Doing the Deal
Last updated in November 2015
Once you’ve picked a winner, have the company prepare a written contract. Many companies’ proposals serve as contracts. The contract should include the following information for medium-sized and major projects; but even if your project is small, many of these points also apply.
Names, addresses, and phone numbers of customer and company.
The company’s information should include its license number and also note that the company is solely responsible for managing subcontractors and approving the quality of their work.
Description of who will do what work.
The contract should specify who will perform various aspects of the job (company employees, subcontractors, day laborers, installers working for a store) and who will supervise them.
Detailed description of the work.
Either include or refer to the scope of the work, construction documents, and other plans. If you’re hiring an architect or designer to monitor all or part of the project, that relationship should be described.
Price and payment terms.
Make sure you have detailed, fixed prices—see the previous section for advice on what to look for and what to avoid.
Try to minimize the down payment and maximize the final payment. The more you can withhold until the end, the more leverage you’ll have to make sure the job is done well and according to your agreement.
For most major remodeling jobs, payment is made in stages and is expected after chunks of work are completed or before large orders are placed. For example, a contract might require five payments: a 10 percent upfront deposit, a 30 percent payment after demolition and framing; a 30 percent payment after installation of drywall, windows, doors, and sub-flooring; a 20 percent payment after finish work; and a final 10 percent payment after all facets of the job are complete. If you’re financing the work via a home equity loan, you’ll find that most lenders won’t release funds until they know a stage has been completed satisfactorily.
If a contractor demands a large payment upfront to buy materials or products, you’ve got the wrong contractor. Reputable pros have accounts at their suppliers and at least 30 days to pay. Avoid companies that require an upfront deposit of more than 10 percent.
Try to include language in the contract that holds back a percentage of the total price, called a “retainage,” until you’re sure the work was done well. A 10 percent retainage is common for residential remodeling work.
If the company accepts credit cards, consider charging all or parts of your job. If there is a problem, you can dispute the transaction with your credit card issuer.
Specifying quality standards.
To protect against an obviously substandard job, include a catchall phrase to the effect that the contractor will complete the project in a professional manner and that the work will comply with applicable building codes and regulations.
Warranties and guarantees.
Include explicit references to any warranties and guarantees, including a clause stating that the labor and materials the remodeler provides will be free of defects for a certain period of time after the job is complete, and that repairs or other work to correct flaws will be performed for free. One- or two-year warranties are common, but push for the longest warranty you can get. Also, require that the contractor supply you with information on any manufacturers’ guarantees and warranties.
Way to make changes.
Include provisions for handling unanticipated or unplanned changes: that you and the contractor will describe the change exactly, agree on a price, and incorporate the change into the overall contract.
Starting and completion dates.
Request that the contract include a firm start date. The completion date probably will be an estimate, but you can’t be confident that either date will have an impact in the event of a dispute unless you describe the dates with this phrase: “Starting and completion dates are of the essence of the contract.”
Requirement of continuous work.
Some contractors start off with a bang and bring a full crew that swarms over the work area—for the first day or two. Then, for all sorts of reasons (mainly juggling other jobs), there may be days with little or no activity onsite. Minimize these delays by specifying who will be on the job and that, weather permitting, work will be continuous.
Completion bonuses and penalties.
We’re not big fans of bonuses or penalties. Even if deadlines are important to you, the schedule written into the contract will be the main leverage for you to rely on.
Lead paint testing and abatement.
If your home was built before 1978, ask the company to show proof of its Lead-Safe Certification. Include a statement in your contract saying that the contractor “will follow EPA regulations for containing the work area and minimizing the generation of lead-paint dust.” Also, have the company detail any extra fees it will charge if it has to employ lead-safe work practices. We provide more advice on this important topic here.
An excellent way to get extra protection for a large job is to choose a company that agrees to secure a performance bond in the amount of your contract price. This will protect you even if the company goes out of business. A bonding company may require you to get a court judgment against a company before it will release funds to you. But, as with an auto insurance company, a bonding company may simply settle with you if it believes that you have a sound case.
Requiring a contractor to get a bond will add a few percentage points to the price of the job, but it may be a reasonable price to pay for the extra peace of mind. Although performance bond requirements are common in contracts with commercial customers, they are rare in contracts with homeowners, and a responsible but small contractor may have difficulty obtaining one. Nonetheless, this is an option to discuss with potential contractors.
The contract should describe any heavy equipment to be used and detail how the remodeler plans to minimize potential damage.
Indemnification and waiver of customer liability.
Your contract should “hold you harmless” and protect you against claims, costs, and attorney’s fees stemming from the contractor’s work. Typically, indemnification clauses also note that the contractor must carry adequate liability and workers’ comp insurance.
Permits and approvals.
The contractor should determine necessary permits, apply and pay for them, and arrange for government inspections, if required. The contractor also should obtain approvals by a homeowners’ association, if required.
Liens and waivers of liens.
In the remodeling business, liens are a kind of currency; they’re routinely taken out against property owners by subcontractors, building material dealers, even individual laborers if remodeling contractors don’t pay their invoices fast enough—and the lienholders get to define what “fast enough” means.
You can protect yourself by including in the contract the following clause: “Prior to each payment, contractor must provide the homeowner with lien releases covering work to which the payment applies. Each release must state the name of the company or individual making the release, the releasing party’s address, materials or services supplied, the amount the contractor has paid for these supplies or materials, and the homeowner’s address. It must be signed by the releasing party.”
Building products and materials.
Include language about building products and materials: that they’re new; comply with all relevant laws, regulations, and codes; and are covered by applicable manufacturer’s warranties. This part of the contract should also refer to the finished plan and the material lists noted in it, and contain a reference, if necessary, to the person buying each item: you or the contractor. Many agreements also include a requirement that for certain products—millwork, hardware, most finishes—the remodeler must provide samples or even shop drawings for your review and approval before purchasing or fabricating the items.
Flesh out what pros call “site maintenance.” Included should be a definition of the workday: when it begins, when it ends; an agreement to clean all debris from the jobsite and leave all appliances and household facilities in good working order at the end of each day (with the exception of those items that are actually part of the project, and they should be noted); an agreement that loud or otherwise disruptive work be confined to certain hours; and an agreement that the contractor limit all work, materials, and products to specific parts of the house.
Note that you get to say when the job is over.