Ask the Contractor: Contracts protect both owner, contractor
This week was full of contract issues from homeowners. And at the risk of sounding like a broken record, let me repeat and let me refer to what seems like my constant and annoying repetition of this particular statement: Do not start work or hand over any money without an executed and agreed upon contract!
The single most common reason that problems exist 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 or even their understanding of 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 information:
• The name and business address of the contractor;
• The Registrar of Contractor (ROC) license number of the contractor;
• The name and mailing address of the owner;
• The jobsite address or legal description;
• The date the owner and contractor 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 for all the work to be performed under the contract, including taxes;
• The dollar amount of any advance deposit paid or scheduled to be paid to the contractor by the owner;
• 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; and,
• 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 contain the Arizona Registrar of Contractors telephone number, 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 10-point bold type, and the contract shall 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: 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.
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.
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 work done on home remodeling projects, the relationship between a home or property 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 provide invaluable information in the event of a dispute and can help a court to determine both if a breach occurred and what the potential damages are resulting 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 drawings) or architectural renderings as part of the contract so that it can be determined if the project has been substantially completed. When no drawings of the projected finished project are included, it becomes even more essential that the contract include a detailed description of the work to be done.
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, details should be included in the project about all materials to be used. The contract should outline 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 and a Change Order should be written and executed changing the price of the contract.
Remember to tune in to YCCA’s Hammer Time every Saturday and Sunday morning at 7 on KQNA 1130AM, 99.9FM, 95.5FM or on the web at kqna.com. Listen to Sandy to Mike talk about the construction industry, meet your local community partners and so much more. What a great way to start your weekend.