Overview

A clear, well-drafted agreement is essential when hiring a general contractor to ensure a smooth and successful project. Acumen Construction Management Inc will go over key elements, from the scope of work to dispute resolution clauses. By understanding these essential terms, you can protect your investment, avoid misunderstandings, and set the foundation for a successful collaboration with your contractor.

Highlights

Introduction

Hiring a general contractor for your project is an important step toward bringing your vision to life. Whether you’re renovating your home, building an addition, or starting from scratch, signing a contract or agreement sets the tone for the entire project. Unfortunately, many homeowners gloss over critical clauses, only to face misunderstandings, delays, or disputes later.

In this blog post, Acumen Construction Management Inc’s contracting experts will demystify the essential elements of general contractor agreements, breaking down the key clauses and terms you need to understand. We’ll cover everything you need to look out for before signing the dotted line.

What Is a Scope of Work?

The scope of work outlines the specifics of the project, detailing what will and won’t be included in the contractor’s responsibilities. Without a clear scope of work, disagreements over what was promised versus what was delivered can arise. For instance, if you’re remodeling a kitchen, does the contract specify whether the contractor will install the appliances or just deliver them?

What Should Be Included in a Scope of Work?

A comprehensive scope of work should include:

  • A detailed description of the tasks the contractor will perform
  • Any exclusions or responsibilities not covered by the contractor
  • If applicable, specific materials, brands, or products to be used

Before signing the contract, ask for an itemized breakdown of all tasks and materials. Double-check that everything you discussed during negotiations is documented in writing.

What Are Common Payment Terms?

Contractor agreements often include payment terms that specify when and how much you’ll pay at different stages of the project. This section should also outline what payment methods are accepted.

Here are the different types of agreements you should be aware of.

Milestone Payments

Milestone payments are often used in larger projects where specific tasks or stages need to be completed before payment is released. This type of payment structure ensures that work is being done according to schedule and eliminates the risk of paying for unfinished work in advance.

Make sure milestones are clearly defined and agreed upon by both parties before signing the contract.

Cost-Plus Contract

A cost-plus contract involves paying for all expenses incurred by the contractor plus an additional fee for their services. This type of agreement is flexible and allows for changes in the project scope without having to constantly renegotiate the contract.

It’s important to have a detailed breakdown of costs and a cap on the total amount that can be charged. Without proper management, cost-plus contracts can exceed your budget.

Fixed Price Contract

A fixed-price contract is a type of agreement where the contractor agrees to complete the project for a set price. With this type of contract, you’ll know exactly how much you’re paying from the start, making it easy to budget and plan ahead.

However, unforeseen circumstances or changes may lead to additional costs not covered by the fixed price. Discuss potential change orders with your contractor beforehand and include them in your contract.

What Are Change Orders?

Even the best-planned projects can require changes along the way. A change order clause defines how modifications to the original plan will be handled, including their impact on cost and timeline.

What Should Be Included in a Change Order Clause?

A well-written change order clause should include the following elements:

  • A clear description of what constitutes a change—e.g., additional work or modifications to existing work
  • The process for submitting and approving a change order
  • Documentation requirements—e.g., written approval from both parties
  • Any limitations or restrictions on changes—e.g., whether parties are only allowed up to a certain percentage of the original contract amount

Always request written change orders before work begins on the new task. Avoid verbal agreements, as they can lead to disputes later.

Why Are Timelines and Deadlines Important?

The timeline clause outlines the project schedule, including start and end dates, key milestones, and potential delays. A solid timeline helps keep the project on track and ensures both parties are aligned on expectations.

What Key Elements Should You Include in a Timeline Clause?

To avoid misunderstandings and disputes, a timeline clause should cover the following:

  • Project start and completion dates
  • Milestone deadlines—e.g., framing to be completed by week 4
  • Provisions for delays due to weather, supply chain issues, or other factors

What Happens if a Project’s Timeline Isn’t Met?

Many agreements include clauses for liquidated damages—i.e., penalties for missing deadlines—or bonuses for early completion. These provisions can help incentivize timely project completion and provide compensation for any delays.

If the contractor misses a deadline, you may also have the right to terminate the contract and hire someone else to complete the work. This should be outlined in the termination clause of your agreement.

How Do Warranties Protect Your Investment?

A warranty clause ensures that the contractor is responsible for addressing defects or issues that arise after the project is completed. Warranties can vary widely, so it’s essential to understand what’s covered.

What Are the Types of Warranties?

The main types of warranties in construction contracts include:

  • Workmanship warranties: This covers any defects or issues caused by the contractor’s work.
  • Material warranties: This covers any defects or issues with materials used in the project, such as faulty windows or appliances.

Warranties can have different durations, with most ranging from one to ten years. Make sure to clarify the duration of the warranties and what exactly they cover in your contract.

How Do You Mitigate Risks With Liability and Insurance?

Construction projects inherently carry risks, making it crucial to verify that the contractor has proper insurance coverage. This clause outlines who is responsible for injuries, damages, or accidents that occur during the project.

What Are the Types of Liability Insurance?

The common types of liability insurance in construction contracts are:

  • General liability insurance: Covers bodily injury and property damage caused by the contractor’s work
  • Workers’ compensation insurance: Coverage for injuries or illnesses sustained by workers on the project site
  • Builder’s risk insurance: Covers damages to the building under construction, including theft or natural disasters

Without adequate insurance, you could be held liable for accidents or damages. Request proof of insurance before signing the contract.

How Do Dispute Resolution Clauses Help You Prepare for Conflicts?

While everyone hopes for a smooth project, disputes can sometimes arise. A dispute resolution clause specifies how conflicts will be handled, whether through mediation, arbitration, or litigation.

What Are Your Options for Dispute Resolution?

There are several options you can include in construction contracts for resolving disputes, including:

  • Mediation: A neutral third party helps negotiate a resolution
  • Arbitration: A binding decision is made by a neutral arbitrator
  • Litigation: Disputes are resolved in court

We recommend mediation or arbitration clauses, as they’re often faster and less expensive than litigation.

Conclusion

Signing a contract or agreement is a huge step in your construction or renovation project. By understanding the key clauses and terms, you can protect your investment and avoid unnecessary stress.

Take the time to review every section carefully, and don’t hesitate to seek clarification or legal advice if needed. A well-drafted contract is the foundation of a successful project and a strong working relationship with your contractor.

Ready to start your project with confidence? Acumen Construction Management Inc is committed to transparency and excellence in every step of the process. Contact us at (408) 621-9201 to make your vision a reality with a contractor agreement you can trust!