Preparing Construction Contracts

If you haven't already drafted contracts in the previous phase, we'll cover some more details here.

Construction contracts are legal agreements between the homeowner and the contractors or subcontractors involved in a construction project. They outline the responsibilities, obligations, and expectations for each party and serve as a crucial tool for protecting all parties involved. They also help you get really clear about expectations and outcomes, so don’t just think of it as a checklist item. It’s a great opportunity for you to revisit and have a conversation with your contractor about your goals, and can save you time and money down the road. You'll want to keep these documents somewhat handy for reference, like in an EcoHome project throughout the process.

The most common type of contract when building a home is the Fixed-Price or Lump Sum Contract. This contract type is popular for residential construction because it provides cost certainty for the homeowner. With a fixed-price contract, the contractor agrees to complete the project for a pre-determined, fixed amount, which is typically based on a detailed scope of work and specifications.

This type of contract is suitable for projects with well-defined scopes and clear specifications, as it allows homeowners to know upfront the total cost of their project. However, it's important to keep in mind that any changes to the scope or specifications during the construction process may require additional negotiations and potential cost adjustments. Homeowners should ensure that the contract includes clear provisions for handling change orders and any associated cost impacts.

Preparing construction contracts involves several steps:¶

Determine the contract type: There are various types of construction contracts, such as fixed-price, cost-plus, time and materials, and unit pricing contracts. Each type has its advantages and disadvantages, so choose the one that best suits your project's requirements and level of risk you are willing to accept.

Define the scope of work: Clearly outline the work to be performed by each contractor or subcontractor, including the materials to be used, the quality standards to be met, and any specific requirements or constraints. This should be detailed enough to avoid any misunderstandings or disputes during the construction process.

Establish payment terms: Specify the payment terms, including the payment schedule, milestones, and any retainage or holdbacks. Ensure that the payment terms align with the project schedule and budget, and include provisions for any changes or additional work that may be required. You'll also want to align with your contractor on what lien releases are required for payment.

Include performance guarantees and warranties: Incorporate performance guarantees or warranties to ensure the quality and durability of the completed work. This may include specifying a warranty period and outlining the contractor's obligations in the event of any defects or issues with the work.

Outline dispute resolution procedures: Define the procedures for resolving any disputes that may arise during the construction process, such as mediation, arbitration, or litigation. Clearly stating the dispute resolution process can help prevent costly and time-consuming legal battles.

Add termination clauses: Include provisions for terminating the contract under specific circumstances, such as breach of contract, non-payment, or bankruptcy. Specify the notice period required for termination and any penalties or remedies that may apply.

Review with legal counsel: Before finalizing the construction contract, have it reviewed by a legal professional experienced in construction law. They can help ensure the contract is legally enforceable and adequately protects your interests.

By preparing a comprehensive construction contract, you can establish clear expectations, minimize the risk of disputes, and protect your investment throughout the construction process.