Take precautions before signing a remodeling contract
When planning major home renovation, there are many steps you have to take to find the right professionals, including the contractor and perhaps an architect. It's equally important to take steps to protect your legal interests - and to do so early in the process.
Word of mouth is the best way to find a contractor, and a check with the Better Business Bureau can help ascertain whether any complaints have been filed against the contractor. Before you commit to the project, you or your attorney should also review court records in your jurisdiction to determine whether there are any lawsuits pending against the contractor. This information is publicly available from local courts and online (search the Internet for "court cases" in your state), although some records are accessible only by attorneys.
Before you sign any contract, call the licensing board in your state, county or city. Make sure that the appropriate licenses have been issued and are current.
There are precautions you should take when negotiating the price of the job. Will this be a fixed price or a time-and-materials contract? The latter means you will be paying the contractor an hourly fee for the work done by that contractor and any subcontractors he hires to work on your house.
If it is a time-and-materials contract, make sure you get in writing the maximum hourly rate and a requirement that you will get a weekly accounting of how many hours were worked and by whom. I have been involved in cases where the contractor padded his hours. We discovered this when the homeowner said he was at home one day and no one showed up, despite the fact that he was billed for six hours of work.
You always need a written contract. Many contractors use what I call the "two-page special." This is a simple contract that merely states who the contractor is, a very general description of the work to be performed and the total cost.
This is not in your best interest.
The American Institute of Architects, at aia.org, publishes a number of contract forms for use by homeowners, architects and contractors, and you should insist that your contractor use one of them. One such form is A105, a standard agreement between owner and contractor for a residential or small commercial project. Form A107 , which is more comprehensive, can also be used for projects of limited scope.
An AIA form contains many provisions that will protect you. For example, it addresses what warranty you would get for the work. It will state that any changes in the scope of work must be in writing. There will be a schedule of when you have to make periodic payments. The contract also addresses what would happen if the contractor were to walk off the job and the rights you would have if you are dissatisfied with the quality or timeliness of the job.
Perhaps the most important provision addresses how much money you will hold back until the job is finished to your satisfaction and you get a written release of liens from the contractor and all subcontractors. I like to see a 15 percent retention of the total price, but no less then 10 percent.
What can you do if, once your contractor has concluded he has completed the job, you are not happy with a number of items?
The AIA contract provides for arbitration of disputes, such as what constitutes a completed job. You can contact the American Arbitration Association at adr.org or 800-778-7879 to get more information about the process and the costs involved. If there is an arbitration requirement in your contract, you cannot file a lawsuit. And in many situations, arbitration may be much less expensive - and faster - than the court system.