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My contract has several clauses that I’ve stolen from other contracts that I liked and some that I’ve added as problems have come up (like no pets in the work area even after hours).
To answer your four specific questions:
If cost estimates are off: I rarely offer T&M contracts. Almost always fixed price. If costs estimates are off, I eat it. My contract does say that if material costs increase by 20%or more, I can charge the client. That was added after sheetrock prices took off. I’ve never enforced it. I don’t want to nickle and dime anyone.
If I’m injured and can’t do it, I’ll hire a sub to finish it. My first clause says that subs may be used for any or all work. I’d get someone I know and trust and ask them to finish the work.
Finally, there is a clause that says that no changes will be made unless in writing and all change orders become part of the contract. By the way, all customer initiated change orders cost money.
If I’m late finishing a project: too bad. I’m never more than a couple of days late and often early but I won’t take responsibility if it rains for a month and I can’t start concrete. Also, if a great past customer has a building collapse – I’m there immediately. (It happened last week). I’ve had two customers who wanted firm completion dates and asked for a penalty clause for late completeion. x dollars per day. I said that was fine as long as we added an early completion bonus of the same amount. They dropped the discussion.
I’ve never had a lawyer review my contract. I know I should but I doubt that I will. I’m small enough that most of my projects can be handled in small claims court if something goes bad. I’ll probably have a lawyer review my contract after I’m burned the first time.
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I'm just starting my residential design and build company, and have as my first job the renovation of a couple's house, with an eye toward handicapped access (I'm not a neophyte, just new at the business end).
The clients would feel more comfortable with a contract spelling out exactly what the responsibilities are if a) the cost estimates are grossly off, b) I am injured and can't complete the job (I'm a one man show today), c) if the allotted time is grossly exceeded, and d) if the contract needs to amended for the dreaded "change order".
The couple have been family friends for 30+ years, so we know eachother well, but both want to pursue the path that protects us all.
What advice is out there for those further along on the business side of things?
*First you should be carrying liability and workers comp insurance. Your agent will provide an affidavid of this. The comp is up to you. If you are licensed Our state requires that you carry the liability. If you didnt I wouldnt let you in my house.Second the AIA carries many standard contract forms. You can find where to get them by calling a local architech. Third, this renovation sounds simple. You should be able to give them a price. Dont underprice yourself. We use a 30% labor burden. This takes care of social security, insurance, comp. Then on small jobs 15% overhead and 10%profit. I bill monthly or upon completion. Deal with local lumber yards where you can get an account. Pay on time and you will get in their book at the gest price. Pay early and you get a discount. Put as much attention to your office as you do to your work. I only get money up front if it is a heavy material job. Or if i thinkl there is going to be a problem getting my money. Rick Tuk
*I guess I should pay attention to Q's like these, though I know little more than I learned in law school about contracts.I'm not a fan of generic forms. They should be edited to conform with state and local law, and to the specific needs of the parties. Know and understand the rules concerning additional "penciled in" clauses for individual jobs. The most important thing about the contract is CLARITY -- it should speak directly to the issues likely to come up. You're not likely to go to court, after all, but a muddled agreement is going to cost everyone aggravation and money.In VA a contract is required for all work over $50... I would even consider having family or friends sign a contract for all but the simplest no-brainer stuff ... the old rule is true: PUT IT IN WRITING. (Besides, a good-looking contract makes you look more professional than those guys who just use stationery-store invoice forms.)Your client/friends asked some smart questions. Some informal suggestions (I'm not practicing law here):>(a) as friends, maybe you'd like to do cost plus or T&M -- LOTS on this just recently in another thread ... if not, and I assume they're worried about the cost running over, well traditionally the contractor is stuck (subject to some exceptions) ... if you go broke before finishing, well, see (b) below;>(b) a performance bond pays the client if you fail to do your job willfully ... they'll come after you of course unless you go bankrupt ... and insurance can cover you against disaster (e.g., tool theft, fire, other casualty) that might destroy your business ... Rick is completely right, good insurance is critical, and choose a good company that actually PAYS its claims ... you will find that once you've bought the minimum liability policy, for example, another million is cheap;>(c) if TIME IS OF THE ESSENCE (I love that expression), that clause should be in the contract ... the only remedy really is damages against you, and these must be reasonably related to the client's losses, such as the loss of enjoyment of part of their home, consequential and incidental expenses, etc. ... I wouldn't include one of these unless time really is a big deal, and talk to them about the sorts of things that could go wrong ... you wouldn't want to get zapped by this clause if you discover unanticipated defects in the house, for example, without addressing such contingencies;>(d) change orders are easy -- they're just addenda to the contract, and must be treated the same ... I assume you could always write an additional contract too for added items -- like when the client goes, "Well, as long as you have the wall open, why don't you..."Yak, yak, yak. I know, too verbose. But I really think this sort of thing is an interesting puzzle. Remember you're dealing with friends and be political in all this. After closing but before moving down here, I got a call from a neighbor asking permission to remove a partially encroaching fence (6" over at one end), replacing it with a nicer one on her side of the side. In all truth, it was probably my fence encroaching on her property, whatever. Rocket scientist that I am I hadn't noticed it on the brand-new survey I had had done. The county wouldn't issue a permit without my permission. Fine I said, and nervously wrote a letter that I showed to a colleague. He pointed out that it was far too legalistic and would scare the pants off our neighbors. He was right, I rewrote it in normal language, but slipped in the key words to make clear exactly what I had in mind.Nice name, Forrest. Where do you hail from?
