We get a lot of complaints from property owners about issues with contractors hired to build, repair, or remodel. The root of the issues is usually due to lack of a clear written agreement. Many property owners hire and pay contractors based on a bid or proposal alone. These are usually skeletal terms and barely cover crucial terms that will make the agreement unambiguous. Most bids submitted by contractors simply lay out a sketchy list of tasks.
This post will address the main things that we believe MUST be in writing and in specific form, and most importantly the agreement must be dated and signed by both parties. Any changes to the written agreement must be done with a signed, dated, written amendment, or properly written Change Order Request form, dated, and signed by all parties involved.
KEY TERMS TO INCLUDE IN CONTRACTOR AGREEMENT
- SCOPE OF WORK – This must be specific. Example: Contractor will do A, B, and C. Contractor will provide labor and materials, and obtain all permits needed to complete the work. If there is specific type or brand of material to be used, specify that. The easiest way is to add a specifications sheet as an exhibit to your contract. This too should be dated and signed by both parties.
- COMPLETION DATE – Mention that the job will be completed by a certain date or within X days of date of signing this Agreement.
- CONTRACT PRICE– How much will the work listed under SCOPE OF WORK cost, inclusive of labor and materials? State that all labor, materials and permits are already included in the contract price and any additional costs must be approved by a CHANGE ORDER.
- DRAW SCHEDULE/ PROGRESS PAYMENTS – How will payments be made? You shouldn’t pay the whole Contract Price upfront. Phasing the payments is more beneficial. You can phase by time but it is best to phase as each stage is completed, e.g. as the work is at 25% completion, 50% completion, 75% completion and then 100% completed. You will need to define what constitutes these percentages e.g. Kitchen is 25% completion, Kitchen + Bathroom is 50% completion, Kitchen + Bathroom + Floors is 75% completion etc.
- CHANGE ORDERS – If you, or the contractor requests a change to the original SCOPE OF WORK, and that change is agreed upon, it must be in writing, signed by both parties. It will show the specific change, the price of the change, and how it affects TIME OF COMPLETION.
- STANDARD OF WORK – The contract should state that work will be completed with good workmanlike standards.
- LIABILITY INSURANCE– Example: Contractor warrants that he/she is adequately insured for injury to employees, workers, and other that may suffer a loss or injury as a result of the acts of the contractor or his employees, workers, and subcontractors.
- SUBCONTRACTORS– You may insist on only licensed subcontractors, or leave it up to the general contractor to decide. However, state that if the work to be done requires a license, the general contractor will ensure to hire a licensed subcontractor for that part of the project.
- WARRANTIES – What type of labor and materials’ warranty will you get? In order to have materials’ warranty, the contractor must give you receipts and paperwork for the materials. Labor warranty comes from the contractor and some of the subcontractors. Ask for the warranties to be put in writing and the number of years specified.
- RELEASES AND WAIVERS OF LIEN – Example: Contractor will provide appropriate Releases and Waivers of Lien for all work performed, labor, materials, and equipment provided. You should get a Release of Lien for each stage/ phase completed. If a subcontractor or equipment company was used for a part of the work, make sure you have a Release of Lien from that party as well.