Originally Published: September 22, 2017 6:04 a.m.
This past week I met with two families with contract issues. Their builders were asking for final draws well in excess of the original contact. There were no change orders executed. This seems to be an ever-increasing issue so once again I am going to “soap box it” and give you some information to follow.
The State of Arizona, Title 32, Chapter 10 of ARS §32-1158(B) requires any contract in an amount of more than $1,000 with a property owner to be in writing and contain all of the following elements:
• The name of the contractor and the contractor’s business address and license number.
• The name and mailing address of the owner and the jobsite address or legal description.
• The date the parties entered into the contract.
• The estimated date of completion of all work to be performed under the contract.
• The total dollar amount to be paid to the contractor by the owner for all work to be performed under the contract, including all applicable taxes.
• The dollar amount of any progress payment and the stage of construction at which the contractor will be entitled to collect progress payments during the course of construction under the contract.
• The following statement must be in your contract, prominently displayed and in at least 10 point BOLD TYPE:
“The property owner has the right to file a written complaint with the registrar for an alleged violation of Section 32-1154, subsection A. Complaints must be made within the applicable time period as set forth in Section 32-1155, subsection A. ROC Contact information: ROC (602) 542-1525 www.azroc.gov “
• The contract must be signed by property owner and contractor or contractor’s designated representative.
Failure of the contractor to comply with this statute constitutes grounds to suspend or revoke their license and the ROC can issue a Citation.
The basic job of a contract is to spell out the scope of the project’s work. This is the document you and your contractor will follow throughout the job, so it is imperative to make sure it’s clear and detailed. A contract does not need to contain product specs, but can refer to the contractor’s attached, itemized bid, with the details of the items to be used, the finishes, colors, manufacturers, etc. Remember, if it is not in writing, it does not exist!
The contract is your summary of how much and when you should pay for completed work. Payments should be linked to work milestones, such as when the foundation, rough plumbing, and electricity are completed. It is important to agree to the payment schedule and never pay 100 percent of monies owned before the job is complete.
It is important to remember to look at completion dates as a time frame and not a minute-by-minute promise. Delays happen and an eight-week job wraps up in nine or 10 weeks. But if the project drags on for months, written start and end dates will help make or defend your case in the event of a legal dispute.
Make sure the contract states that any changes affecting the cost of the job must be priced in writing and countersigned by both the contractor and homeowner before that work commences. This line ensures that offhand discussions don’t result in unforeseen additional costs or miscommunication.
Many remodeling contracts contain a clause that stipulates that an arbitrator, rather than a judge, will resolve disputes. This clause can save you time and money because a court fight is expensive, even if you win.
It is also important to remember there can be hidden issues when starting a remodeling project such as discovering a subfloor made from asbestos and expenses can sometimes quickly balloon. Talk with your contactor to determine how hidden issues will be handled -- time and material, flat rate, etc.
It is also important to understand how cash allowances in construction contracts work. This is a convenient method of allocating construction funds to portions of the work that cannot be specified with sufficient particularity for competitive bidding at the time of contracting.
The types of purchases most frequently encountered as cash allowances are those such as finish hardware, lighting fixtures, special equipment, floor coverings, cabinets, window treatments, wall coverings and appliances. It is a flexible way of including in the contract items that are not yet designed, chosen, or specified.
Disputes between owners and contractors can easily develop over the issues of accounting and billing for cash allowances and related expenses, which was exactly what was happening with the two families that came to see me.
During construction, the owner must further instruct the contractor how each cash allowance item is to be expended. The contractor will need to know, with specificity, what is to be purchased and from which sources it is available. This may require additional drawings, specifications or description lists to be prepared by the architect. These additional instructions should be forwarded in writing to the contractor to avoid misunderstanding and possible error.
The owner’s further direction to the contractor, usually prepared by the architect, should include all necessary information that will be needed for purchasing, including manufacturers’ names, model numbers, colors, textures, sizes, capacities, and electrical and mechanical characteristics. If the owner desires the purchase to be made from a particular source, that should be stated. Logically, the burden of locating purchasing sources of exotic or hard to locate items remains with the owner.
When the actual purchase costs of allowance items are known, the differences from the specified amounts should be adjusted by means of a change order. There should be no change in the contractor’s related costs unless the owner or architect had changed the specification or quantity of the allowance item in a way that would affect those costs, up or down. In that event it would also be appropriate to adjust the contractor’s overhead and profit accordingly. If such a change affects the time of performance through no fault of the contractor, the contract time should also be adjusted in the change order.
Remember, everything means every detail, from the exact kind of sink fixture to brand of roof shingles. The more detail that’s in the bid and the contract will save time, headaches and issues later on.
Remember to tune in to YCCA’s Hammer Time every Saturday and Sunday morning at 7 a.m. on KQNA 1130 AM/99.9 FM or 95.5 FM or the web kqna.com. Listen to Sandy and Mike talk about the construction industry; meet your local community partners and so much more. It is a great way to start your weekend.