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Disclaimer The information, forms, and techniques herein represent the author's opinions only and is not legal advice. Any and all advise given herein is not legal advise. The information and forms provide general educational information only. If legal or other expert advice is required by the reader, the services of a competent attorney, accountant, insurance agent, or other professional should be sought. The information, forms, etc. come without warranty of any kind, either express or implied, including but not limited to implied warrantes for quality, performance, merchantability, or fitness for any purpose. The author shall not be liable to the user or any other person or entity with respect to any liability, loss, or damage caused or alleged to be caused directly or indirectly by this information, forms, etc.
Copyright © 1992 Michael L. Smith, Revised 1998, 2000 All rights reserved. No part of this publication (except forms) may be reproduced or transmitted in any form or by any means, electronic or mechanical, without permission in writing from the author. The forms may be printed out for private, one time, use only. Any and all commercial use of this site, without prior agreement, is strictly prohibited. All copyright infringements may result in severe penalties.
Contracting with a general contractor or restoration company can easily be done with the right preparation and planning.
Your main concern is to make sure that all your interests and those of the contractor's are well understood. The services of a good attorney are very helpful here. He can create an agreement specifically for your needs. The information contained here is only for general information purposes.Do not misconstrue it as providing legal advice.
The only work you can reasonably rely on having completed to your satisfaction is that which is in writing. Oral commitments from contractors are often most gratuitous and appealing. But the only way you can assure performance is by having the statements incorporated into the written terms of the agreement.
In most states an oral contract is enforceable only if its consideration is $500 or less. If your restoration contract is more than this amount get it in writing. The clearer the terms of the agreement the better your chances are of having a job well-done.
The agreement should contain protections for both you and the contractor. It should identify the work to be done as well as establish the rights and responsibilities of both you and the contractor.
Below is an outline of what could be included in a restoration contract. It consists of the main body (Contract Formation) and a number of Attachments. The Contract Formation sets the basic terms of the agreement. The Attachments are incorporated into the body of the agreement.
The first part of the contract contains twelve
items. Several of the items have blank spaces to be filled in. Below is a brief
description of each item.
ITEM I.
NAMES AND ADDRESSES Fully complete the spaces indicating names, addresses, telephone
numbers, and the contractor's license number.
ITEM II.
CONTRACTING PARTIES & DATE The date of the agreement and the full name of the
owner and the contractor representative.
ITEM
III. CONTRACT ATTACHMENTS This lists all the attachments that would be included in the
contract. Attachment Number 1, General Conditions, provides protections for the homeowner,
the contractor and the workmen on the job. The other attachments are included when
checked. See Attachments below for a description of each.
ITEM IV.
DESCRIPTION OF WORK The description of work provides that the contractor will furnish
the necessary supplies and labor at the address of the owner. The assessor's parcel number
should also be included here if building permits are required.
ITEM
V. COMMENCEMENT & COMPLETION Commencement and completion of work are indicated by
inserting the number of days involved from the signing of the contract to the start of the
restoration, and the number of days from the signing of the contract to the completion of
the restoration.
ITEM VI.
CONTRACT PRICE Contract Price is the total price of the contract and should be written
in longhand and also numerically.
ITEM VII. METHOD OF PAYMENT The Payment structure for the restoration can be scheduled in a number of ways. Payments can be made according to progress of work completed, lien releases signed and delivered, building permit official inspections, mortgagee inspections, a combination of the above, or other reasonalble method. The important thing is that all parties be protected in the event something happens the should not have, or something did not happen that should have.
If you will not have a mortgage company named on the insurance draft the payment schedule can be arranged in any way you and the contractor decide. One of the most practical methods is to make progress payments upon completion of a certain amount of work. For example, the first progress payment may be made payable upon completion of removal of damaged property, the second progress payment payable upon completion of framing, third progress payment payable upon completion of all plumbing or electrical work, the fourth progress payment upon completion of painting, and so on. The dollar amount for each progress payment should not exceed the percentage of work completed. Of course, the final payment should be held back until all services are completed to your satisfaction and all preliminary lien notices have been signed off and received by you. A reasonable amount for the final payment is 20% of the contract.
Larger restorations, usually those that exceed $1,000 in repair costs or that change the preexisting condition of the structure, must have building permits. Building permits must be filed and inspections done by your local building dept. This is truly for your own benefit. Building inspectors are experts in codes and applying them to a given project. The permits required for your restoration will be approved according to all fire, safety and environmental regulations. Depending on the type and extent of your restoration, several inspections may be required. Having building permits and an inspector's approval will assure that the restoration is adequate.
In many locales an inspector is available on one
day's notice. Therefore, progress payments can be made according to each approved
inspection by a building inspector. It may be advantageous to schedule the payment
structure so as to coincide with the inspection done at each stage of the project. An
inspection card must be located in full view on the premises at all times. At various
stages of completion it will be signed off by the designated inspectors, i.e. electrical,
plumbing, mechanical, structural, etc.
