Contract Questions

One of the best ways to avoid construction disputes is negotiate and follow a well-written construction contract. Most construction disputes can be traced back to the parties' failure to write, understand, and follow a well-written contract. A well-drafted construction contract clearly sets out the work to be done, the price to be paid for the work, and the terms and conditions of payment. The contract should also allocate various foreseeable risks between the parties. When the parties allocate a list of potential risks, the contract becomes longer, but it reduces the potential for disagreements in "gray areas" that are not addressed at all - assuming that both parties take the time to read and understand the lengthy, dryly-worded document. Of course, failure to read a written agreement is not a valid defense.

Well-written construction contracts often include the following provisions:

• Full name and license number of the general contractor.
• Full name of the owner, the job address and contact information such as phone numbers.
• A detailed description of the scope of construction work
• List of specific building materials to be used in the project.
• Start and completion dates.
• Total price of the project, including labor and materials, and a payment schedule.
• List of allowance items (lighting, fixtures, plumbing fixtures, appliances, etc.) and the budgeted amount, if any.
• List of required permits, including who will be responsible for obtaining them.
• Agreement that any changes to the contract will only be done upon written "change orders" signed by both the contractor and the homeowner.
• Signature of both parties to the contract.

We recommend that you keep a signed copy of your contract, and all related materials in a safe place. All consumer protection notices should be read, understood, and maintained with your contract documents.

What should your home remodeling contract include?

• The contractor's name, address, telephone number, and license number (if applicable).
• A visual representation - blueprint, floor plan, sketches - that shows what the home remodeler will do and where.
• The timetable for the project, including approximate start and completion dates.
  The price and payment schedule.
• Detailed specifications for all products and materials. The description of each item should provide enough detail to clearly identify it, such as the brand name, model number, color, and size. This section of the contract may also describe any materials that will be selected later, who will choose them, and the amount of money (called an allowance) set aside to pay for each item.
• Information on who will obtain and pay for necessary permits and other approvals.
  Insurance information.
• Procedures for handling change orders.
• Lien releases to ensure that you are not held liable for any third-party claims of nonpayment.
• Provisions for conflict resolution in the event of a contract dispute.
• Notice of your right under the FTC's Cooling Off Rule to cancel the contract within three days if it was signed someplace other than the remodeler's place of business.
• Details on issues like access to your home, care of the premises, phone and bathroom use, and cleanup and trash removal.

Once you read your home remodeling contract carefully, review it with your home remodeler to clarify any wording you do not understand. If you still have questions after this meeting, you should discuss them with your attorney. When all your questions have been answered, you're ready to sign the contract.

What Is An Arbitration Clause?

Construction contracts often contain arbitration clauses. Arbitration is a form of alternative dispute resolution (ADR). It is a way to settle disputes outside, or instead of, a civil lawsuit.

Federal law supports and encourages arbitration as an alternative to civil lawsuits. Arbitration can be an effective, efficient way to resolve differences when parties to a contract have major disputes that they just cannot resolve on their own.

It is important that you understand the terms of all parts of your contract, and it is particularly important for you to fully understand and agree with the terms if an arbitration clause is in your contract. For example, you need to know:

• Who will be the arbitrator(s)?
• How do I know that the arbitrator will truly be neutral—not favor one side or the other?
• What will the arbitration cost be?
• What rules will be used if the parties must arbitrate their dispute?

Arbitration clauses are a little bit like a pre-nuptial agreement in a marriage. It spells out how the parties will resolve their differences in the event things don't work out. So be sure you understand and agree with the terms of any arbitration clause before you sign any construction contract.

What is a Construction Lien?

A construction lien is a claim upon property for money owed to a contractor, material supplier or anyone who supplied labor or materials for improvements to the property.

If your contractor isn't paid, or if your contractor does not pay subcontractors, employees, rental equipment or material suppliers, or others who are owed money for work on your property, they may lien your property for payment.

It is in your best interest to verify that all bills are paid, even if you pay your contractor in full.

Because your construction contract may represent the single biggest purchase you and your family may ever make, you may wish to have your own lawyer review the terms of your construction contract before you sign the contract.