3 Things to Consider Before Signing a Contract with a Contractor

Beginning a renovation or construction project is an exciting venture and there are many things to consider to ensure success. A critical step in the renovation process is selecting the right contractor and ensuring the contract you sign is clear and comprehensive. Here are three things you must consider before putting pen to paper on a contractor agreement to protect your interests and ensure a smooth project.

1. When Will Payment Be Made?

First and foremost, understanding the payment schedule is crucial before signing any contract. The financial aspect of a project can often be a source of stress and misunderstanding, so it's important to clarify payment terms upfront. Determine if the payment will be made in stages or as a lump sum upon project completion. Typically, contractors will ask for a deposit upfront, followed by periodic payments as milestones are reached. Ensure these milestones are clearly defined and achievable. Also, verify the acceptable payment methods. Some contractors may prefer checks, while others might accept credit card payments or bank transfers. Make sure you’re comfortable with the payment method outlined in the contract. It’s important that you are tracking milestone dates.  Lots of contractors finish a milestone and expect payment the same day - so it’s important to be in constant communication with your contractor regarding timing to complete each milestone so you are prepared to make payment.  Additionally, the contract should be reviewed to make sure cost overruns are addressed. Unexpected expenses can arise during construction, and it's important to have a clear plan for how these will be managed. Agree on a contingency fund or a process for approving additional costs to avoid disputes later.

2. Allowances for Certain Items

Another important consideration is the allowances for specific items like flooring, fixtures, and appliances. For example, if your contractor has provided an allowance for bathroom fixtures, ask your contractor what pricepoint is included in the allowance.  Allowances can significantly impact both the budget and the outcome of your project. Make sure you know the kind and quality of materials included in the allowance. For instance, the contract might allocate a certain amount for carpet, but the type and quality of carpet can vary widely. Ask for details and specifications to avoid surprises. Be prepared for the possibility that your preferences may exceed the allowances. If you prefer higher-end materials, you may need to pay the difference. It’s crucial to clarify how these adjustments will be handled financially. Ensure all allowances and related specifications are documented in the contract. This includes detailed descriptions of the materials and the agreed-upon budget. Clear documentation can prevent misunderstandings and ensure you get what you expect.

2. Timeline and Penalties for Delays

The timeline for project completion is another critical component of any construction contract. Delays can be costly and disruptive, so it’s essential to have a clear understanding of the schedule and what happens if the contractor fails to meet it. It’s also important to be prepared for delays to result from actions that you cause, that ultimately cause the contractor to delay a milestone  - so you’ll want to be careful about pointing the finger back to the contractor.  For example, if you are picking out the tile and the tile you’ve chosen is delayed in shipment, the contractor could be delayed in meeting the milestone for installation of tile and all other milestones in the contract that come after tile installation because the tile you ordered is delayed.  The contract should include a detailed timeline with specific milestones and a completion date. This helps keep the project on track and provides clear expectations for both parties. Discuss what happens if the contractor doesn’t meet the timeline. Will there be financial penalties - and similarly will there be contract benefits to the contractor for completing early? How will delays be handled? Including penalties for missed deadlines - and incentives for early completion - can incentivize timely completion and protect you from additional costs. Establish a communication plan for regular updates on progress. Regular check-ins can help identify potential delays early and provide an opportunity to address issues before they become significant problems.  As part of the communication plan you’ll want to get a timeline from the contractor for any materials that you are responsible for providing or finishes that you are required to pick out so that your portion of the project is always on time and you don’t cause any project delays.  Contractors line up their subcontractors to complete the various specialties for your project (electrical, plumbing, tile, flooring) weeks - sometimes months in advance and timing delays that you cause could ultimately create significant delays to completion of your renovation.

Signing a contract with a contractor is a significant step in any construction or renovation project and the best thing you can do is have a lawyer take a quick look at any contract you are going to enter into before you sign. The small amount you’ll pay to a lawyer will help you to avoid ambiguity in the contract that will create issues between you and your contractor down the road.  The best thing you can do in any new construction relationship is to understand the playing field and have clear communication regarding expectations and a well draft contract (or at least making sure you understand the contract) will help you to get to the finish line with less stress.  By understanding and discussing the payment schedule with your contractor, understanding the allowances for materials, and ensuring a clear timeline with penalties for delays, you can protect your investment and ensure a smoother project experience. Taking the time to clarify these details upfront can save you time, money, and stress in the long run, leading to a successful and satisfying project completion.