For remodeling jobs of all sizes, get the specs on paper


February 27, 1993|By Karol V. Menzie and Randy Johnson

That clunking noise you hear in the background is us dragging out our soapbox. The topic of our lecture: contracts. Whatever the size of the job, it's important to have a good contract.

Not having a good contract could leave you in the position of a North Carolina reader who writes about his home-building project: "Our agreement with our builder is 15 percent over his cost of labor and material. We have just learned . . . that the builder is paying some of his people in cash and then, in his monthly bills to me, he is charging me 19.52 percent for FICA [Social Security taxes], workman's comp and insurance. Over and above this he is adding his 15 percent overcharge. He has also taken out a 'builder's risk' policy. He told me that was a 'homeowners' policy. What recourse do I have?"

The simple answer -- no use to this reader -- is never to sign such an agreement. It's impossible to control the costs. To do that, you must get a fixed price and sign a contract.

The contract process should start with drawing up plans and writing detailed specifications for every aspect of the project, from the layout of the space to the brand of any fixtures. The "specs" can be as simple as a list of what you want, with a sketch; though on a big job, you might want to hire an architect to draw plans and spec them out.

Once you have plans and specs, you can solicit bids from a number of contractors. Be sure the specs are clear, and be sure you give exactly the same information to every bidder. When the bids come back, you can compare and see which is best.

Remember that the lowest price may not be the best deal. Before you choose a contractor, check out references, talk to people the contractors have worked for before. Look at previous examples of their work.

Choose someone with whom you feel comfortable. The few weeks or months the contractor is with you can seem like an eternity.

When you find someone you like, get a contract. Check with your state's contractor-licensing agency (if there is one; in Maryland, it's the Maryland Home Improvement Commission) or the local branch of the American Institute of Architects for a sample contract to use as a model.

A good contract should include:

*Clear identification of the parties to the agreement. If there is a dispute, it can be resolved only by the parties named.

*A change-order process -- an orderly way to handle adjustments to the work, the price or the scope of the job. All changes must be in writing, and must be signed, before anything is changed. That way, you won't be surprised at the end of the job by an unexpected charge.

*A payment schedule -- an agreement about how the contractor is to be paid. Usually, for homeowners, it's after recognizable stages, such as after framing, after systems rough-ins, after drywall. This "draw schedule" should include a provision for a "punch list" to be compiled at or near the end of the job, in which the homeowner and the contractor agree on items that, when done, will mean the job's "complete."

*Some provision for arbitration -- for instance, beginning with face-to-face meetings, then if no agreement can be worked out, submitting the dispute to the local Better Business Bureau or some other arbitration body for a binding resolution. If the procedure's in the contract, you won't feel helpless if something goes wrong.

*Stipulation for the contractor to turn over, at completion of the job, documentation that proves all subcontractors and suppliers have been paid (a "waiver of liens"), that all permits have been signed off, and that the contractor has been paid in full.

If there's anything about a contract you don't understand, you may want to have a lawyer look over it.

As for the North Carolina reader, the question about the builder's risk policy is easily answered. Usually, it's not possible to buy a homeowner's policy on a vacant house or one that's under construction. Many banks, as part of a financing package, require either the owner or the builder to purchase a builder's risk policy. The policy will guarantee that the house can be rebuilt if it's damaged or destroyed before completion.

The other question is harder. The reader can try to persuade the builder to submit to some form of arbitration. But he may need to get legal advice about how far his "agreement" goes and whether he is able to renegotiate its terms. He can try the local contractor-licensing agency or the Better Business Bureau for advice, but he may have to resort to hiring a lawyer.

The process of writing specifications and soliciting bids can seem difficult and tiresome. But it's far more pleasant than a job site that becomes a battlefield.

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