Contractor Contracts
So, you’ve narrowed down your contractors, you’ve checked their reference, you have a design developed and you’re ready to start requesting contracts! This is truly the first step to kicking off your project — CONGRATULATIONS! Before you sign on the dotted line, cross all your T’s and dot all your I’s there are a few things you need to take into consideration.
I want to make it known right now, that a budget estimate and a quote are two completely different things. This is not legal advice, but budget estimates are typically rough cost ideas, while contracts are hard numbers based on evaluation of design details presented. Budget estimates are provided when the scope of work is still vague enough and all the details are not hammered out. I’ve had customers sign budget estimates and that left open a huge opportunity for the contractor to come back and change things, as well as, charge more for them (and rightfully so) because the details were not descriptive. Quotes are provided when design details have been worked through and construction elements have been assessed. At first it may seem like it only protects the contractor, but it is also a layer of protection for you, the homeowner, as well.
Now that we have that out of the way, let’s get down to it.
BALLIN’ ON A BUDGET
Besides finding good craftsmen, the next biggest concern is usually budget. How much will this cost? Why does it cost that much? How do I know I’m getting my monies worth? And all the other budget questions that come up. I’m going to breakdown a few ways to take control back regarding project budget estimates.
LOCATION, LOCATION, LOCATION
Just as in real estate, location is very important when determining budget, and the simplest answer is, it’s all relative. These are usually fairly obvious, but I often find people forget the basics. Disregarding style or taste for a moment, if you are an HGTV fan, look at Chip and Joanna Gaines of Fixer Upper fame, they renovate a rural Texas town and their renovation costs are nowhere similar to Tarek and Christina El Moussa of Flip or Flop who renovate southern west coast towns near Los Angeles, California. The point is everything is relevant to your location. Honestly, there isn’t a way to break this down, but it just reiterates the importance of getting multiple bids.
RULE OF THUMB
Along with location, consumers need to get real on what things cost, while making sure they aren’t being taken advantage of. A rule of thumb that I typically tell people is, reserve 15% of your budget. That allows for a little wiggle room if things pop up (which they will if your plan hasn’t been developed or evaluated), leaves room for higher grade finishes if things don’t pop up, or you end the project with some money in your pocket!
DON’T SIGN WITHOUT THESE
Along with the physical budget numbers there are a few things that need to be written and agreed to in black and white before you sign.
PAYMENT BREAKDOWN
The payment process is different for every contractor and often times each project as well. There is not standard, there is no rule of thumb and there is no “right way” to do it. However, I do have some simple guideline that I like to follow to keep the money flow acceptable for all parties involved. Also, don’t be afraid to challenge the proposed payment process from your contractor. If they are good contractors, they will explain why specific quantities are needed at certain intervals.
- Always start with an agreed upon payment schedule — all the way through to completion. That leaves no chance for changes, unless the design changes.
- A deposit will most likely be requested, whether for materials, permits or to show commitment working together. In my opinion, this amount should never be more than 30% of total project costs.
- If you are doing a full renovation, another payment should be expected around rough-in and inspections. You should have proof of inspections posted.
- Another larger progress payment is typically required around the time to order materials. If you’re project is on a tight turn around or there is a long lead time for materials, this may be very close to the initial deposit. Also, if specialty trades are brought in to complete work (i.e. flooring, paint, tile installer, etc.) another progress payment may be needed to be provided to cover their costs.
- Never make a final payment until you are satisfied with all work completed. This should include a walk through with the contractor at the end of the project reflecting items on a detailed punch list. In my opinion, this amount should be around 15% of total project cost.
LICENSE AND PROOF OF INSURANCE
A trades license is simple to look up and frankly most trades put their license number right on their contracts and/or in their contact information. When working with trades, be sure that they are licensed to work in the state they are completing the work. It may seem simple, but it is often overlooked.
Another consideration for licensing is specialty licensing. Some trade are considered specialty and require additional education, as well as, adhere to a specific code of ethics for their trade. I know this because it is true of the interior design industry.
