Contract Administration

My next area of concern is the contract. I touched on this topic a little bit on the communication blog. As we all know, the contract is the written agreement between two parties. It is the one vital document that needs to be in place in case a disagreement arises between the two parties. Please remember that if you don’t run into any problems or situations that need a third party, than this document just becomes a piece of paper in the file.

It also outlines the legal procedure for a disagreement. But this is an area where most contractors and homeowners fall short. Homeowners cringe when they see a long complicated looking document. But if it is carefully crafted, it benefits both parties. When it comes to paperwork we can all be a little lazy. Lord knows I can be the same way, but I always power through it since I know how important it can be. As important as the contract is, the only circumstance in which this document would be reviewed after the initial signing is if one party or the other doesn’t uphold their side of the agreement.

The document needs to be accurate to the highest degree, to protect everyone involved.  I must advise at this point that ALL documents be reviewed by legal counsel.  If you have any questions or concerns, or do not understand a provision or statement, by all means seek legal counsel. Every State has different laws so make sure that everything in your contract is applicable to your state

Contracts in New Jersey (I will use this state as an example since it is where we do business) must contain a consumer affairs notice at the top of the contract stating that the contract may be cancelled within three business days after the signing by both parties. It will outline the procedure for such a cancellation and should also outline the details of the refund.

  • Then it should go on to outline and describe what the agreement entails
  • Date of contract
  • Description of the property
  • Description of the blue prints or plans being used for the project

The contract should go on to set the limitations and general conditions of the project. This is usually the point where our eyes glaze over and we want to skim through it all very quickly. But it is advisable to concentrate and read these details thoroughly. The following are areas that we touch upon.

  • Non structural matters- common problems such as settling and or stress cracking
  • Tangible and  personal  property-who is responsible
  • Patching and matching- Outline of how this is achieved and what is to be expected
  • Plans and specifications- Who provided the plans and who is responsible for any problems with the plans. Also if there is a conflict between the plans and specification, which one controls the plans or the specifications.

All definitions should be explained. Work days and holidays and how they are to be handled. If the contract is cancelled how much is to be provided to the contractor for their work in preparing the project.  Substantial completion is often a term where the contractor and homeowner have a difference of opinion. This needs to be defined so there is no confusion with the terms or statements in the contract.

The total price for the contract and the terms of payment, deposits and other documents such as change orders. Also there may be a clause for the escalation of material costs, this is needed because they’re may be a substantial amount of time between the signing of the contract and the actual start date of the project.

Deposits. What your initial investment is to be. How it is applied, and any provisions for the homeowner to acquire financing.

Allowances. At least some sort of listing of the cost of finish materials. Who is to supply the materials whether it be the contractor or the client, and all time frames for the materials to be on site.

Change orders. A definitive statement of how any and all change orders are to be handled. When the change order payments are due what is to happen if the contractor does the change order work without first receiving the payment for it.

  • Any and all changes to the scope of work due to various reasons. Some are hidden conditions that cannot be determined until they are encountered. This is where most homeowners dread having remodeling work done. Unknown conditions, what they might cost and how they affect the project.
  • We’ve encountered most of our unknown conditions during the removal of flooring, roofing and other finish products.
  • Any dangers a homeowner might face due to occupying the residence while the work is being performed. How those conditions might affect the timeline of the project and who is responsible if you should need to reside elsewhere during the construction. Of course some projects have very little affect on the inhabitants, but there can be that exception.
  • Repair and/or replacement of unforeseen damaged items. Again who is responsible for such damages. You’d be surprised how many residence have been negligent with their own property and then want to blame the contractor when it gets damaged.
  • Public and private restrictions and any sub soil conditions (abandon septic systems, abandon oil tanks etc.) not known to the parties and how they are to handled.
  • Any increase to materials cost, and their limitations since it is not fair to have an open ended cost.

Draw request and how they are to be handled. The time frame in which they are to be completed and any other conditions inherent to draw request.

Guidelines. Usually some quality guideline that the contractor will adhere to.

