September 3, 2013

plumber holding pipeBefore you sign any contract with a home repair contractor or remodeler, make certain it will protect you, your home and your wallet.

Here are a few items to look for in the contract:

Party identification, signatures, dates. Contracts should identify the contractor’s name, company name, contractor number and contact information. The date of signing should appear by your and the contractor’s signatures.

Assignment of contract. The contract should specify who will be doing the work. And make sure it stipulates that the work may not be reassigned without your consent.

Key dates. In addition to the date signed, make certain the contract spells out the date work will commence and the estimated date of completion.

Scope of work. The description of the project’s scope should detail the work to be done and the type and quantity of materials to be used, including brand names. The contract should state whether the finish work, such as painting, cleanup and debris removal, is included.

Firm price. Without a firm price or – at minimum – a “not to exceed” figure, cost overruns are likely.

Payment schedule. For larger jobs, the first payment is made when work commences, and additional payments are made as specific benchmarks are reached. Subsequent payments should be tied to results, for instance, “1/3 down at project start, 1/3 once plumbing is completed and remaining 1/3 at project completion.”

Delay penalties. To protect yourself from unnecessary delays, include wording that provides for a penalty payment for contractor delays not due to the homeowner’s fault. The contract could say, for instance, “ABC Plumbing agrees to pay owner liquidated damages of $100 for each day work extends beyond agreed-upon completion date, provided the delay is not caused by the homeowner.”

Contractor insurance. The contractor must provide workers’ compensation and employers’ liability insurance required by state laws, and comprehensive liability insurance sufficient to protect both the homeowner and the contractor. The contract should spell out the type and amount of insurance the contractor has.

Change order clause. The contract should explain how change orders are handled. Specifically, any changes to the contract should be agreed upon in writing by both parties, with the increased costs clearly detailed.

Permits. A contract should state that the contractors will abide by local building and zoning codes and will obtain any required permits.

Final inspection/lien removal. Make certain a final inspection is built into the contract during which you may ensure the work has been completed satisfactorily. At this time, your contractor should also give you written evidence (receipts) that all subcontractors have been paid. The final payment should not be paid until these items have been satisfied.

This article was originally posted on September 3, 2013 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at