Angie's LIST Guide to
Signing a Contract

No matter what you think you agreed to verbally, the written and signed contract is the bible when it comes to setting the terms of the job. This is especially important when hiring a general contractor who will have to hire multiple subcontractors and schedule their work. If an issue arises during the work it can throw off that schedule and add to costs.
 

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signing a contract
Because signing a contract can hold you accountable for high costs, be sure you know the details included.
 
 

What is a contract?

People signs contracts left and right, often without even reading them. Every time you sign a credit card receipt, or check a box agreeing to the terms of service on a website, you are legally binding your name to a contract.

Contracts can be lengthy, especially when it's a major remodeling job run by a general contractor, and they’re written in legal jargon that is difficult to understand. In most cases, the contract was crafted by a lawyer whose job was to protect the company or person named in the contract, yet most people are quick to sign a contract without even reading it.

In a March 2011 nationwide consumer survey, Angie’s List found that 16 percent of the respondents don’t fully read contracts before they sign them.

Types of contracts

A contract is simply an agreement between two parties that promises an action. Technically speaking, a verbal agreement or handshake could be considered a contract, but when your home and thousands of dollars are on the line, you need to have an actual, written contract with the general contractor managing the project.

When it comes to home renovation and repair, the two most popular types of contracts are fixed-price and time and materials.

Fixed-price vs. time and materials contract

A fixed-price contract is the most common type of home remodeling contract, and it’s the type of contract you should demand from any general contractor. A fixed-price contract spells out exactly how much a project will cost including all permits, building materials and labor. This type of contract locks the overall cost into place, preventing the general contractor from raising the price once all parties sign off. A fixed-price contract also shows that the general contractor understands the scope of the project, and is willing to legally attach his or her name to the job. It can benefit the homeowner because the general contractor will have to pay for any price increases, or additional times it takes to complete the project. A fixed-price contract essentially gives the contractor more incentive to finish the job on schedule because the contractor will pay for any additional costs out of pocket.

A time and materials contract bills the homeowner by the hour for the labor and materials involved in a remodeling project. Some homeowners incorrectly assume this is the best type of contract because they think it will save them time and money, but in reality, it’s like handing the general contractor a blank check. A time and materials contract is subject to change so any additional costs that arise during the project will be paid for by the homeowner. It could also prolong the project because the contractor has less incentive to finish in a timely manner.

A general contractor might recommend a time and materials contract if there are unforeseen variables that could seriously prevent the contractor from accurately pricing the job. If this happens, you should first contact other contractors to see if you can get a fixed-price contract. If you do agree to a time and materials contract, you should make sure to ask for weekly reports on pricing and the number of hours worked.

Contract clauses

The key to having a successful project is to have a well-developed contract that doesn’t leave anything out. Everything from the types of materials used to the cleanup of the construction site should be included in the contract. If something goes wrong during any phase of the project, both you and the general contractor should be able to rely on the terms actually specified in the contract.

Make sure your remodeling contract includes the following:

Contact information: The contract needs to include the name of the contractor, address, phone number and license number.

Job description: Spell out the project down to the very last detail and designate who is responsible for what. Don’t automatically assume the contractor understands all of your wishes and desires.

Set a timeline: Set a timeline detailing exactly how long the project will take, including start and end dates. A general contractor should be able to give you a time estimate, and it will be used to determine the contractor’s quote.      

Payment terms: Tie payment dates to job completion. Most contractors will ask for a down payment, usually between 20 and 30 percent of the total cost. You should watch out for a contractor who asks for a full payment before starting a job. It’s also a good idea to hold back at least 10 percent of the payment until the job is completed to your satisfaction.

Local authorization: Specify that your contractor is responsible for securing necessary regulatory permits for your project – walk away from a contractor who can’t or won’t approach local licensing or permitting agencies. 

Penalties for missed deadlines: Give yourself options to deduct or delay payment if completion dates are missed. Be specific about amounts and clearly define terms.

Set a procedure for changes or additions: Outline a process to follow for project changes or additions. For example, require written sign-off on changes sought by the contractor so you don’t have to accept unauthorized changes. Large-scale projects supervised by a general contractor often uncover hidden problems that must be addressed before work can continue.

Detailed outline of costs and materials: Contractors should provide this in their estimates, but attach the details to your contract. Require an itemized list of materials, labor and any other costs you will incur. If you want the contractor to use a specific brand, it needs to be included in the contract, and you should ask to see receipts.

Proof of licensure, insurance and bonding: Find out what, if any, trade licenses your community requires and don’t hire anyone who fails to meet them. If something goes wrong you may be forfeiting state or local enforcement assistance if you hire someone who isn’t licensed. Ask for proof that a contractor is licensed, bonded and insured to protect you from liability for property or job-related injuries.

