Important Provisions of Home Construction Contracts

Whether starting a home renovation project or building a new home, it is important to understand the terms of your construction contract. These contracts range from a few paragraphs to dozens of pages. While each word of the contract may play a pivotal role in the process, there are a few “big ticket” items that you will want to pay attention to and review with a fine-tooth comb.

One of the most important provisions of contract is the scope of work. This section should clearly define the specific goals to be achieved by your project and who has the responsibility of achieving each goal. The scope of work should include sufficient detail to ensure all parties involved in the project are on the same page and can continue to stay on the same page throughout the project. A clear scope of work can help you, your contractor and its subcontractors avoid misunderstandings and disputes before, during, and after construction.

Price and payment schedule are also important provisions of the contract. The most common pricing models used in home construction contracts are 1) Stipulated Sum and 2) Cost Plus. A stipulated sum contract identifies a set price to be paid by the homeowner to the contractor, while a cost-plus contract requires the homeowner to pay the homebuilder’s cost of performance plus a fee (typically a percentage) to the contractor. Regardless of whether the contract is stipulated sum or cost plus, it should clearly identify the schedule in which payments must be made to the contractor. The payment schedule may call for a specified amount to be paid to the contractor at an agreed upon duration (i.e. monthly, quarterly, etc.) or the payments may be structured to become due upon the contractor meeting certain construction milestones. It is important not only to understand the initial price term and schedule, but also how these items could change during the project (i.e. change orders, cost escalations, etc.).

Finally (although we hope they are never needed), the provisions of the contract which identify potential damages and enforcement in the event of a default are paramount in the review of a construction contract. Contract provisions which clearly set a path to recovery in the event of a default by either party are crucial.

If you have questions or need assistance with a construction contract review, please contact Amy at 941-536 -2029 or [email protected].