5 Tips for Reviewing Construction Contracts

Well, I’m still all by my lonesome in the Integro world…one project I’m not allowed to talk about is waiting on Zoning, Wolcott finally got its permit so we are full force ahead on MEP:

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…and now we’re ramping up new projects. “Ramping up” a project includes getting the sub-contractors in to scope the work, compiling the sub-contractors’ bids and contracts, determining a realistic and efficient schedule, and then presenting my contract to my clients.  This process can be surprisingly overwhelming particularly for homeowners who are not avid investors.

So, here are 5 tips for reviewing your GC’s contract:

Note: these tips are primarily for significant renovation projects requiring architectural drawings and permits.

1. Get a detailed Scope of Work

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Okay folks, here’s the deal. If the contract is vague, it does NOT work in your favor. Do not leave scope items without detail thinking that you’ll be able to talk your GC into doing more work than anticipated because it wasn’t specifically NOT listed in the contract. That door swings both ways. If you are doing a gut rehab, you want to see words like “all” and “entire”. If you are not doing a gut rehab, you need to individually list every single item (e.g. “Refinishing of two (2) clawfoot tubs”; “Drywall installation for north wall of rear bedroom adjacent to kitchen”).

Furthermore, the contract should include the terms “WORK” and “COMPLETE WORK” – all in capital letters. Then, the contract should define the terms “WORK” and “COMPLETE WORK”. These terms convey the intent for a complete, functional installation. Basically, if you hire Amelia Bedelia GC to install a furnace, you are expecting Amelia Bedelia GC to provide an igniter for that furnace to run and it should not be an extra cost.   A good definition should say something like:

“COMPLETE WORK: All work that is reasonably required for a complete and functioning installation. This includes all materials, components, labor and utilities required for a complete, functioning and warrant-able installation.”

It’s worth mentioning that functional installation is limited. You need an igniter in order for a furnace to work; therefore, a “COMPLETE WORK” reference should solve any qualms. If you want base trim and crown moulding included in Millwork, this is not where a reference to “COMPLETE WORK” makes your case. If you want to ensure crown moulding is included, then you need to…

2. Get a detailed list of Exclusions

A great way to keep the Scope of Work honest is to require a detailed list of what is not included – is the purchase of trim and crown molding included? is installation of trim included, but not crown molding? – is installation of low voltage (cable and internet) included? – how about final cleaning?

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3. Review the Allowances

Some GC contracts will include Allowances for certain finishes. For example, my contract includes Allowances for kitchen appliances, plumbing fixtures (faucets, tubs…), tile, and cabinetry. Usually, Allowances are for items that the GC can get you discounts for purchasing through their suppliers. This is a good time to ask one of those qualifying questions I mentioned in my last post about suppliers! Make sure Allowances are direct costs – if you have an allowance for $10,000 for plumbing fixtures and only purchase $6,500 in tubs and faucets then you should reap those savings, not your GC.

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4. Include Contract Documents

Specifically, your architectural drawings. Pictures say a thousand words and nothing is more detailed to reference in a contract than architectural drawings. Having said this, I’m going to tell you a secret: the scope will eventually need to differ from the architectural drawings on some level. This is because drawings are 2D and construction is 3D. The point of architectural drawings are to identify the end goal and the end goal is what your hard earned cash is going towards.

Drawing

5. Review the Change Order Process

Face it, you’re not done when the contracts are signed. There is always something. Whether it’s the inspectors adding scope, structural items that need to be addressed, or you getting excited and adding on design flourishes – change orders will come into effect. Specifically, you need to determine whether change orders need to be approved verbally or written. You need to determine if “in writing” includes email or not (I require that email authorization is acceptable, verbal authorization is not).

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Sebastian’s back next week!

http://www.integro-rehab.com

*A big thanks to David J. Henebry at Dewberry for his contractual input on this!

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