Construction Contract: A Comprehensive Guide

Are you planning a renovation or construction project in Los Angeles or Southern California? Understanding the contract is crucial. A construction contract is an agreement between the homeowner and the contractor that outlines all the details of the project terms, timelines, and payment schedules. It protects both parties by ensuring that everyone is on the same page about what will be done and how it will be done.

In this comprehensive guide to construction contracts, we will cover everything you need to know to create a contract that works for you. From key elements of a construction contract that should not be overlooked to drafting a comprehensive contract and implementing it effectively, we have got you covered. We will also discuss common mistakes people make while drafting a contract and how to avoid them. So let’s dive in!

Here at GreatBuildz, we speak with clients every day who are looking for a great contractor for their remodel. GreatBuildz is a free service that connects homeowners in Los Angeles, Orange County, Ventura, or San Diego with reliable, pre-screened general contractors, then provides ongoing project support to ensure a stress-free experience.

 

Give us a call at 818.317.3567 or visit our website at www.GreatBuildz.com to learn more and discuss your project.

The Contractor Agreement

construction contract paperwork

The agreement between a homeowner and a contractor, in just about all cases, comes from the contractor. When the parties are ready to create an agreement for the remodeling or renovation project, the contractor will provide a copy of their standard agreement template for the client to sign.

In a sense, this is extremely helpful because the parties don’t need to create a contract format from scratch. On the other hand, a homeowner needs to be aware that this agreement was written on behalf of the contractor and might favor them. So, although it might be a good starting point, a homeowner will want to review this document carefully or even retain an attorney to help ensure it includes the appropriate language that protects the homeowner.

Key Elements of a Construction Contract

Description of the Work

A comprehensive construction contract, also known as a contractor agreement, includes a detailed and specific description of the work. This includes information about the materials, techniques, and standards that will be followed during the renovation or remodeling process.

The scope of work might come from the contractor’s estimate to the client or a project checklist or might reference a set of plans. In any case, it needs to be as thorough and clear as possible to ensure that nothing is missing. If anything is excluded from the scope of work, you can assume that it will NOT get done by the contractor. So if you forgot to include an item, you will probably have to pay “extra” for it.

Project Timeline and Schedule

Setting clear expectations, the project timeline and schedule section of a construction contract outlines start and end dates, milestones, and deadlines. Discussing and agreeing upon a realistic timeline before signing the contract helps keep the project on track, avoiding delays. Keep in mind that a project timeline lays out the ideal schedule assuming everything goes as planned, but be prepared that delays are likely to occur.

Payment Terms and Conditions

Payment terms and conditions are a crucial part of any construction contract. It outlines how and when payments will be made, including the total cost, payment schedule, methods of payment, and the requirement of a down payment.

The project timeline and payment schedule go hand in hand. A good contractor agreement will have a reasonable number of project line items (5-15), each with a scheduled completion date and payment date. These specifics are intended to ensure that a homeowner doesn’t pay for each project phase until completion.

Contractor’s Obligations

As part of a construction contract, the contractor’s obligations encompass various responsibilities. These can range from obtaining necessary permits to hiring subcontractors and ensuring a safe work environment. By outlining these obligations, the contract ensures that the contractor adheres to agreed-upon standards and completes the project satisfactorily. For a more detailed list of the items this might include, check out this blog. Ask your contractor for a sample of their contractor agreement template.

Change Order Procedures

Change order procedures in a construction contract outline how modifications to the original scope of work are managed. They establish the process for requesting and approving changes, as well as addressing any associated costs or delays. This is an especially important part of the contract because every project has issues that crop up that were not anticipated.

These issues almost always come with an extra cost. We always tell homeowners to assume their project will cost 10-15% more than the contractor’s bid. Regardless, you want to ensure that your contractor agreement stipulates how these ‘extra charges’ (or change orders) will be handled and how the two of you will come to an agreement on a reasonable price for these.

Liability and Insurance Coverage

In a construction contract, the liability and insurance coverage section ensures protection for both parties. It outlines the required types and amounts of insurance coverage for the contractor. This section also clarifies the liability of each party in the event of accidents, damages, or delays. By addressing liability and insurance coverage, potential disputes are mitigated and adequate protection is established.

Before signing any construction agreement, make sure you have received copies of the contractor’s insurance certificates evidencing they have General Liability and Worker’s Compensation insurance. Ideally, you will ask them or their insurance broker to add you as additional insured. In your contractor agreement, you might include language that requires the contractor to keep these policies in force during the length of your entire remodel process.

construction contract insurance

Essential Clauses in the Construction Contract

Termination Clause

The termination clause in a construction or renovation contract outlines the conditions for terminating the agreement. It should include the notice period required before termination can take effect and specify any fees or penalties that may apply. It’s crucial to ensure a fair and balanced termination clause that protects the interests of both parties. Seeking legal advice is recommended when drafting or formatting this clause.

