Before I sign on the dotted line, what should I include in my home renovation contract?

Rushing into major home improvements or additions to your home without carefully considering what you include in your contract may be asking for trouble, but what are the things you may want to know… before you sign on the dotted line?

What you should get in writing:

Material specifications.  Including brand names, model numbers and types of materials to be used. 

Details of the contractors guarantees/warranties, including expiration dates. Also include what procedures are to be followed if materials or workmanship is found to be defective.  Do not confuse the manufacturers guarantees/warranties with the contractor’s guarantees/warranties, totally two separate animals here.

Subcontractors.  If the contractor is subcontracting out certain parts of the job, you may want to consider a clause that will hold the contractor liable for any negligence/mistakes that may occur by the subcontractors.

Clean up. Specify that all debris be completely removed by the job completion date.  

Cost overruns. Some contractors will state a limit of 10%, etc.  You may even want to include an arbitration clause that requires an impartial person to mediate if problems of excessive cost overruns arise.

Payment schedule. Usually a contractor will get a certain percentage of the negotiated fee as a deposit, then partial payments as each stage of the project is completed.  Payment should be withheld until the contractor actually begins the job. Hold down further payments as much as possible until the job is completed.  Some bad contractors have been known to take the money and run, no matter what stage of completion the job may be in.

Municipal Permits/Building Codes/Inspections. – Make sure the contractor is responsible for obtaining all necessary building permits, is abiding by building codes and that the final payment is contingent upon the municipal inspectors approval of the work. 

Insurance coverage. Make sure the contractor has proper workman’s compensation insurance coverage in case of injury on the job. They should be able to supply you with a copy of certificate as proof. Most home owners insurance policies do not cover personal injuries and you do not want to end up in a lawsuit or paying out compensation because a contractor injured themselves on your property and wasn’t insured.

Change orders. A change order is when the contractor changes anything on the job.  It is best for your contract to state that change orders will have to be in writing and be approved/signed by you before work proceeds.  90% of the time, a change order means you will be facing additional charges above and beyond your original quote.

Penalty.  A clause that will pay you a set dollar amount per day if the job is not completed by the promised date. Whether you include this clause or not is a personal decision.  Some people claim that if a contractor is rushed to met a deadline then job quality can suffer.  (read the comments section for further information on this)

Remember…

It may be best to:

Consult a lawyer before signing a complex contract or a contract you don’t clearly understand.

Call your local municipal office before hand to find out what renovations need a building permit and which ones don’t.  If you require a building permit, do not let a contractor start work until you verified that a building permit is in place. 

Call the workman’s compensation board to verify the contractors insurance coverage is valid before any work begins, especially if you have not been provided a copy of the certificate proving coverage.

Never sign a contract with blank spaces, unspecified large contingency amounts, etc. 

Never sign a work completion form/certificate without proof that the contractor has paid all the subcontractors and material suppliers for your job.  If your contractor fails to pay his suppliers and/or subcontractors this can result in a lean against property for payment.  

Not to pay in full until your completely satisfied.  

Not to pay in cash. Have a paper trail in case you run into problems.

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7 Comments (+add yours?)

  1. coconews
    Jul 28, 2008 @ 11:58:43

    If I have left anything out in what to include in your home renovation contract, please include it in the comment section below.

    If you have run into problems with contractors or have left a clause out of a home renovation contract that you shouldn’t have, please tell us about it.

    Thanks

  2. M-
    Jul 28, 2008 @ 17:32:19

    Don’t forget a liquidated damages clause to cover you for reasonable costs incurred if the construction runs beyond the promised dates.

    Don’t forget a clause stating that all changes to the work shall be made in writing, and ensure that all change orders have both your and the contractor’s signature.

    Don’t forget to require the contractor to hold WCB insurance to cover his employees and all subs, as necessary. The contractor should show you proof of such WCB insurance prior to starting work. This protects you in case the contractor, his employees, or subs get injured while on your property. If you don’t have it very clearly written that the contractor holds this insurance, if someone chops their fingers off, it’s your responsibility.

  3. coconews
    Jul 29, 2008 @ 08:21:24

    M,

    Thanks a lot.

    I have edited my original thread as your additions are too important to leave in the comments section only.

    I have to ask you about the liquidated damages if the project runs over the promised dates. Have you ever put this in a contract or know anyone who has? How did it work out? I was told it is best not to include this clause because the contractor may end up doing a rushed, sloppy job just to met the deadline.

  4. M-
    Jul 29, 2008 @ 20:44:02

    I’ve used LDs in a number of procurement and construction contracts. I’ve never used them in a home reno, though (I’ve either done renos myself or they’ve been small sub-out jobs). The only significant contract that I didn’t use them in, I ended up kicking myself for not including such a clause– the contractor put his efforts into a different project, and used my strata work as filler work, resulting in weeks and weeks of delays.

    To use them successfully, make sure your quality standards are written as clearly as possible, and have a clearly-defined acceptance process. Yes, this requires frequent inspections and re-inspections. Make sure to keep everything in writing. Yes, I strongly suggest that you consult an expert with appropriate expertise when drafting your contract.

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