A remodel of your home can be a substantial investment. Nonetheless, it oftentimes shocks me to see the contracts that parties enter into regarding construction. This article is intended to highlight some of the issues that homeowners should look out for in these contracts.
Specificity in Scope of Work
Many construction contracts are extremely vague on the scope of work. The contracts oftentimes reference other documents (ie the estimate or architect plans) in defining the scope of work. This is generally OK, if and only of those other documents are DETAILED. Disputes can oftentimes arise over specifics in the work to be done. If the contract only states new cabinets or counters are to be installed, but does not specify the type, the owner will be expecting top of the line finishes and the contractor may be intending to use inferior products. Then, a dispute as to cost arises.
Therefore, it is critical for both parties that the estimate and scope of work included with the contract are as specific as possible, going as far as to name the specific brand, color, model number etc. of all improvements.
Many construction contracts require the homeowner “indemnify” the contractor for any claims brought against the contractor related to the project or because of some action or misaction by the owner. Contractors may be reluctant to part with these provisions, however it is even more concerning when the provisions are not mutual. Thus, it is critical that the homeowner require the contractor indemnify them should the contractor cause the homeowner to be sued or party to a third-party claim.
Indemnity provisions are complicated and critical, so this is an issue that the homeowner should consult counsel on to make sure they are adequately protected.
Right to Withhold Payments
A typical construction contract will have clearly identified payment schedules, with certain penalties if the owner does not pay timely. Well, what happens if the contractor has not fulfilled its obligations by the time the payment is due? Without a clause allowing the homeowner to withhold payment, the contractor may claim that the money is still due despite their failings.
For this reason, it is critical that the homeowner have protections afforded by a right to withhold payment.
Most construction contracts provide some sort of limited express warranty. These warranties are oftentimes short (ie one year). The homeowner should try and negotiate a longer warranty, however if the contractor is unwilling to do so, there are additional protections the homeowner can seek. This includes requiring the contractor include language in the contract that the work will be done in a workman like manner, compliant with all applicable codes, done by licensed contractors, that the property will be left free of construction debris and left broom clean, etc. Although these items are not usually contained within the warranty language, it is critical for the homeowner to have assurance that the contract is contractually agreeing to perform to a certain standard, as this provides the homeowner another layer of protection and potential source of recovery.
It is also critical for the homeowner to make sure that they are aware of any warranties from the manufacturers or suppliers of materials, and that those warranties are assigned to the homeowner.
These are just a few of the areas that homeowners need to be aware of when negotiating a construction contract. Part 2 of this series will discuss change orders, delays in completion and subcontractor issues.