Your remodel is ready to move to the next phase. You’ve finalized the design plans, and now the only thing you have left to do is sign the construction contract. Intimidated? If signing your name on the dotted line makes you feel at least a little apprehensive, you’re not alone. When it comes to a home remodel, many homeowners struggle to cut through the legal jargon and understand exactly what their construction contract says.
As one of Portland’s top home remodeling firms, Lamont Bros. Design & Construction works with homeowners to guide them through the process of remodeling. We’ve seen plenty of contract-shy clients intimidated by the construction contract at first. However, the truth is that they don’t have to be difficult to understand. When you know the important things to look for and the right questions to ask, your contract can be a great tool. When used correctly, it can even help ease remodeling jitters rather than aggravate them.
In this article, we’ll discuss what you should expect in any good remodel construction contract. When you’re ready to sign for your home remodel, you should know what your remodel contract should look like. That way, you can make sure it provides you with the maximum benefit and protection. The main goals of a good construction contract are to:
What is the purpose of a remodel construction contract?
A remodel construction contract is a legal document that organizes the details of a transaction between a builder and the client. It defines what each party is expected to bring to the agreement.
When you hire a company to remodel your home, they agree to provide you with goods and services. In exchange, you agree to pay them a determined amount of money for their work. A construction contract ensures that each party has clearly defined rights and responsibilities.
Communicate the total cost of a remodel
The first order of business when reviewing a construction contract is to consider the price. While the dollar amount is an important factor to consider, you’ll also want to look at the cost structure of the contract.
Cost Control & Risk Management
Most design-build firms like Lamont Bros. operate on a fixed-cost contract. This means that the total cost of the project is agreed upon from the start. Once you sign the contract, that cost is locked in. There are two reasons a fixed-cost contract might change the price. The first is if you request to change the scope of your project. The second is if there are any major changes in material cost, such as the 2021 lumber crisis.
However, some contractors instead use a cost-plus contract. In this payment structure, the client agrees to pay for the cost of materials, plus a predetermined profit margin. In other words, the agreed-upon cost is not a set dollar amount, and rather a pay-as-you-go agreement. The issue with this type of contract is that there is no upper limit to what you could end up paying.
A contract’s cost structure largely determines who carries the risk in the agreement. With a fixed-cost contract, the builder takes on more risk. Since the contract locks in the client’s price, unforeseen expenses may cut into the contractor’s profits. However, with a cost-plus contract, the client bears more risk. This is because the contractor receives a certain percentage of profit based on the project expenses, which include unexpected costs.
If you want to have full control over your budget, it’s best to work on a fixed-price contract. For one, fixed-cost contracts prevent you from having to assume more risk. It’s also a strong indicator that the company is willing to stand behind its work.
Another thing you’ll want to think about is your cost visibility. In a cost-plus contract, your cost is based directly on the explicit expenses of the contractor. In other words, the contractor doesn’t get paid until they produce receipts of expenses. This way, you get a line-item breakdown of your project.
However, with a fixed-cost contract, you don’t usually get a line-item breakdown of the total cost. Most contractors who work on fixed-cost contracts use proprietary information in their budgeting systems, so they don’t share their budget sheets with clients. Instead, the contract functions as a “lump sum” agreement – you pay the fixed amount for the fixed scope of work. It’s up to you to decide if that price is worth your remodel.
Each option offers a different type of transparency. A cost-plus contract offers transparency as to where the money actually goes, because the client’s payment is based on receipts. However, because most cost-plus contracts have no upper-cost limit, you don’t know from the start how much a job will actually cost. For a fixed-cost contract, the transparency is in the total cost of the remodel. Even though you don’t get a full budget breakdown, you do know that the cost on your contract is the cost of your remodel.
Establish the scope of the project
Whereas the price section defines what value the client brings to the agreement, the scope of work section defines what the builder must provide. For any remodel construction contract, it is important to clearly define the work to be performed. The clearer the scope of work defined by the contract, the less room for error or miscommunication.
Some remodel construction contracts may use a narrative scope of work. Written in narrative form, this scope of work document describes changes planned for the remodel. It can be more or less detailed. Its defining trait is that it uses words rather than photos or design drawings to communicate the scope of work.
At Lamont Bros., we use two separate documents to define the scope of our projects. Rather than a narrative scope document, we use design plans and product selections to ensure our clients receive a clearly communicated scope of work in their contract. While every contractor has a different approach to defining their scope of work, this is the method we’ve found to be most effective.