Dispute Resolution Clause

In the event of a dispute between parties, a well-drafted dispute resolution clause outlines the necessary steps. Common methods like mediation and arbitration can help resolve conflicts. The clause should specify the location and language of the resolution process while considering the cost and time involved. Including this clause promotes communication and prevents costly litigation.

Warranty and Insurance Coverage Clause

Having a warranty and insurance coverage clause in renovation or construction contracts is essential. It provides protection for both the contractor and the homeowner. Different types of warranties, such as workmanship and materials warranties, can be included in the contract. When reviewing and negotiating the clause, it’s important to consider factors like enforceability and legal requirements.

You should expect to see a warranty period in the construction agreement of one year or longer. But, it might also have exclusions for material malfunctions. Of course, a bad faucet isn’t the contractor’s fault, but you must be able to find their purchase receipt, etc. in order to get a replacement from the retailer or manufacturer.

Permits and Inspections

Assigning responsibility for permits and inspections is crucial to renovation or construction contracts. It is important to discuss and clarify who will be responsible for obtaining the necessary permits and inspections before construction begins. Specifying the required permits and inspections in the contract, along with the timeline for obtaining them, helps ensure compliance with regulations and project deadlines.

Including a clause outlining the consequences of not obtaining permits or inspections in a timely manner can help prevent delays or fines. Additionally, ensuring that all necessary documentation, such as building plans and engineering reports, are completed and submitted on time is essential for a smooth construction process. It is also important to consider the potential cost and time implications of obtaining permits and inspections when planning the project timeline and budget.

In most cases, the contractor’s estimate doesn’t include the cost of city permits, so you should anticipate that to be an extra cost in your budget.

Drafting the Construction Contract Template

  1. Clearly define the project’s scope and expectations.
  2. Specify payment terms and penalties for delays or additional work.
  3. Include material specifications and quality standards.
  4. Outline the roles and responsibilities of all parties involved, including subcontractors.
  5. Address potential issues and disputes and establish a resolution process.
  6. Provide provisions for handling changes to the contract.

Common Mistakes to Avoid when Drafting a Construction Contract

construction contract signature

Not Defining Scope of Work Clearly

One of the most important aspects of a renovation or construction contract is clearly defining the scope of work. Failing to do so can result in disputes and delays. To avoid these issues, it’s essential to outline the scope of work with specific details and timelines. This not only ensures better communication with contractors but also provides more accurate cost estimates. Avoid common mistakes such as being too vague or leaving out important details.

Ignoring Change Order Procedures

Ignoring change order procedures in renovation and construction contracts can lead to disputes and legal issues. Change orders, which amend the original contract scope and cost, should be agreed upon by both parties and include detailed descriptions, cost implications, and timelines. Keeping accurate records of change orders is crucial for future reference. Your contract should be clear that the contractor cannot perform any ‘extra’ work without your written authorization first.

Not Including Details Regarding Payment Schedule and Methods

A well-drafted renovation or construction contract should always include clear details regarding the payment schedule and methods. This is important to ensure transparency and avoid any potential disputes or legal issues. The contract should outline different payment options such as lump sum, progress payments, and milestone payments. It should also consider the payment for materials and subcontractors.

Regular Communication and Updates

Regular communication between contractors and clients throughout the project is crucial for its success. Establish clear expectations and guidelines for communication to ensure both parties are on the same page. Ideally, have the contractor provide you with three different individuals at their company you can contact along with their emails and phone numbers. That way you can always get a hold of someone even if the contractor is unresponsive.

What if Disputes Arise Despite a Well-drafted Contract?

Consider exploring alternative dispute resolution methods like mediation or arbitration. Thoroughly review the contract to understand each party’s rights and obligations. Consult a lawyer to assess available legal options. Prioritize open communication and amicable resolution before resorting to legal action.

Importance of Legal Advice in Construction Contracts

Construction contracts can be complex. Legal advice is crucial to protect your interests and ensure a fair and balanced agreement. It helps with negotiating terms, resolving disputes, and identifying potential risks. Consulting a lawyer prevents costly mistakes and ensures compliance with laws and regulations.

When it comes to finding the best contractor for your remodel project – GreatBuildz is simplifying the contractor search. GreatBuildz is a free service that connects homeowners with reliable, thoroughly screened contractors and provides project support from start to finish. GreatBuildz serves Los Angeles, Ventura, & Orange Counties.

 

Call now (818.317.3567) to chat with a real person about your kitchen renovation project or visit our website for more information: www.greatbuildz.com

Hi, we're Paul and Jon - Co-Founders of GreatBuildz. We believe everyone deserves to find a great contractor, have a stress-free renovation, and enjoy their beautiful new space. There are so many contractors out there and it's often hard to tell the good from the bad... until it's too late. We started our company to help simplify your contractor search and help you have a stress-free renovation experience. We're always available to help, no matter where you are in the process. Click here to learn more about our story.

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