YOU ARE HERE: LAT HomeCollections

Nail Down an Inclusive Contract

Remodeling 101. Sixth of 10 parts


After weeks of research, Andrew Hui figured he had designed a pretty good construction contract. The deal not only specified what would be done and how much it would cost, but it also detailed when work would start and end and what would happen if the project took longer--or less time--to complete than scheduled. He wrote it up. His contractor signed it.

Hui's project, which doubled the size of his house, did take about a month longer than projected. As a result, Hui's contractor did a little extra work for free in lieu of paying a fee for finishing after deadline.

"It was a real win-win situation," Hui says.

It's important to note that in a fragmented business like the remodeling industry, there is no standard construction contract. Contracts can be formal, such as the template contract sold by the American Institute of Architects, or they can be informal deals sealed with nothing but a handshake. Sometimes contractors will have a standard form that they use; sometimes either the homeowner or the contractor will make up a contract for a specific job, arranging the details to suit the customer or the work.

Although some contractors balk at so-called completion clauses like the one Hui used to great advantage, it is important for homeowners to consider the provisions that they would like to include in their deal. No matter the specifics, every homeowner ought to get a written contract before starting a remodel. That contract ought to have at least a handful of details spelled out.

An ironclad contract can't save you from suffering if you hire a bad contractor, cautions Glen Pickren, president of Barron Financial Services in Irvine. But, a good contract takes a lot of the guesswork out of the construction process, giving both the homeowner and the contractor a clear idea of what to expect.

What must be in every contract?

* The names and addresses of the contracting parties--that's you, the homeowner and your contractor. Make sure the document includes the contractor's license number too.

* The address where the work will be done.

* The services provided, which should include pulling appropriate permits, complying with all applicable building codes, and using the specific materials called for in the plans. (You can reiterate these details in the contract, but it's easier to simply include a copy of the plans as an exhibit to your contract.)

* A timeline, stating when building will begin and when it should end. Hui's contract additionally stipulated that if his contractor failed to break ground within 20 days of the start date, the contract would be considered null and void, leaving Hui free to hire someone else. And it included a completion clause that charged the contractor $175 for each day the project was incomplete past the contracted finish date.

Completion clauses can be a great idea for homeowners who must move out during the remodeling process. They ensure that the homeowners can recoup some of their costs if they end up paying rent for additional months because their projects are languishing.

But if you want to include a completion clause, you should also include a similar time-triggered incentive. In Hui's case, the contract promised to pay the contractor $200 a day, up to $3,000 total, for completing the job early.

* A price and payment schedule. Though the price you've agreed to is obvious, how you set up the payment schedule is pivotal. It's wise to specify that payments will be made at intervals that a layman will be able to see and understand. For instance, specify the amount to be paid at completion of demolition; the amount at the start (or completion) of framing or roofing or when the drywall is complete.

What your contractor needs is a steady flow of income that will allow him or her to pay suppliers and laborers as the project goes along. What you need to know is that your payments are not getting ahead of the work that's been completed. By setting up a schedule that corresponds to work progress, you can keep the pace of construction and payment on a predictable keel.

If you are writing the contract but you're not certain how to predict the pace of construction, ask you contractor for help.

But experts strongly advise that you keep at least 10% of the contract price until the end, only to be paid after everything--including city inspection--is complete and the contractor has delivered lien releases from all the subcontractors and suppliers involved in your job.

* Extras. Somewhere in your agreement, you should also account for unexpected extras or changes that you request. Extras and changes are a consistent source of friction between homeowners and contractors, often because the price is not clearly communicated upfront.

Your contract should stipulate that if a change is required, the nature and cost of the modification must be noted in writing before the work is done.

Los Angeles Times Articles