A note on building permits. They are usually
directly linked to the property tax assessor's office. Any additions, modifications or
changes to the structure of your house may increase the tax liability of your property.
Also, in the event that you later sell your home, most states require full disclosure that
such a loss has occurred. Having obtained the necessary permits there will be no problems
with regard to disclosure or title transfer. And finally, in some states the safety net of
building permits may vicariously insure that the contractor is licensed, bonded and
insured. This is due to the fact that it would be extremely difficult and unlawful for the
contractor to apply for such permits if he was not licensed, bonded and insured. Remember
however, that it is the homeowners responsibility to obtain all building permits.
If the property is mortgaged, and repair costs to
the structure are greater than $2,000, the mortgage company will almost always be named on
the insurance draft. The insurance policy provides for this protection to the mortgagee.
If the mortgagee is named on the draft, the progress payments should be scheduled to
reflect the release of funds by the mortgage company. By using this approach you will not
be caught in a cash flow problem with the contractor.
Usually the mortgage company will control its interest in the property by depositing the insurance draft into their own account, or by opening a joint account with you. Funds will be released only after the mortgage company is satisfied that a certain percentage of the work has been satisfactorily completed. This is usually verified by their own representative. Call the mortgage company with plenty of advance notice to allow time for them to arrange an inspection.
Obviously, the more parties named on the insurance draft the more complicated the payment procedures become. But the end result does assure that everyone's interests will be satisfied.
ITEM VIII.
MECHANIC'S LIEN The Mechanic's lien protects sub-contractors and material suppliers
from losses due to the general contractor's failure to pay.
ITEM IX. LIEN
WAIVER A preliminary lien notice is a legal document used in many states that gives
notice to the owner of property by the sub-contractor or material suppliers that in the
event that they are not paid, a lien for the amount of the payment will be placed on your
property. Consequently, the title to the property will be colored and such liens must be
paid in order to transfer title to a new owner. The failure of the general contractor to
pay a sub-contractor or a supplier may leave the homeowner with a lien on his home for
such payment. If you receive a preliminary lien notice from a sub-contractor or supplier,
you should receive a signed lien release from them before you make payment for that work.
Also, be aware that the sub-contractor or supplier may have the right to place a lien on
property without serving you notice. To find out in your state contact your attorney.
ITEM X. LATE COMPLETION The Contractor agrees to complete all restorations by the date stated in this contract. If the job is not finished by this date a monetary penalty will be levied for each day beyond the completion date. The total amount of the penalty is deducted from the final payment.
ITEM XI. ENTIRETY OF CONTRACT This protects both you and the contractor so that if any additions, changes, modifications or deletions are made they must be in writing and signed by both you and the contractor.
ITEM XII. SIGNATURES At the end of the second page there is space provided for the signatures of the owner and the contractor.
No. 1 GENERAL CONDITIONS
Attachment No. 1 consists of the general conditions under the terms of an agreement. It describes the rights and responsibilities of the owner and the contractor while the restoration is being done. Such things as building permits, cooperation between parties, materials and workmanship, and other terms are included to protect both parties.
ATTACHMENT NO.1
GENERAL CONDITIONS
Attachment No. 2 is the Contractor's Bid and will establish the nature and extent of the work to be done as well as the price. It should include your Contractor Bid Form, Structure List, and the contractor's price breakdown for the complete restoration. Unless it has been modified, use the same bid as in the Proof of Loss.
Attachment No. 3 should be used when other plans, drawings or blue prints obtained from architects, building departments, or other sources are necessary for describing in more detail what work is to be done.
Attachment No. 4 is left open for any other information that may be necessary to include in the contract or any subsequent changes you and the contractor agree to.
Disclaimer The information, forms, and techniques herein represent the author's opinions only and is not legal advice. Any and all advise given herein is not legal advise. The information and forms provide general educational information only. If legal or other expert advice is required by the reader, the services of a competent attorney, accountant, insurance agent, or other professional should be sought. The information, forms, etc. come without warranty of any kind, either express or implied, including but not limited to implied warrantes for quality, performance, merchantability, or fitness for any purpose. The author shall not be liable to the user or any other person or entity with respect to any liability, loss, or damage caused or alleged to be caused directly or indirectly by this information, forms, etc.
Copyright © 1992 Michael L. Smith, Revised 1998, 2000 All rights reserved. No part of this publication (except forms) may be reproduced or transmitted in any form or by any means, electronic or mechanical, without permission in writing from the author. The forms may be printed out for private, one time, use only. Any and all commercial use of this site, without prior agreement, is strictly prohibited. All copyright infringements may result in severe penalties.
