15 Helpful Clauses for Construction Contracts
15 Helpful Construction Contract Clauses
- Deposit Clause: How much is the deposit? Is it refundable? Who gets it if the deal goes sour? If the deposit is your lot, who holds title to the lot? If you transfer it to the builder, it isn't your land anymore!
- Insurance: Who buys and maintains the fire and extended loss while the house is being built? Does the builder and all of his subs carry adequate Worker's Compensation? Does the contract say to provide copies of all policies? Does the builder have adequate general liability coverage? Does it cover mistakes or work deficiencies that show up during the warranty period? Does the contract state that you get a copy of his certificate of insurance so you can easily make a claim?
- Site Inspections: Are you allowed to visit your jobsite to check on progress and quality? Make it clear. You MUST be allowed to inspect. If it is not allowed or access severely limited, this is a HUGE Danger Signal.
- Drop Dead Date: What happens if the job doesn't start? Can you get out and get your deposit back? What happens if the job runs over? Do you get compensated for extra moving or storage expense?
- Change Orders: What is a change order? Can the builder make substitutions on products and things that do not cost in excess of say $100 without your approval? Spell out what is and is not a change. What is the absolute MAXIMUM amount or grand total of all change orders? State it in the contract so you have cost control.
- Definitions: Define what certain words and phrases mean. Make each word clear in the contract.
- Payment Clauses: When does the builder get paid? How do you know there will be enough money at the end of the job to bring in another contractor if your builder splits? Easy. Get a cost breakdown of the entire job as part of the contract. Each payment is tied to this breakdown. The builder only gets paid for work and materials that are in place in accordance with ALL codes and instructions! He can also get a pro-rata share of his profit and overhead as long as it is a line item in the cost breakdown.
- Warranty: Define the warranty. What is and is not warranted? What is and is not a warranty defect?
- Follow the Code: The contract must contain language that all work is guaranteed to meet the current building codes. These include the general code, the electrical, plumbing and heating/AC codes as well.
- Association Guidelines: The building code is a set of minimum standards. State that all work must also meet industry association guidelines. Many associations have extensive literature that is readily available for all builders to see and follow. It is also easy to understand.
- Manufacturers' Specifications: The contract needs to state that the builder will indeed follow all of the installation guidelines for each product he installs. What is so hard about that?
- Owner's Copy of Manufacturers' Specs: You need a copy of all written installation instructions for your records. They are easy to obtain. They usually come with the material when it is shipped. Have a convenient storage system in place or develop one. This is going to be a hard one, but it is vital if a defect is discovered later!
- Walk Through Inspection: When is it scheduled? It needs to happen several days or a week before closing. If it is too close to the closing, work WILL not get done before the closing. All work needs to be done - depending upon weather conditions - before you close.
- Plans and Specifications: Contract states that all work is done in accordance with the plans and specs. If you have excellent plans and specs, you are golden!
- Escrow: Contract states you have the right to hold back money for unfinished items including a pro-rata share of builder's profit and overhead. See why the cost breakdown is so important? Make sure you define who will maintain and administer the escrow account. If you state the lender, make sure they will do it.