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Remodeling University: What to look for in a contract?

As you are going through the process of selecting a contractor, You should be mindful of the aspects of the actual contract you would be entering into. There are really two distinct issues here:

1. Which type of contract would serve you best?
2. What should the contract include?

Type of contract:
Assuming that you are hiring a general contractor for your remodeling project, there are several potential ways you can go about doing so. If you are interested in a particular arrangement, you should check with the contractor you would like if they can accommodate such an arrangement.

Time & Materials: Under such a contract, there is no set price for the work. You agree to pay the contractor based on actual incurred costs of labor-time and materials furnished. This arrangement might prove beneficial (as in cost-saving), if you have a very high degree of confidence in the contractor. Remember that working this way, the contractor has no built-in incentive to complete the work timely or inexpensively. I recommend taking this approach only for small (almost handyman sized) projects and/or for portions of work where conditions are impossible to ascertain before work’s commencement.
Cost Plus: This is a similar arrangement to T & M, though it may be more practical for larger jobs and for CM (Construction Management Contracts). Here your General Contractor or your Construction Manager act as your agent. The GC (general contractor) will collect bids from various subs, help in the selection process, will supervise the work making sure that it is in compliance with plans, specifications, codes and agreed to terms and will also help in managing disbursements. The GC or CM are not ultimately responsible for the work of the performing contractors however, which leaves the owners with a greater exposure and liability. The flip side, of course, are the cost savings that could be realized. Note that the caliber, experience, knowledge and most importantly trust worthiness of the GC or CM are the critical elements here. Cost plus could be a great success if your GC has these traits. It can also be a costly failure if any of these qualities are lacking.
Turn-Key: In this scenario, your general contractor is assuming full monetary and performance liabilities for the work. The contractor is responsible to you for all aspect of the work. His contractual obligation to you is to deliver the project, as specified in the plans and specifications, at the very least to code and industry standards – on time and for a fixed, pre agreed to price. Here you have the greatest degree of comfort and minimal amount of liability…at a higher cost. Here too the key is the caliber of the general contractor. It should be clear that not all contractors are equal, even if all are bidding on the same plans/specs. Again, whom you hire will have the greatest impact on how your projects will turn out, how long it would take, what the real, actual costs of it will turn out to be (as opposed to what it was quoted/contracted for) and how many grey hairs you got during the adventure.

What should the contract include?
1. Full and detailed specifications.
2. The plans.
3. Start date and completion dates.
4. Exact total cost.
5. Payment schedule (hint: NEVER allow for disbursements in advance of work – only at certain stage’s completion).
6. All required Notices – this varies from state to state. In Los Angeles, remodeling projects’ contracts are require to have a Notice of Recession (3-Days Right to Cancel), Notice to Owner, and quite a bit more. Make sure to visit the regulating agency’s website for complete information (in California it would be the Contractors State License Board).

Happy remodeling!

1 Comment

  1. February 12, 2010

    I found your site on Google and read a few of your other entires. Nice Stuff. I’m looking forward to reading more from you.

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