One of the best ways to communicate the scope of work is to have a set of design plans. Construction drawings provide accurate measurements, dimensions, locations, and layout instructions. For your build team, that means they’ll know exactly what to change and how to change it. For you, it means you’ll have a set of plans to help you visualize what your remodel will look like.
As a design-build firm, we work with homeowners to develop their remodel design before moving into construction. This model comes with the added benefit of already having a set of design plans prepared when we go to sign the contract.
In addition to the design plans, it’s also helpful to include a document that defines product selections. This section of the contract specifies which materials and products the client has selected as part of their remodel. It’s an important document to include because the design plans don’t usually provide detailed information on the materials themselves.
For example, the design plan might indicate the location and dimensions of a range oven. However, the product selection document would show that this specific oven is a Wolf brand, 36-inch range oven with 6 burners, product number GR366. It’s important to include product specifications. Not only do the specs of the products influence your project’s design plans, but they also affect the cost of the project. This is why selections are important for establishing cost as well as scope.
Designate construction procedures & responsibilities
This important part of a construction contract establishes the general operating agreement for how you and your remodeler will work together. It defines the roles and responsibilities of each party in the relationship, as well as several contingency clauses.
Your remodel contract should clearly define all construction activities your builder is responsible for. This includes the basics like remodel carpentry, but also should include other, more obscure details that might not be initially clear.
In most cases, your builder should be the one responsible for hiring subcontractors, not the homeowner. The builder should also be the one requesting permits and purchasing materials for the remodel. This way, all points of contact for the remodel pass through your build team, and you don’t have to worry about managing all the moving pieces.
Additionally, your remodel construction contract should stipulate the builder’s responsibility for site protection and safety. This means planning and implementing measures that protect all on-site construction staff, subcontractors, and residents during the process. It also reduces the risk of construction activities damaging other parts of your home during the build.
The contract should also contain a warranty clause, which guarantees the remodel work for a set period after completion. If something within the remodel fails due to installer error or defect during this time, the builder will cover the cost of repairs. You can often predict a company’s commitment to their work by the quality of their warranty. The longer the warranty period, the more you can expect your remodeler to stand behind their work.
You as a homeowner play an important role in ensuring the success of your remodel. To clearly communicate your responsibilities, the construction contract should include several key points.
The first of these are conditions to begin the project. This clause in the contract lists out what needs to happen in the remodel space before construction begins. This typically includes cleaning, moving furniture, and suspending any day-to-day activities in the space.
A good construction contract will also include guidelines for entering and using the remodel space during the project. Construction zones often have unseen hazards while the work is in progress. To protect yourself and your family from possible injury, you should only enter the workspace with approval from your build team. It’s also best to keep children and pets out of the space, as well.
Nobody ever wants to find themselves in the position of needing work through conflict. However, with a construction contract, it’s important to include a conflict resolution clause. This section of the contract lays out a clean-cut process for addressing any disagreements between yourself and your builder.
Contingency & worst-case scenarios
Sometimes, construction projects don’t go exactly as planned. While an extensive design phase often reduces the risk of unwelcome surprises later on, there is always a risk. In rare cases, unforeseen circumstances may prevent your remodeler from being able to complete the scope of work originally planned. The purpose of including a force majeure clause in the construction contract is to establish a procedure for handling these types of issues as they arise.
Let’s say you’re planning an addition to your home. While your construction team is working on the foundation of the new space, they find your old foundation is structurally compromised. Legally speaking, they can’t pour the new foundation for the addition until the old foundation meets building code requirements.
At this point, you have a choice to make. Repairing your foundation will cost you more money. However, your remodel can’t proceed without the necessary repairs. On the other hand, you could choose to alter the project’s scope to accommodate for the cost of repairs. You could even cancel the project altogether.
“But wait, I thought the fixed-price contract means my price is locked in?” This is true. A fixed-price contract guarantees a set price for a predetermined scope of work. Unfortunately, foundation repair adds to the scope of work, since the build team has to do more work to accomplish the goal. Additionally, the work of repairing your foundation does add value to your home.
Throughout the process of handling contingencies, your construction contract should always keep you in charge of the cost of the project. In these situations, that means nobody can increase the cost of your project without your permission. At Lamont Bros., we handle these types of challenges through our change order process. Any change to the cost or scope of the project must first be approved by the client before implementation.
Want to talk to a designer about getting your remodel started?
Now that you know about the important parts of a remodel construction contract, keep up the great research! If you’d like to learn more about how you can have the best remodel experience from start to finish, click here to learn more about the design-build process!
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