What to look for in a construction contract.

  

So, you have decided to build your own home. You’ve chosen your layout and have selected all the home’s finishes and fixtures. The contractor has indicated that there is just one last item to take care of…signing the construction contract.


If you are planning to build a home, or hire someone to remodel your existing home, it is in your best interests to sign a written agreement with the contractor. In the absence of such a contract, it will be difficult to protect your rights in situations where the contractor’s actions are not clearly negligent or careless.

  

Before you sign, it is important that you review and understand the contract. 


At the most basic level, you want to get the house that was promised, and the contractor wants to get paid for the house being built. The contract serves to reflect this understanding, to make sure there is no disagreement before the actual works begins, and to provide a guide to follow in case a problem arises later.


Most often your contractor will provide you with a contract that’s ready for signing. If not, you may draft one or hire an attorney to draft one (never go forward without a contract!). The contract in its original form may have very few terms with very few details, or it may be so detailed and filled with complicated terms that it is hard to understand. Neither of those situations are acceptable. To fully protect your rights, the contract terms should be complete, specific, and easy to understand.


Below is a list of issues that are commonly disputed in residential construction projects. If these items are not covered in your contract, be sure to add them. If they are already included, review them carefully to make sure they sufficiently protect your rights.


Scope of Work. This section describes the work that the contractor agrees to perform. This work typically includes obtaining municipal or other permits, and furnishing the labor, equipment, materials, and other services necessary to complete the house. This section also requires the contractor to conform the work to the house’s plans (drawings) and specifications, which should be attached and made a part of the contract.


Sometimes, even when contract documents are drafted carefully, they contain conflicting terms in the plans, specifications, and/or the written contract. This conflict can lead to confusion and disputes. For example, if the plans depict a master bathroom with one sink, but the specifications call for two sinks, which is correct? Consider specifying that, in case of conflict between the plans and specifications, the specifications will control.


Although you may assume it is implied, you’d be wise to make sure the contract includes a statement saying that the contractor must complete the work in a good and workmanlike manner in accordance with all applicable laws. 


Timing of the Work. Make sure the contact contains information about when construction will begin, the schedule of work the contractor must follow.  Extensions of time may be granted for delays caused by:

  • poor weather or other “acts of God”
  • labor strikes
  • payment delays caused by the owner
  • inspection delays caused by the      municipality
  • changes or additions to scope of work  agreed to by both parties, and
  • other issues that are beyond the      reasonable control of the contractor.

 A typical contract will require an initial payment prior to construction. Then, on a regular basis, the contractor will submit an application for payment to the owner indicating the amount of work completed during that cycle.


Often, the final payment on a project is tied to “substantial completion.” The contract might say, for example, that final payment is due 15 days after the house has been substantially completed. 


Changes to Scope of Work. Sometimes, after construction has begun, the scope of work changes. This could be due to the owner’s decision  a requirement from the permitting authorities, or the discovery of an unknown property condition affecting construction. The contract should account for the possibility of such changes by requiring written work orders to reflect changes in the scope of work. Never just tell the contractor, “Sure, go ahead with our new plan,” without creating a written work order that both you and the contractor sign. To do otherwise would open the door to additional unanticipated expenses.


Warranty. Although not required in all of Canada, many contracts contain express warranties, describing what types of defects the contractor will take care of later, how long the warranty lasts, your maintenance obligations, and what the contractor is required to do to fix the defects. If your contract contains an express warranty, read it carefully and negotiate the terms if necessary. If your contract does not contain an express warranty, consider adding one to the contract.

If your contract does contain a warranty, it may also limit or waive implied warranties.


A complete record of the general contractor’s business information,      including name, address, phone number, e-mail address and license number.


A thorough description of the project—the contract should identify      all work to be done, and should include specifications of materials to be      used. It should also confirm that the contractor will obtain the necessary      permits.


The total price and payment schedule for the project—make certain      the contract specifies how much has to be paid up front, and when      installment payments are due. Include any required inspection approvals.


Work schedule-Be clear about when the project will start and an      approximate end date. Also identify whether work will be done in the      evening, on weekends or on holidays.