Termination clause: Spell out reasons the homeowner or contractor can leave the job without penalty (e.g. if the homeowner doesn’t pay him or her or if the job drags on without reasonable explanation for delay, poor quality work or failure to adequately communicate.)

Other protection: Ask the contractor to provide a lien release, which protects you from liability should the contractor fail to pay his or her subcontractors who worked on your project.

Before signing a contract

Remember, the contract is your best defense in the event that something goes wrong while you are working with your contractor. It’s your job to read the entire contract and to address anything that seems out of place. You are legally binding yourself to the contract, so you need to be sure it represents your best interest. 

Don't assume everything is included: Every aspect of the project needs to be covered in the contract. Make a list of all of your concerns relating to the job and make sure they are addressed.

Payment expectations: The average down payment should be between 20 and 30 percent of the total cost of the job. Never pay for a project with cash, and always pay with a credit card so you have recourse in case something goes wrong. You should be wary of any contractor who demands full payment before the job has begun.  It’s also smart to tuck some extra money away to account for unexpected problems. Even the most carefully planned project can change, especially if hidden problems are found. A good amount to set aside is 20 percent of the total project cost.

Establish a “punch list.” Basically, this is how the general contractor will deal with small fixes that may remain after the bulk of the work is completed. A good rule of thumb is to determine the cost of those items, double it and then withhold that amount from the final payment until the punch list is complete.

Review all sections of the contract before you sign. It’s your responsibility to read and understand the contract and to make any concerns known before all parties sign off. Keep an eye out for any blank spaces on the contract that could potentially be altered later. If that space is not applicable, cross it out or write “not applicable.” You also want to check if your contract includes a lien waiver, which covers payments to all subcontractors who work on the project.

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Comments

Kellie

Subject:

I signed an agreement with quote included a month ago for a one time yard clean up. It stated the work would begin on a specific date. That day came and went and work was not done.it has been difficult to get the gardening company to come on a weekday in the morning. The yard has gotten really bad while waiting for another date we agreed to. In the meantime I found someone who can come right away. If the company never did the work on the date stated on the agreement do I need to pay their cancellation fee since I didn't cancel them for the date on the agreement.

Dalene

Subject:

We hired a contractor, signed contract, it had a completion date but no penalty. Gave him some money in check form (which he cashed at bank one day before date on check),(have his driver's license number on back of check) and gave him check made out to building supplier for supplies (not to him). They set up account in our name so any credits would be issued to us. Weather was bad, but he delivered materials to my side porch to do sliding on house; we have not done inventory on items comparing to invoice building supplier emailed to me. We understood due to weather why he passed completion date and had not started doing siding. Last week, I learned he was in jail. He never got building permit. I called building supplier and told them not to "sell/give" him any more supplies on my account. So I have given him money for some labor, have materials which we may have to take back since no one to work on it (and it is in another town and we do not own a truck), and contract completion date is passed-and no building permit from city. I also typed up my own contract that he signed areas stating that I wanted proof of payment of his workers; their names and phone numbers since on my property; date/amounts of check, proof of insurance, etc. How do I get out of contract?

AZ

Subject:

Hi,
My general contract and I ran into an argument for a fireplace. My general contract is building a house for me. The general contract has allowance for each items he is going to install for the house, which includes a $3500 allowance for a new fireplace. During the process of picking a fireplace, the general contract recommended me an Empire Comfort brand fireplace, which cost $1645. He said because of my special architect design, I can only have such a kind of fireplace. I confirmed with the fireplace he sent to me via text message with the fireplace image on it.
After the installation, I compared the installed fireplace and the one he sent me via text messages. These two are completely different in terms of appearance and brand. The installed one is a random unknown brand with quite ugly appearance. I expressed my unacceptance to the fireplace. I raised my concerns, my doubts, and my questions to the general contractor, but the general contract hasn't done anything. Now the house construction is to the end, what should I do with the fireplace? Appreciate if anyone can provide any suggestions. Also, because of our argument over the fireplace, my general contractor is threatening me that he will stop work on my site. I would like to ask under what circumstances can a general contract stop working on the site once contract is signed. Thank you.

Dawn Killian

Subject:

First off I am learning the extremely hard way.

My mother died and a friend of hers said his boss was a licensed contractor. After interviewing a few i hired Clint Cable of Cable Technologies, El Cajon CA. I thought I had done due diligence... I also thought an estimate was a 'contract'.

The work agreement began July 10 2015 and January 20, 2016, is still incomplete. I have paid $68,900 so far on an original estimate of 53K for work that is still incomplete and the contractor has another 16K for materials as well as some totals missing and states that he will NOT provide me his contractors license, or receipts, or do any more work until I provide him the balance of the funds in the insurance claims escrow account being held by CHASE until the work passes a completion inspection( already failed once), and pay him the difference ahead of the work, and has refused to give me a completion date, stating I need to be held responsible for lack of completion for failing to select interior doors between August 4 and 6 2016.Regardless that I have paid every bill within 10 days, much more timely than his estimate of 4-6 weeks for the entire job and I am now at month 7. Regardless of the fact that December 4, 2015 I asked if we would be ready for the insurance escrow funds inspection as well as final walk-thru. Clint Cable the contractor stated yes we would be ready and I ordered the inspection as well as purchased air-travel out for this. Needless to say the inspection failed, the project has not moved in the last month. In addition to the personal verbal attacks to my character, he was unable or unwilling to provide an new finish date or his license, stating it was unreasonable for me to request these or a daily email/text work update.

