I spoke to a good friend who is building another custom home. He spent considerable time and expense negotiating a very detailed contract with his general contractor. I talked to him about the key things he thought we might want to make sure were included in ours and he highlighted these:
- He used the American Institute of Architects AIA Document A101-1997 as a starting point (Standard form of Agreement Between Owner and Contractor) and AIA Document A201-1997 (General Conditions of the Contract for Construction). This might be overkill but has some solid clauses protecting you as the owner and makes for a good place to get language from. You have to buy it from the site.
- Is it a fixed price bid or time plus materials? Fixed is better - it forces a cap on your costs. However, any change orders will cause the line quoted for the fixed bid to change. Typically this is where the contractor makes a lot of money. We added a schedule at the end of our contract to list all the charges per hour for the general contractor, electricians, plumbers, carpenter etc along with material costs and equipment costs.
- make it clear that the GC passes on any rebates they get or their subcontractors get back to you. We put in a clause requiring the contractor to show us all their quotes and invoices and specifically to pass any savings back to us.
- decide what you want to tackle as part of the project. We decided to buy all appliances, granite, carpet, plumbing fixtures, hardwood floor, alarm system, light fixtures, pbx, cabinets, tile, patio stone ourselves and specified this up front so that those items would all be costed out separately in the bid and we would carve them out as we bought them.
- dispute resolution...we opted for binding arbitration following JAMS rules. Much less expensive than a lawsuit. We also put in a clause allowing for the project to continue even if there is a dispute in one area, which can be revisited at the end of the project. This should avoid holding up the project.
- Any changeorders or increases in cost over the contract price must be in writing.
- the contractor is responsible for completing the project in strict compliance with all laws, ordinances, rules and regulations of the applicable authorities, the uniform Building, Plumbing and Mechanical Codes, National Electric Code or other codes that may apply.
- request your contractor to get at least two quotes for each major line item. Insist on shopping around as their own supplier network may not have the best prices. At the very least, they can use better pricing as leverage with their preferred supplier network.
- explore the possibility of payments up front for certain big ticket items like lumber that may have seasonal fluctuations in price. If the supplier can lock in the price up front and get payment for it, you might be able to save 10% from them having to build in a cushion to cover variability
- At each stage of your payment or a sub contractor payment, the payment should be accompanied by a Release Form - basically a release of any lien against your property for whatever was just completed. A lien that is unresolved could force your home to be sold in order to settle any payment due a contractor.
- Onsite storage is the contractor's responsibility.
- Contractor indemnifies you for any hazardous waste brought about by materials he or subcontractors brought on site that were not properly handled. I could just see what a disaster it would be for someone to wash out their paint can in the creek in our backyard!
- weather delays are not to be considered changeorders
- contractor is responsible for fixing any issues found not to be up to code.
- you should be informed whenever a change is made to the specification. Contractors may cut corners by swapping in cheaper materials that you might not be able to see.
- you should be allowed to terminate without cause at will. You may have to pay a partial profit if that is the case (10% is pretty standard on remaining work).
- all work to be done to best industry standards.
We made substantial revisions to incorporate the above in our contract. It was about 5 pages in length. Our contractor was quite pleased with the final product and was going to use this as his new template.
