Construction & Trades: 7 Things That Should Be Part of Your Construction Contract
July 14, 2016
You’ve landed a great client with an interesting project. Everyone is excited to get started, but before you do, it’s important to draw up a contract outlining all the ins and outs of the work to be done.
If you’ve got an enthusiastic homeowner and a straightforward job, you might be tempted to skip this step, but a contract will protect you and your clients from costly misunderstandings. What to include in a standard contract may depend on your local laws, but here are seven things that should be included.
1. Title and Purpose of Project
The title should indicate the type of job you’re being hired to do, i.e. “Electrical Wiring of Basement” or “Bathroom Renovation.” The purpose should include names, expected start and end dates, all party addresses and work location. For example:
This Bathroom Renovation Contract (the “Contract”) is effective as of July 1, 2017 by and between Karen Ottway (“Contractor”) whose address is 1542 Peel Ave., Calgary, AB, A7B 5F3 and James Baldwin (“Owner”) in order to set forth the terms and conditions agreed to by and between Contractor and Owner regarding the home improvement work at the Owner’s property located at 463 Jefferson Drive, Calgary, AB, AL2 3T4, beginning August 23, 2017 and ending on or before September 30, 2017.
If you expect that a few variables might get in the way of completing the job on the date specified, you might include a disclaimer, such as:
If the work outlined below cannot be completed on the specified date, the Contractor will communicate expected changes to the date with a minimum of 24 hours’ notice and will offer a new completion date.
Don’t forget to update your contract with the new date expected and have your client sign off.
2. Description of Project to Be Completed
This is arguably the most important component of the contract. It’s where you explicitly detail all of the work that you understand you are being hired to do. It’s important to ask the homeowner to review this portion carefully to be sure you have the same process and goal in mind and amend it before signing to ensure everyone is on the same page. For example:
Contractor will perform bathroom renovation work including:
• Tear out existing bathroom, including bathtub, toilet, vanity and all fixtures
• Remove all floor and shower area tiles
• Re-tile flooring and shower
• And so on—until you’ve completed all components of the job
Again, if the scope of the project changes at any time during the work, it’s a good idea to update the contract and have it signed by the homeowner.
3. Cost Estimate and Payment Schedule
Be sure to outline the cost of the project that the homeowner has agreed to pay you based on your original cost estimate (which you should have provided before entering into a contract and should include a breakdown of the project costs). You’ll want to include a non-refundable deposit, payment schedule, final payment and interest terms should payment be late. For example:
Owner agrees to pay Contractor $7,000 plus the cost of materials for completing the Bathroom Renovation project. Upon signing of this Contract, Owner shall pay Contractor a non-refundable deposit of $2,000.
From here, you may choose to set out a payment schedule based on project milestones, i.e. Phase 2: When tiling is complete, Owner shall pay Contractor $2,000. Phase 3: When all fixtures have been installed, Owner shall pay Contractor $2,000.
Alternatively, if you’re confident that the job will be completed on the schedule proposed, you could attach a payment schedule to dates.
You’ll also want to include a line about late fees. For example:
Upon completion of the Bathroom Renovation project, payment is due for the entire unpaid balance of the Contract Price less the non-refundable deposit. If the Contract Price is not paid upon completion of the Work pursuant to the term and conditions of this Contract, interest shall accrue at a monthly rate of X percent. (Consider a reasonable interest rate for your profession and the economic climate.)
Here’s where you outline the materials that need to be purchased to do the job and clarify who will purchase these items. You’ll include a cost estimate for the items you will be responsible for providing—and will be part of your overall quote and contractor invoice. For example:
The bathroom renovation will require the purchase of:
• New floor and shower tiles (to be purchased by Owner)
• Vanity (to be purchased by Owner)
• Toilet (to be purchased by Owner)
• Pre-mixed tile adhesive and grout (to be purchased by Contractor, estimated 2 x $9.99)
Be sure to include a disclaimer, such as:
More items may be necessary. An estimate for the cost of supplies and equipment is attached, but actual costs may vary.
Another option is to employ a cost plus fixed fee under which you are paid for all project-related costs plus a predetermined fee, regardless of the length of time the project requires.
5. Your Credentials and Insurance Information
Homeowners will be reassured by your professionalism if they see your business number and any professional accreditations or licences that qualifies you to do the work.
You should have a business insurance policy that protects you and your clients should you or any employees become injured on the job. It’s a nice idea to include a paragraph about your insurance coverage, indicating the type of policy and whether you and any workers have worker’s compensation insurance.
If there are standard expenses or work that you don’t typically include but some clients request, be sure to list them in the contract. And, if you’re a contractor or tradesperson, you know that every project comes with at least one unforeseen complication. You’ll also want to include a statement acknowledging the fact that new layers of the work may arise and you’ll have to provide an additional quote for unexpected work. For example:
Should the Bathroom Renovation encounter unexpected work or expenses related to unforeseen circumstances that arise after demolition begins, the Contractor and Owner will revise the Contract to reflect additional work and expenses associated therein.
What homeowner doesn’t want a warranty that guarantees your work for a specified period of time. You’re a professional—you should feel confident to stand behind your work, but be sure to protect yourself by clearly noting a limited time frame. A standard warranty for work is one year from substantial completion.