When it comes to construction contracts, it’s important to fully understand the written agreement you’re signing. Ultimately no construction contract is ever perfect and even the most skillful home contractor or builder will fail to remember to add something important to the document. The most knowledgeable builders review their contracts continuously and revise them as certain experiences occur. A well-drafted contract prevents clients from becoming too involved allowing the contractor to do their job.
Define Owner’s Responsibilities in Construction Contract
Determine who is responsible for clean-up. Also determine if the toilet facilities are available to worker or compensate the contractor for rented units. Water, electric and other utilities shall be furnished by the owner to the contractor at no expenses. Other important parts about driveways, work areas and regarding snow or ice removal are important too. Other mentions include leaving gates closed for children and animals.
It’s important that homeowners have increased their insurance to cover the finished value of the project. The customer is required to purchase this or can authorize the builder to purchase it at their expense. They must add them as a loss-payee on the hazard insurance policy. The contractor is required to have workman’s compensation and liability insurance to the minimum requirements of the law.
Labor Warranty / Owner-Supplied Materials
In order to maintain control of the job site and profit, a clause is added to discourage a resident handyman o sign on as a sub or supplier. This clause states that no owner-supplied materials are warranted and the client is held accountable for any delays because of these materials or the labor.
Square and Plumb
This clause informs customers that not all work can be square or plumb.
This is an important component to a contract stating who pays for medical expenses.
Lead paint, Asbestos and other hazardous materials can spell disaster for unprepared builder. A protective clause in the construction contract can be a lifesaver. A clause should be made that the owner is responsible for removal and disposal of such hazardous materials.
A clause should be placed that the owners individuals can sign to a change order and that signature will be binding to both.
If you’d like to avoid going to court, make sure a clause in the agreement is added for binding arbitration. If there is an issue, you and your contractor will plead the case in front of a non-biased arbitrator.
Stated Cost Versus Cost Plus Contracting
Cost-reimbursement or cost-plus is a contract type where a contractor is paid for all of its expenses up to a set limit. This allows the company to make a profit. These types of contracts with a fixed-price contract to which a contractor is paid for a negotiated price ahead of time. This is paid regardless of any incurred expenses.
In this type of construction contract, the contractor agrees to provide its best effort to complete the required contract. This allows for payment of incurred costs to the extent agreed upon in the written agreement. This will include an estimate of total cost to obligate funds and to establish a cost ceiling that can’t be exceeded. This type of contract is typically used only when uncertainties are involved in performance that doesn’t permit costs to be estimated in any way. These fixed-fee cost-reimbursement contracts make up the largest subgroup of cost-plus contracts in the business sector.
A cost-plus contract is used when long-term quality is much higher concern than that of cost. In contrast to a fixed-price contract, this keeps contractors from cutting corners. The final cost may even be less than the construction contract because contractors don’t inflate prices to cover risk.
Some of disadvantages of this type of construction contract are that there is limited certainty as to what the final cost will be. It requires oversight to make sure that only permissible costs are paid for and the contractor doesn’t feel a loss.