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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.
------------------------------------------------
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
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