Contracts A to Z
Remember the following before signing anything:
- Read the entire contract and understand everything it contains. Make sure everything you and the contractor discussed is in there.
- Oral agreements are never a good thing. Put it in writing.
- Include every last detail in the contract: brands, manufacturers, colors, sizes, etc.
- If the legal language is too much for you, contact your state contractors licensing board or an attorney. If your project is very large, you should have an attorney completely review the contract before you sign anything.
- Save every document regarding the project.
- Keep a journal with photos of work in progress and any damage or problems.
- Keep a log of all payments you make and do not “pay ahead” of work. NEVER pay cash! Never make the final payment until you are completely happy with the job. Make sure to do a final inspection.
- Do not pay in full until materials and workers lien releases have been received.
Familiarize yourself with state laws and regulations regarding contractors.
Arbitration Clause: There should NOT be one! If there is, ask that it be removed. If the contractor will not do this, contact an attorney. These clauses only benefit the contractor, not the consumer. You could lose your right to a jury trial if the worst happens. Never sign a contract with an arbitration clause!
Cancellation: Legally, your contractor must give you a written notice declaring your right to cancel the contract within three business days of signing it, provided that it was done at a place other than the contractor’s place of business. Some states have different time frames and/or requirements. Check with your regulatory agency.
Deposits: Depending on your state laws, you should never pay more than your state’s minimum as a deposit. In most states this is 10 percent of the total or $1,000.00, whichever is less.
Lien Releases:The contract should include wording that the contractor must obtain lien releases from all subcontractors and suppliers before you make any scheduled payments. Keep these! It is your legal right to add this to the contract, no matter where you live.
Mechanic’s liens can be placed by anyone who works on your project. They are claims against your property if you do not pay the bills, and are recorded with your county. Legally, you should be given a “Notice to Owner” warning about these liens. This applies even if you have paid your contractor, because subcontractors, workers or suppliers may not have been paid by the contractor and they are also able to file a lien on your property. This could be devastating to you as it could result in your having to pay again to cover these people, or even be forced by a court to sell your property to pay off the lien. This would adversely affect your personal credit rating and your ability to refinance or borrow money in the future.
Protect yourself by asking the contractor for a list of all of his subcontractors, workers and suppliers. You should also get the start dates for all of these businesses and individuals. You can ask them to sign lien releases once their portion of the job is finished (after a waiting period).
You could also pay both your contractor and his suppliers with one check payable to all of them.
Your contract should include statements from the contractor and others agreeing to sign lien releases after payment has been made for work performed.
Materials: The contract should include a list of all materials to be used or installed.
Miscellaneous: Any other items you have discussed and agreed upon with your contractor should be in the contract.
Non-Transfer Clause: Protection that the contract cannot be assigned to another contractor with whom you have not previously worked.
Payments: The contract should have a “retention” provision. This means that you never pay more in advance of work being done. The payment plan should be based on contractor performance. Retention amounts can be a percentage of individual payments, or even the total job cost, and usually are set at 10 percent. You keep that 10 percent of the payment until your project is finished.
The payment schedule should be written out in the contract in exact dollars and cents. In addition, the total price agreed upon should be specified in the contract.
The contract should include any charges for change orders or new work added during project progress.
Permits: You may need permits for your work. This can be time-consuming. Sometimes, the contractor will include getting permits in the contract. If so, you want to verify the cost, as some contractors will charge an hourly rate, so the more time it takes to get the permit, the more you will pay. You may also be required to obtain the permits yourself.
If you have a homeowners’ association, you may need their approval as well. Determine who is responsible for doing this.
Responsibilities: The contract should specify who is responsible for items such as daily clean up, property damage (yours and neighbors), consideration for pets, landscaping, etc., and access to the home.
Time Frames: The contract should contain estimated starting and completion dates. In addition, in some states there should be a statement of what will happen if the contractor doesn’t begin work within a certain number of days of the estimated start date without a legal excuse. There should be wording about what exactly constitutes “start” or “commencement” of work. Late starts to work could cost you big money in the long run.
Warranties/Guaranteess: Contractor warranties for labor and materials should always be writing, specifying what work is covered and for how long. Keep these in your files.