down payment on work. It’s also reasonable to provide payments as costs are incurred for materials, rentals, and supplies. However, never pay for work that is promised but that is not progressing according to plan.

Structure payments so the bulk of the money is paid when the work and all inspections are complete.

Are You Ready to Sign?

With your pen in hand and a vision for your finished project, you pause. And you should. A contract is a big commitment. Make sure you’re ready for it.

Thoroughly scrutinize every word on the document. This isn’t the time to gamble with terms you don’t understand. Ask questions for clarity and have a lawyer review the contract if you have any doubts.

There’s an understood standard when it comes to contracts that it may be worth hiring a lawyer to review it if the worst-case scenario as a result of that contract would cost you more than a week’s pay. In other words, the bigger the job, the more risk, so have a lawyer look it over.

Make sure all your questions about the project have been answered before signing the contract. Also, ensure the contract has agreeable terms in regards to payment schedules and that it is very specific to your job.

Obviously, some contracts will be very basic. For example, if you’re hiring a contractor to build a pergola over your deck or to pour a small patio there won’t be a lot of paperwork involved. More comprehensive projects, however, will have myriad details to review.

Make sure the contract includes every topic you’ve discussed verbally as well as all drawings, sketches, architectural designs, engineering reports, and the like. Perhaps most importantly, do you feel comfortable with the contractor? Now is the time to listen to the little voice inside your head if it’s screaming to be heard.

Do your research by verifying the legality of the contractor’s business and finding verifiable customer feedback. Look at the work the contractor has performed and reach out to former customers if possible. Ask them about their experience.

The more feedback from real customers you can get, the better. Hit up social media and ask around your community.

If, in the end, the little voice starts making sense, don’t be afraid to walk away and start again with a different contractor.

Canceling a Contract

Before you signed, you assuredly read all the fine print about your rights to cancel and process for doing so (right?). There is frequently a window of time during which you can cancel the contract without penalty. This can be as little as one day or remain open until supplies are ordered or work begins.

Otherwise, you can cancel the contract if the contractor doesn’t live up to the terms of the agreement. Remember, a contract serves to protect both parties so if you don’t fulfill your responsibilities, the contractor can cancel the contract as well.

Do I Have Any Protection If I Didn’t Sign a Contract?

In short, maybe. If the job falls apart for any reason you may be able to prove your case through implied rights. This means a court or other mediator can plainly see there was intent for the job to be completed and at least a verbal agreement was made between parties.

This may be proven through witness testimony, text messages, email, written correspondence, or a financial record of money changing hands.

However, the best line of protection is a well-written contract.

Better understand How to Get the Most Out of Your Building Contractor, and then review How To Use a Contractor's Time Efficiently for more information.