Insurance, on the other hand, can be trickier to track but there is one simple rule to follow when someone says they are insured: make sure the license is sent directly to you from the company who issued the insurance. It has not personally happened to me, but I heard a horror story once that the contractor “purchased” a years worth of insurance so they could get the document that says it’s valid for a year, only to cancel it the next month and no longer pay the premium. Had the customer requested the certificate of insurance from the insurance provider they would have learned quickly that the contractor was providing faulty information.
SPECIFIC START AND END DATES
I previously, but briefly, mentioned a Gantt chart and again if you haven’t had a chance to look it up, do it. To be proactive you could even create a rough chart and then have the contractor agree to it or adjust it based on his projected needs. I have provided a few examples on my website: http://www.prbdesigns.com/free-stuff-.html But the bottom line is, you want a specific start date and end date!
Once you’ve given your deposit but before the contractor starts it is not unreasonable to ask for a schedule. If you are doing a full renovation here is a quick breakdown of what should be in this schedule: start at demo day, then continue to framing, plumbing, electrical, paint, floors, cabinets, rough-ins, inspections, etc. Each category should show a specific start date and completion date, as well as, any other required sequences of events to make that portion of the project occur.
BUDGET BREAKDOWN
This is probably the part that contractors hate the most — breaking down each area of the project. So, if this is your expectation then you need to make it clear up front that you would like specific areas broken down in the contract. To be clear, they will not break out every dollar they are spending, but you can ask them to break it out per category (for example: permits/ dumpster, framing/ insulation/ drywall, electrical, plumbing, material
allowances, etc.) This is another opportunity for you to decide if you’d like to take on any portion of the job yourself. However, you need to have the material ready and time required to complete the project inline with the timeline. Otherwise YOU are causing a huge monkey wrench in very tight plans.
I’d also like to focus on allowances for just a moment. They are definitely their own animal to tackle because you may have a particular item in mind, but that’s not what is allotted for within the allowances. You need to be aware of what is available at the cost, as well as, what your expectations are. I mostly see this happen with countertop, tile and flooring. Be proactive and visit the showrooms yourself, or work with a designer, so you can begin to get a sense of a realistic budget.
MANAGING EXPECTATIONS
Breaking down the contract based on services provided is also critical. I’ve seen home owners sign $100,00+ contracts that are one page and hand written. I’ve seen $8,000 contracts that are 6 pages. There is no such thing as “too much detail,” but you at least want to fall somewhere in the middle. Be sure that you can clearly understand what will happen as if no conversation has happened at all.
This is also a good time to mention, add in how you expect to be communicated with during your project. It is highly unlikely that you will be able to take time off to complete a full 6+ week renovation. If you expect daily calls, weekly updates, or not to be bothered at all, make a note of it. You and your contractor should also agree on your preferred line of communication. For example, while I’m on-site I will accept calls, text or emails. I do not except social media communications as important (even though some clients did). I also prefer to receive all communication via email so I have a simple way to access, share with trades, and refer to if needed while on site. Determining this ahead of time, or being open about the communication throughout the project will help all parties involved.
RACKING UP COSTLY CHANGE ORDERS
This entire document is to prevent this exact costly change in plans. Change orders are the most expensive part of any improperly planned project. However, they do occur. When they do, it needs to be in writing — every detail needs to be documented. From the smallest “this for that” trade in labor to the most catastrophic change of idea. Again, working through your design or with a designer can help mitigate these change orders.
Often times I find that people like to go on the honor system here, and sometimes it work, but to save yourself and your wallet I highly recommend getting it in writing.
WRAP IT UP
We know this is a lot of information to digest. We know this isn’t your area of expertise. We know that just starting this process can be overwhelming. You should know that we are in your corner. As cliche as it may be, design is our passion and providing good design is our purpose. I could talk about design all day (mostly rants and rambling) so please reach out if you are stuck, stressed or just need a side-kick to take on your renovation with. I would never say I’ve done it all, and certainly never say I’ve seen it all, but I have made a lot of mistakes and I’ve learned from every one of them.
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