What are my options when I now realize that an estimate is not a contract and he is paid in full to the estimate for work that is incomplete? How tough will it be to sue him to recover the funds I have given for work and materials not on site? Can I sue for liquid damages for lost rent, the cost of the airtravel out, the insurance,, etc of maintaining an empty rental property for the months it has been empty beyond the original work estimate of 4-6 weeks? This is in San Diego CA.

Thank you so much!

Please learn from my $85 mistake and even when its a referral from a family friend and you think you have done due diligence, do not rush forward. Take the time to do the research!!!!. The above contractor appears to have no web presence so I am unable to leave any reviews. Nor does he seem to be licensed, insured or bonded, in any iteration of his business or personal names.

Sue Jones

Subject:

He did not have permit to do construction work in my house and he not only overcharged me for everything but many things are disappeared from my house.
He used his kid to do wiring in my house and when I complained to him, he said I am going to check after he finish.
I am sure his kid don't have license to do electric wiring.
He did more damage than fixing and when I hire trustworthy constructor to finish job he supposedly finish, I need least $25000.
My experience with this constructor is real nightmare but I blame on myself for hiring without checking his criminal record.

Andrew

Subject:

I was just curious if you know, what are my options if I signed what the contractor called a "Contingency Agreement" for repairs to be done to my home after it got damaged by a storm and the contractor never did anything after that. They told me that I had 3 days to cancel after I signed, but now it's been like 3 months and I haven't heard anything in a while. Can I still cancel? What do I have to do? If I get another contractor to do the work can the original one sue me for breach of their contract? I never gave them a down payment and no work has been performed yet. Thanks!

Richard Evans

Subject:

Good Afternoon, I have an issue with a granite counter top installer/fabricator because of poor quality work and a failure to adequately communicate that the granite slab had cracked and the fabricator fixed the slab without telling us. We allow this Fabricator two tries to install. The initial install the sink was not cut properly and they dropped our cooktop cracking the glass top. Fabricator agreed to pay for a new glass cook (Just the glass not the whole unit) and re-cut the all the countertops again because we hand picked our slab. Come to find out the fabricator never used our slab that we picked out at the wholesale slab yard. Brought this to fabricators attention and fabricator claimed they never received the fax to pick up the slab of granite from the wholesaler. Once again they agreed cut the counter tops out of our hand picked slab. Second install occurred and the sink cutout was much better but the island counter has a long hair-line crack in it and in is cracked completely from top to bottom. Wife called the fabricator next business day and owner came and view the crack. He blamed the wholesaler again and said to give him a few day and he would make it right. It has been a week and we have not heard from the fabricator. However we have discover that island must have cracked at the fabricator during the cutting of the island because they fixed the cracked area with a steel brace and epoxy on bottom of island slab(Fabricator never disclosed that the piece crack, they just installed it.. Good news is we only paid half of the job up front. Question is: Can we cancel our agreement and get our money back because of poor quality work and a failure to adequately communicate the issues.? We longer trust the fabricator to do the job correctly. Thanks

Gregorio Magana

Subject:

If you signed the contract and gave a deposit but you had to refinance your home to finance the project and your refinance did not go through are you still obligated to work with the contractor? The contractor knew that I had to refinance my home in order to begin the project but still insisted on me signing the contract. I was not able to refinance my home. I have requested to cancel the contract and get my deposit back. The contractor said the money is not refundable and I am obligated to work with him at a future date. Am I still obligated to work with the contractor or can I fire him and my money back as I was not able to refinance my home and he was well aware of the issue before he insisted on me signing the contract?

MARGARET TODD

Subject:

As long as you give him a seven working day request to cancel in writing and approved by both of you then you can be legally out of it. you cant email a request or request it on his website or phone...you have to have it on paper to protect yourself from him not giving your deposit back. But also remember that some states contractors can charge you a cancellation fee % depends on your state but it also has to say that on the contract or else he cant charge you the cancellation fee. in Colorado contractors can charge up to 30% cancellation fee's because of his time spent and putting you on his calendar cause he loses a spot another customer could have been on. HOPE THAT HELPS

Peter Dreis

Subject:

How long of a warranty should we expect on residential construction projects, ie., specifically our workshop/studio addition and garage remodel? This includes indoor and outdoor concrete work, construction work itself, roof, interior and exterior painting.

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