Remodeling Facts


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Remodeling Contract
An expert looks at remodeling contracts.



"Ask any contractor who has faced legal action, what are the two phrases a lawyer utters which makes your blood run cold? Chances are, they will answer 'it's not in the contract' and 'that's not what the contract says'."


Even the most modest remodeling/renovation project can become a bad experience if certain measures aren't taken in the beginning……

Remodeling Contract
By
Harold Hammerman


Harold Hammerman is author of the book "Running Your Remodeling Business". He is a pioneer in the remodeling industry and one of the founders of the American Building Contractors Association (ABCA). He is also the namesake of the Harold Hammerman Award presented annually by the National Association of the Remodeling Industry (NARI) for excellence in training and education. He has served as an arbitrator and an expert witness in courts throughout the nation.

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If you haven't taken a look at your remodeling contract lately, maybe you should.

With the American public penchant to sue whenever something seemingly goes wrong, or even worse when things don't seem to go the way they want them, the remodeling contractor is more vulnerable than ever.

Another thing is the cost of remodeling. Today, the average cost is more than $20,000, with many going much higher. The financial stakes are the biggest they have ever been.

Add to that the increasing number of homeowners experiencing financial difficulties which could affect a contractor's being paid. Contracting is normally a risky business. Without a good contract, it can be downright hazardous.

Historically, the language of construction contracts has generally been weighted against the contractor - whether it's remodeling, new construction, government or private work.

Consequently, if the contractor went to court (which frequently happened) the scales of justice were tipped against the contractor. More often than not, when the decision was handed down, the winner was the owner and not the contractor.

Unfair? To say that such an arrangement was simply unfair was a gross understatement. In rare cases, it was disastrous, putting the contractor out of business. But more commonly, such decisions created financial hardships which could burden a contractor for months and even years.

Although there have been many improvements in the wording of construction contracts, many contractors have failed to keep abreast of the changes. Why? Perhaps because "the old contract has worked so far, why change it?"

The answer to that lies with the individual contractor. How many disputes have you had with your customers over the past several years? What was the nature of these disputes?

How many times have your clients' lawyers firmly requested that you right some grievance or face suit? Worse, how many times did you find yourself in court or arbitration?

If the answer is "more times than I want to talk about", you should probably take a good hard look at your contract. Better still, have a lawyer look at it. Better still, have a lawyer knowledgeable about contracting law and construction law look at it.

The point is, if your contract was properly written, you probably could have eliminated 90 percent of those confrontations. Not all of them, but at least the great majority.

Before going on, let it be understood that no construction contract exists today that will eliminate all disputes which may arise between a property owner and a contractor. There are just too many unknowns, variables and acts of God over which a contractor has no control.

But by using the proper contract form and the proper language, the number of disputes you have should drop while the number of satisfied property owners should escalate.

What is wrong with today's contracts? Unfortunately, a great deal.

All it takes is a sharp lawyer, knowledgeable in contract and construction law, to hold a contract up to the light and find more holes in it then if it were hit at close range with 12- gauge shotgun.

Ask any contractor who has faced legal action, what are the two phrases a lawyer utters which makes your blood run cold? Chances are, they will answer "it's not in the contract" and "that's not what the contract says".

So, whether you were right or wrong, what it comes down to is - was it in the contract, or did the legal terms in the contract mean something other than what you interpreted them to mean? If either is the case, rest assured … you are the loser.

Those two phrases point-up the two most common problems in construction contract preparation. Before we analyze them, let's take a look at a modern home improvement contract.

For purposes of simplification, it is divided into three sections which can be entitled Documentation, Substantiation, and Terms and Conditions. Loosely defined, the three encompass the following:

Documentation: This consists of who, what, where, when and how much. This is data you supply which goes on the contract or agreement.

Substantiation: In describing what you are going to do, you prepare specifications, floor plans, and in relevant cases, make elevation drawings. This is data you also supply which is attached to and included as part of the contract.

Terms and Conditions: These statements, which have been developed through years of construction experience, represent the terms and conditions under which you carry out the work described in the contract. They represent most of the contingencies which could have an adverse effect on materials, labor, completion dates and cost. They too are included as part of the contract.

Now let's get back to the two phrases, "it's not in the contract", and "that's not what the contract says".

The problem in writing contracts for many contractors and those with years of experience is one of two things. Either they write what they are going to do in broad general terms, or so detailed that it requires pages of specifications. Neither is desirable.

In the case of the former, the homeowner could construe that something was going to be installed which isn't, while in the case of the latter, if the contractor runs into a problem it could affect everything that the contractor is going to do from that point on.

At this point, you are probably saying to yourself, "damned if I do and damned if I don't!"

Not necessarily. The proper method of writing a contract is to spell out what you are going to do in such a way that the homeowner has a clear written picture of what has been agreed upon but not so detailed that if you run into a problem it will alter plans and complicate the job. Contracts written in broad general terms create misunderstanding, while being too specific can add to the cost of the job or result in something being done the homeowner did not want.

This brings up another area to which contractors fail to give sufficient attention: Listing what they are not going to do.

This applies to big jobs as well as small. In particular, it applies to remodeling because of the unique circumstances in which the contractor operates.

Remodeling requires you to disrupt a household for days and weeks on end. If the occupants aren't off balance soon after you start, they will be by the time you finish. By then they are ready to attack at the least provocation. Minor grievances can become full-blown confrontations.

Given those conditions, remodeling contractors need all the protection a contract will give them. So, it is important to write into the contract all of the things you are not going to do (but not in such detail that you are boxed in should a problem occur).

A good way to do this is to picture in your mind, as you prepare the contract, that the job, as contracted, is "fully" completed.

Now visualize and write in every item not included which would have resulted in a "truly" finished job from the customer's point of view.

Another way is to check off those items in your sales presentation that the customer said they did not want. All the items checked are included in the contract as "exclusions".

The reason? The mind plays tricks. Under the pressure of a problem with the job, even the most understanding client could misinterpret something you said as being the opposite.

Further, if you don't specifically say what you are not going to do, some people will assume you will simply because you did not say you would not.

To protect yourself, list anything you feel could be misinterpreted or assumed, or those things the customer declined. If you don't, you could end up doing them at your own expense.

Not only is a good contract important, it is also important you use the right one. For example, if you have been using a contract that does not fully cover the terms and conditions for the type of work you do, you could be vulnerable in a dispute. Also, the contract a prime contractor uses will differ from the one a subcontractor uses.

If you are writing your own, it is mandatory that you have it reviewed by a lawyer knowledgeable in construction law. It must use the terminology unique to construction.

You should know your contract thoroughly. You must know not only what it says but what it means as well.

The contract most commonly used is the Residential (Major) Agreement. provided by ABCAForms.com. This particular contract has gone through years of trial and error, revisions, lawsuits, and court decisions in order to make it fair and right for both the property owner and the contractor. I am pleased that I participated in the development of this contract.*

As emphasized in the beginning, regardless of how it is written, there is no construction contract that will protect a contractor from every problem which can arise. However, by learning how to write a good contract --- what to say and how to say it --- contractors will be in a much better position to weather the legal challenges and economic uncertainties which can affect their business.

*To view this contract, click here, then select your state and scroll down to



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