Common Construction Contract Traps You Want to Avoid
Signing the Contract- Most Common Contract Traps You Want to Avoid- Ultimate Wind & Hail Damage Guide For Homeowners:
Construction Contract Basics
A construction contract is generally defined as a legal document between the contractor and the owner(s) of a property where one party agrees to perform labor and/or services and/or supply necessary materials to complete a project and the other party agrees to make payment for same. In many states, contracts are legally required.
I’m surprised by the amount of people that I’ve talked to over the years that have signed construction contracts for large amounts of money but really didn’t know the important details in the contract; some of them didn’t even read the back of the contract. All construction contracts have certain requirements that must be included in the contract before they can be legally used. Some of these requirements are:
- A start and completion date
- A specific scope of work
- Payment terms with the total price included in the payment terms
- What the warranty period is
- The contractor’s license number
What You Should Know
There are many other terms or clauses in construction contracts that contractors use that you must understand, because in a court of law the only complaints or issues that the judge will discuss and ultimately make a ruling on are what are on the contract that both parties signed. Some clauses are beneficial for the homeowner; some are beneficial to the contractor. You must understand them all before you agree to them and sign the contract. Again, many homeowners didn’t realize what they agreed to when they signed the construction contract and when a disagreement arose they found out that they had no legal right because of a clause or two in the contract.
Most Common Construction Contract Traps:
- Huge penalty fees that you can incur for cancelling
- Important details you have specified are vague, such as the brand or color of the shingles that you have selected
- You have given the contractor permission to do any additional work at his/her discretion
- The date the project is due to be completed is not included
A Contingency Agreement:
A contingency agreement is what you and the contractor enter into at the start of the project. It ensures that once the insurance company agrees to pay the claim, you will use this contractor. And while this seems like it’s in the contractor’s best interests, it actually protects you from problems such as the contractor taking too much time to determine the amount they will pay on the claim. This tentative contract merely states that you and the contractor will be working together in the future.
What to Look For
Be sure to take the time to read both sides of the construction contract – including the reverse or second page where most of the terms and conditions are written. Remember that this is your house, so it’s in your best interests to take the time to read and understand everything that’s written. This includes things like cancellation clauses, which dictate up to 25 percent of the insurance claim being paid even if no work was performed.
Ambiguous language can be a big problem that can void the company’s warranty or the insurance coverage. If you don’t understand what you are signing, you could do something foolish like sign away your right to hold the contractor liable for their errors.
Remember that this is your contract, and that you have the right to have it amended in any way. This includes adding or excluding anything you want, or rewording things you don’t feel are right. You can also ask to have the contract held overnight to give you more time to look it over or have your lawyer do so.
High Pressure Sales Techniques:
High pressure salesmen could try to force or rush you through the reading of the contract. Remember that if you feel intimidated or uncomfortable, you can ask them to leave. You are in control, and they are working for you. You can always remind the contractor of this fact if he/she insists that you sign without reading.
Avoiding Open Contracts:
No matter how much you may trust your contractor, everything should be spelled out in the contract, including how much you will pay. Never sign anything that is open, such as leaving the total cost up to debate.
A dishonest contractor could answer all your questions correctly, but may still try to take advantage of you later on – without a set amount in the contract, he could. He also has all the power to move forward, regardless of what you tell him after you sign.
Get a Definite Price and Insurance Supplements:
Remember that having an open contract is not the only issue; you also need to know how much you may have to pay out of pocket as well. It’s important for you to know how much the bottom line is, and what part of it you are responsible for, such as your deductible, or material upgrades not covered by your insurance.
In addition, you should include a clause in the contract that states that you need to give written approval for any and all cost overruns or other increases being passed onto your insurance provider – or onto you.
Start and End Dates:
Get in writing – as part of your contract – start and stop dates and hours of working time on your project: specify days- Monday through Friday, hours such as 7am – 3:30pm. This ensures that the contractor is committed to completing your project on time, has the crew to perform and is serious about his business.
It should be noted that proposals and contracts are often one in the same. When issued separately, their content and specifications should be checked to be sure they are identical.
Lien releases should be part of your contract as well. State in writing that you require lien releases at the time of each payment from all subcontractors/suppliers for work performed and material supplied to date.
Contractor Worker’s Comp and Liability Insurance:
Make sure that the contract that you sign requires the company to maintain contractor worker’s comp and liability insurance. Your contractor should supply you with their Certificate of Insurance and list you as additionally insured. The reason for this is that some contractors do not have insurance and other contractors pay for their insurance for one or two months and let it lapse. Either way they are not insured if they do damage to your house or one of the workers gets injured or worse. If you are listed as an additionally insured on their insurance then their insurance is paid and up to date, and you will be covered in case anything happens.
Before You Pay Your Contractor:
- Get what is called a “Conditional Release of Lien” for the workmanship on your home, and have it notarized. This ensures that after you have paid them in full, they waive the rights to file a lien on your home.
- Get a second release of lien, this time from the supplier for the material used on your home. Make sure that it is from the supplier – not the contractor, stating that the material was paid for.
- Ask for a warranty certificate from the manufacturer for your materials, so you have the necessary paperwork to follow up. Your contractor should have this for you.
- Only make out checks to the contracting company’s name, and not to an individual.
- Get a paid-in-full invoice immediately at time of payment – do not allow them to mail it to you later.
QLCs vs Non-QLCs and Storm Chasers
A Qualified Local Contractor will mention all the important details because he/she knows that the contract is ethical and to the point; he/she will recommend that the client sign with a clear conscience. Since the company is not engaged in taking advantage of the customers, the QLC’s goal is to protect the company and the homeowner with a fairly weighted contract that doesn’t take away the rights of the homeowner or the contractor if either party has a legitimate concern.
A lot of Non-QLC companies or Storm Chasers won’t say anything because in a many cases they know that the construction contract is written to his/her advantage and may contain elements that may give the client a reason not to sign.
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