What Do I Need To Know About Construction Contract Agreements?

Video Summary



What do I need to know about construction contract agreements?


I am assuming you are talking about this from a consumer standpoint or an individual point of view.


The first thing you need to do is investigate who you are contracting with. You need to ask them for their license to make sure that they are properly licensed. You also need to make sure that they have the proper insurances if they are going to work on your property, and you might ask them for that.


You need to also say, "Well, could you give me the last three jobs that you worked on so I can contact those folks and get a reference?" You need to do due diligence with these contractors as far as getting references, as far as checking with the Better Business Bureau, contacting Consumer Affairs to see if they have any complaints, and just Google them to see what the other consumers say; I know that there are ratings there.


It is really critical for you to do your due diligence before you enter into a contract. I have a saying, "It is hard to make a good contract with a good player," and that is where you are going to run into trouble. If the contractor is bad, well, you are not going to wind up with a good contract to begin with.


Also, you need to verify whether or not a building permit is necessary, and confirm that the contractor is going to apply for a building permit. This has to do with something as simple as replacement of windows or replacing air conditioners, and certainly as far as roofs are concerned. If a contractor does need a building permit, before they get the building permit they are going to need a Notice of Commencement, which you will need to sign. This will protect you under the construction lien statute.


The contract also should start with a deposit. You do not want to give the contractor too much money before he ever starts the work. He is going to want some money, and he may be ahead of you a little bit as far as the amount of work that he does versus the value that you have received. So, you need to break down the payments in installments, and certainly you need to reserve a final payment. The reason for this is if for some reason the contractor would not complete the work, you should have enough money – or almost enough money – to complete the work by hiring someone else, whereas if you have given all your money to the contractor up front and he then leaves, then you are in a bad situation and it will cost you to get someone else to finish it. It will cost you a lot more than you initially contracted for.


Also, the contract that you have with your contractor needs to not only break down the payments, but also provide that they will be giving you progress payment affidavits stating that they paid all of their subcontractors and material men before you give them the next draw. Therein lies the reason why you want to break down your payments into at least three installments.


Before you give the contractor the last payment, you need to be sure that he provides you with a contractor's final affidavit saying that he has paid everyone. Once he gives you that, you can give him the final payment, provided you haven't received any sort of noticed from any material men or anyone else who says, "Well, you need to make sure I get paid." If you have, you need to require your contractor to give you a release from that subcontractor or material man that they used on the particular job.


These are some of the things that you need to look at in your contract. The other thing is that you need to put down a date by which all this work is going to be done. The contractors may have some problems with doing that as far as any penalties are concerned, but you definitely need to have a time period. I get calls all the time that "he started on this, and I haven't seen him in six weeks," or whatever. Something in the contract should say an outside date that this should be done. So, if the job should take 30 days, you say, "Well, if it is not done within 30 days then I have a right to terminate the contract if it is not done in 60 – or some outside date." This is difficult to negotiate, but you don't want to just leave it open as to when this contractor is going to come back.


Construction contracts are hopefully fairly detailed and may have certain provisions in there about effective workmanship, on how you are supposed to claim it before you can bring an action against your contractor – which is a losing proposition. Something you else you want to address in the contract is what kind of warranties you are going to have, and be sure you receive those before you give them the final payment. Don't take "no" for an answer, and "I'll get it to you later," or whatever. Say, "No. I need that before I give you this final check," and make sure that once the building permit is pulled – or you see the building permit – that the Building Department signs off on your building permit on the final inspection.


I am not sure that I have covered everything, but hopefully that gives you a running start at looking at entering into a contract to have construction work done on your home or your property. If you have any questions about it or need some help with it, give me a call at 727-847-2288.