*Andrew,Good advise. When it comes to late penaltys I have a hard and fast rule. If I agree to one there is also a bonus for timely completion. I havent failed to make the bouns yet. Do not forget to add time in for change orders. When dealing with relatives and friends I always overbid the project then either do some extra work or dont bill for the full amount. It solves a lot of problems.Rick Tuk
*My contract has several clauses that I've stolen from other contracts that I liked and some that I've added as problems have come up (like no pets in the work area even after hours).To answer your four specific questions:If cost estimates are off: I rarely offer T&M contracts. Almost always fixed price. If costs estimates are off, I eat it. My contract does say that if material costs increase by 20%or more, I can charge the client. That was added after sheetrock prices took off. I've never enforced it. I don't want to nickle and dime anyone. If I'm injured and can't do it, I'll hire a sub to finish it. My first clause says that subs may be used for any or all work. I'd get someone I know and trust and ask them to finish the work.Finally, there is a clause that says that no changes will be made unless in writing and all change orders become part of the contract. By the way, all customer initiated change orders cost money. If I'm late finishing a project: too bad. I'm never more than a couple of days late and often early but I won't take responsibility if it rains for a month and I can't start concrete. Also, if a great past customer has a building collapse - I'm there immediately. (It happened last week). I've had two customers who wanted firm completion dates and asked for a penalty clause for late completeion. x dollars per day. I said that was fine as long as we added an early completion bonus of the same amount. They dropped the discussion.I've never had a lawyer review my contract. I know I should but I doubt that I will. I'm small enough that most of my projects can be handled in small claims court if something goes bad. I'll probably have a lawyer review my contract after I'm burned the first time.
*About the fence anecdote -- I forgot to add -- the fence company built the new fence encroaching too! Even though there were survey spikes in the ground next to the first post...The rule I recall is that pure penalties will not be enforced -- that is, a penalty that is punitive not compensatory, like a criminal fine. They are thought to be inconsistent with the efficiency theory behind contract law. But bonuses are enforceable!I can understand a commercial enterprise wanting a time of the essence clause, if late work is going to delay their opening for business, but the residential customer who asks for one is either trying to get cute or has heard all those (true) stories about contractors who disappear 2/3 of the way through the project.It is easy to underestimate how stressful it is for some people to live in a 2/3 finished house (most of us could and perhaps are doing it fine). I just talked to a guy who was out of a kitchen for 3 mos.! I can't imagine a good reason for that and wonder what was going on. The answer is a more reliable contractor, not a fine that can't be enforced or will soon run so high the contractor will hate the customer and say scr*w it.Incidentally -- on performance bonds -- drop the word "willfully," I was thinking of the sort of bonding one obtains for, say, workers of household cleaning service who might steal from the client's home. The performance bond is for when you just can't do it, as happens too often to builders who abruptly becomes insolvent -- politely described as "cash flow problems."
*Ryan,I hope it wasnt a house you built that colasped LOL.Small contracts (under 30,000) are usually pretty easy to estimate. When you get to a gut and rebuild of an old 4500 square foot house, things change. If you keep it small you may never have to have a lawer review your contracts. Looking at other contracts is a great way to get ideas for your own.Rick Tuk
*... if a lawyer were to charge you, say $500, to review your contract, and you gross $100k a year, his/her fee would amount to 1/2 of 1%. Pretty good investment, plus you have the lawyer's malpractice insurance as a fallback if it doesn't work as promised.It's always nice to have a good relationship with a lawyer anyway, for someone to talk to as things arise. The contract will give you the incentive to find someone you can talk to. You'll make back the cost in Tums alone.