All warranties either expressed or stated, and what the warranty includes or does not include. What manufacturer warranties imply and what labor and material warranties are include and their term  A very important part of the contract.

The next section should outline the responsibilities of each of the parties

  • Time and manner of performance. When they will start. Most importantly when they will finish. Any condition due to material unavailability, weather, change orders, and who is liable for that.
  • Licenses and approvals. Who obtains these and who pays for them.
  • Insurance. How much insurance the contractor has, who pays for it. Also if the homeowner needs to have any additional insurance riders placed on their insurance policies.
  • Title. Usually stating that they have a free and clear title to the property so as to not interfere with the contactors performance.
  • Right of access. Stating the owner has the legal right to access, use and occupancy as need for the project. And granting access as need for the contractor to perform their work.
  • Boundaries/surveys. Who is responsible for marking the boundaries of the subject property and who will obtain all final surveys as needed for the title.
  • Utilities. Usually stating that the owner will supply and pay for all utilities as need for the contractor to perform his work.
  • Yard debris removal, landscaping and sprinklers. Usually the owner is responsible for the removal of any nonconstruction debris. Any landscaping and sprinklers that may be affected.
  • Financing. Once again it is usually the owners responsibility to obtain, maintain and keep in force all financing as needed to execute the contract. Any and all inspections fees that might be associated with the owners financing inspections.
  • Use of Contractors employees, agents, subcontractors or material suppliers. This is a big one. Most owners feel that once someone is working on their property that they can and are allowed to strike up deals outside the scope of work they’ve been contracted to do. This can happen sometimes, but only with written consent by the contractor. Most contractors have subcontractor and material contracts in place to forbid this from happening. Also some owners want to start to direct the agents, subs, and employees as they see fit, this can produce disasters and miscommunications usually resulting in improper work practices, illegal procedures and such.
  • Payments, Interest, final inspections and the final punch list. All payments need to be completed in a timely fashion, just as the work needs to be completed likewise. Draw schedules usually lay out at what times payments are due, your contractor should also give you advance notice if you need to transfer funds, etc. The final payment and punch list detail  how and what happens when the project is substantially complete. Substantially complete usually means that the project is at the point of use, as it is intended. This normally does not include touch up items, small repairs and the like.  These areas must be clearly defined as to head off any problems at the end of the project.
Default. This area defines the terms of default on the part of the contractor and owner. Usually other than claims of defective construction the contractor is in default, if he abandons or stops work under the perimeters of the contract, unless this refusal is from a default of the owner. Such as non payment, etc. Then there is usually set forth a procedure to make the claim of contract default for both the contractor and owner.
Remedies after default. This section defines the legal process for both the contractor and owner to inforce the terms of the contract legally.
Arbitration. This is the avenue of settling your differences out side of the court room. It is considerably less costly and just as effective as legal enforcement.
Attorney fees. Once a dispute has arisen out of the project as contained in the contract, who is entitled to recover what from the trial, appellate proceedings and any other reasonable cost arising from the dispute.
Governing law, assignment and recording is usually the State in which the contract was drawn. It’s laws and regulations.
Additional contract documents. This section usually contains the scope of work, material allowance amounts and descriptions. Blue print and specifications. As this ties them all together with the contract.
Controlling provisions and headers. How all handwritten or typed provisions control when they are in conflict with one another.
Special clauses as needed then the signature lines.
I do hope that I haven’t bored you with the breakdown of a contract. I understand that the more the owner understands, the better they are positioned to make sound judgements in the value of their projects and how they are to be executed. I have seen way too many three paragraph contracts in my life. Not only are they usually very one sided for the contractor, but they remove a lot of legal power from the owner. So always ask for a proper contract, and if it doesn’t seem thorough enough ask for a different contract or to draw up clauses’ to be attached to the contract. It is always in your best interest, after all it is YOUR investment!! Happy contracting!

So this concludes today’s blog. Please come back for more as I love to “talk” construction! If you have any questions, concerns or comments you would like to add, please contact us!

Jim Hawthorne

Hawthorne Building & Design Corporation



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