Originally Published: February 23, 2018 5:57 a.m.
At the risk of sounding like a broken record, let me repeat — and even refer to my earlier, annoying repetition of this statement: Do not start work or hand over any money without an executed contract.
The single most common reason that there are problems with construction contracts is that the parties do not understand exactly what is expected of them. Specifically, one or both of the parties don’t know the terms of the contract, their obligations and the other party’s obligations.
Arizona statutory law requires that all construction contracts in an amount of more than $1,000, entered into between a contractor and the owner of the property to be improved, shall contain in writing at least the following:
• Name and business address of the contractor;
• Registrar of Contractor license number;
• Name and mailing address of the owner;
• Jobsite address or legal description;
• Date the owner and contractor entered into the contract;
• Estimated date of completion of all work to be performed under the contract;
• Total dollar amount to be paid to the contractor for all the work to be performed under the contract, including taxes;
• Dollar amount of any advance deposit paid or scheduled to be paid to the contractor by the owner;
• 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;
• Statement that the property owner has the right to file a written complaint with the Arizona Registrar of Contractors for an alleged violation of section 32-1154, subsection A. The contract shall also contain the Arizona Registrar of Contractors telephone number and website address and shall state that complaints must be made within the applicable time period as set forth in section 32-1155, subsection A. The information in this paragraph must be prominently displayed in the contract in at least ten point, bold type.
• The contract must be signed by the property owner and the contractor or the contractor’s designated representative.
At the time of signing a contract, the owner shall be provided a legible copy of all documents signed and a written and signed receipt for and in the true amount of any cash paid to the contractor by the owner.
Another broken record statement that bears repeating: If it is not in writing, it does not exist.
The basic job of a contractor agreement is to spell out the scope of the project’s work.
This is the document you and your contractor will consult throughout the job, so make sure it’s as clear and detailed as possible.
Read the contract before executing it. Beyond the obvious problems of errors and inaccurate information that creep into negotiated contracts, careful review may reveal additional risks, improperly allocated risks, and other issues. No agreement is perfect, but vigilant contract review is one of the most crucial steps in the risk-management process.
Importantly, the contract is the property owner’s summary of how much to pay and when to pay. Payments should be linked to work milestones, such as when the foundation, rough plumbing, and electricity are completed.
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.
While there may be certain implied warranties of quality that exist for home remodeling projects, the relationship between a home owner and a contractor hired for a remodeling project is largely determined by the contract that the two parties create.
A remodeling contract should establish the obligations that the owner and the contractor each have and specify exactly what the scope of the work and its limitations are for the project.
A contract in writing provides clear evidence of the terms of the agreement between owner and contractor.
A written contract will also provide invaluable information in the event of a dispute and can help a court to determine whether a breach occurred and whether and what damages result from the breach.
To be enforceable, contracts must be negotiated, and each party must offer something to the other.
In the case of construction contracts, this is generally a promise of payment made by the owner in exchange for work performed by the builder or contractor.
With new home builds, remodeling and even landscaping, it is common to include some type of design drawings — such as computer assisted drawings (CAD) or architectural renderings — as part of the contract. The drawings can help to determine whether the project has been substantially completed. If no drawings of the projected finished project are included, the detailed, written description of the work to be done is even more critical.
The materials used in a remodeling project can also have a major impact on the finished results and on the cost of the project. Whenever possible, the contract should specify materials to be used in the project. The contract should also specify who is responsible for paying for each of these different materials.
In some cases, when an exact cost of materials cannot be determined, a contractor may include allowances in the contract. For instance, a homeowner may be allowed a $1,000 allowance for faucets for a new kitchen remodel. If the homeowner exceeds this allowance, the homeowner will be responsible for any extra costs.
Tune in to YCCA’s Hammer Time every Saturday and Sunday at 7 a.m. on KQNA 1130AM, 99.9FM, 95.5FM or the web kqna.com. Listen to Sandy and Mike talk about the construction industry, meet your local community partners and much more.