There is no single contract for contractors that would apply to any project. Scope of work, type of project, project size, number of trades involved, schedule for completion and a number of other considerations must be taken into account when establishing a contract.
Contract may be awarded either as a single construction agreement for an entire construction project or by separate contract agreements for the various phases required to complete the project. The contract for contractors provisions (stipulations) will vary based on the scope of your work.
A single contract would include terms comprising all of the work required for the completion of the project under a single contractor. This contractor is then considered the “prime” contractor.
The prime contractor is responsible to direct and coordinate all parties involved in completing the project. This contractor is also your first line of defense in any claims made against the project.
This is why the contract terms between you as the consumer and the prime contractor are critical to you and your project’s success. Learn what you need to know.
While the exact type and form of agreement may vary, there are certain provisions that are included in all of them. You, as well as the contractor, will need to check each item carefully before signing the agreement.
Here are the basic categories you will find covered:
Scope of Work in a Contract for Contractors
Your project drawings and specifications are identified (also known as the “contract documents”) as well as the name of the architect and engineers responsible for the design. The contractor will agree to furnish all material and perform all of the work for your project in accordance with these contract documents.
Time of Completion is a Critical Contract Provision
This includes the starting and completion of the construction work. The project start date should never precede your contract date of the execution of the contract. The completion date is listed either as a specific month/day/year or it is listed as a specified number of days.
If the work is to be completed in a specific number of days, then the days need to be further qualified as “work” days or “calendar” days. Any liquidated damages, which are penalties if the project is not completed on time, would be included here.
If you intend to offer a bonus, should the work be completed early, this would go here as well. In a contract for contractors doing home remodel or renovation work, liquidated damages and early completion bonuses are not typical.
Amount you Agree to Pay Contract Provision
Under a lump-sum agreement, meaning one total price for your work, is the amount of the bid you accepted or a negotiated price between you and the contractor. This price may be adjusted with the acceptance of alternates or minor revisions you have agreed to with the contractor after receiving the bid.
Be certain the contractor understands he/she is not permitted to make changes to scope or to substitute products without your written consent.
Defining Progress Payment Terms in a Contract
This will determine the frequency in which your contractor gets paid for work in place and any stored materials purchased for the project. The due date for payments is something that is mutually agreed between you and the contractor.
As an example, the contractor may make an application for payment to you for a 30-day period of work. Based on your contract terms, he may submit this request following the end of the month he intends to bill for with payment due by you within the 30 days following completion of that work.
If you do not pay within the agreed window, the contractor can exercise his rights to file a lien against you and your property to recover those funds. Check with your state statutes regarding your contractor’s right to file a lien as well as your responsibility for timely payment when entering into an agreement. The contractor may also wish to include terms regarding interest charges for non-payment.
Benefits of Retention or Retained Percentages
It is customary in a single lump-sum contract for you, as the owner, to withhold a certain percentage of payments as a guarantee of work completion.
This is most commonly called “retainage” and is a protection for you to ensure your contractor pays his trades and that their work is done. A typical retainage percentage is usually 10% of the value of the work billed.
Breaking Down the Cost of your Work
Depending on the value of the work, the contractor will submit a “schedule of values” which has the overall contract value broken down in the amounts allowed for each division of the work. Often these are listed in the same divisions identified in the project specifications. For example, you may see separate costs for plumbing, electrical, drywall, painting, etc.
When the contractor invoices you, he/she will bill the amount completed in a given month for each division in the schedule of values. He may also request payment for materials purchased for your project, but not yet installed, that are stored on your project’s site or elsewhere.
Contract Provision for Acceptance and Final Payment
When your project is complete, you have accepted the work and all inspections by local governing authorities (if applicable) have been signed off, the contractor will invoice for remaining amounts due. This will include any balances owing from the schedule of values breakdown and any retainage withheld.
There are a number of different considerations and steps to executing an effective contract for contractors that benefits both you and the contractor.
Filed under: Contracts