What should a residential construction contract include? As with so much in life, it depends. If you live in a small community where everyone knows one another and there is a common sense of a what a pole barn looks like and costs to build, then the contract to build a pole barn could be quite short. If you are in a fast-growing metropolitan service area with a high degree of cultural and socioeconomic diversity and a lot of competition for work, you will want to define the scope and the mutual obligations a little more carefully.

The specifics of a construction contract will vary with the nature of the work, the value at risk, and many other factors, but in every case, a good contract is clear and fair. From either side it should feel like an agreement based upon mutual respect and mutual purpose. It should not feel coercive or punitive and it not only describes what the parties agree to, it also clarifies roles and responsibilities, and describes how disagreements or problems will be addressed.

Many of us likely have a grasp of the basics that are common to any contract: the parties to the contract, the location—including legal description if applicable—a description of the work to be performed, the price, and the payment terms. I’ve seen contracts for residential work that did not have much more than this, and I have seen contractors and clients alike find themselves in a world of trouble over it.

While this isn’t legal advice, what I’m particularly interested in communicating here are the elements that residential contractors and their clients wish were included after it’s too late. These might seem excessive or unnecessary until these issues arise on your job.

• Scope of work, described in detail. Drawings and specifications are often attached or incorporated by reference; this should be articulated.
• Start date, duration, completion date, and permissible causes for delay or extension
• Some articulation of quality standards, preferably from an independent third party. For example, the NAHB Residential Construction Performance Guidelines is available both in a contractor edition and in slightly abbreviated and less expensive form as a consumer edition. It’s well worth the $12 to provide a copy to the potential client with your proposal. You don’t want to be arguing about how good is good enough at punch list. As an example, imagine starting your workday walking into a room that you thought was ready for paint to find that, overnight, the homeowner had used most of a roll of blue painter’s tape to show you where they didn’t like the drywall finish. If you incorporated the Gypsum Association publication, GA-214 “Recommended Levels of Finish for Gypsum Board, Glass Mat and Fiber-Reinforced Gypsum Panels” into the project documents, then you have an independent standard to appeal to. Ideally, you would have also discussed the difference in appearance and cost between a Level 4 and a Level 5 finish ahead of time. Lacking any of that, you might have a fight on your hands with someone who is sure they are right.
• Work that is specifically excluded from the scope
• Respective roles of the contracting parties in maintaining the schedule, including coordination and communication for timely response on questions, additional information, and owner-supplied materials
• Payment terms, including down payment, progress payments, retainage, withholding for punch list, and final payment
• How changes can be made to the contract and who can authorize them, including changes by design professionals, changes resulting from unforeseen or concealed conditions including underground utilities or hazardous materials, and changes demanded by authorities having jurisdiction
• Some articulation of what conditions constitute a cardinal change that may result in renegotiation or termination. This is closely related to the previous point; the difference being that a cardinal change is outside the scope or intent of the original contract. There is extensive case law pertaining to this, but the point here is to become familiar enough with the concept to protect yourself from being contractually bound to a scope of work that is fundamentally different from what you agreed to.
• Materials price escalation, materials availability, and force majeure clauses. Force majeure refers to events that are outside the control of either party, could not be reasonably anticipated, and significantly disrupt the course of the work.
• What constitutes breach of contract
• Descriptions of site access, parking, hours of work, trash disposal, site disturbance, finish protection, limits of construction, use of utilities, cleanup, and responsibility for safety including children, pets, and visitors
• A clear statement coverage for Worker’s Comp and General Liability insurance. Builder’s Risk (Course of Construction) insurance is not the same as General Liability; either the contractor or the homeowner might carry this, or in the case of remodel or renovation, the homeowner might purchase additional coverage as part of an existing policy. However insurance for the project is handled, it should be clearly stated.
• Right to cure laws, which vary from state to state. Know your local laws and address the contractor’s right to cure specifically and directly. This can help to discourage termination for cause (however contrived) followed by a lawsuit and/or a less expensive contractor completing the job, or both.
• Dispute resolution, including venue. This can vary widely with the size or complexity of the job, the value at risk, the parties to the contract, and individual preference. Sometimes mediation is preferable; maybe negotiation, perhaps arbitration, possibly small claims court, and maybe litigation. In any case, it is prudent to agree ahead of time on how and where disagreements will be handled. The venue may seem unnecessary until you discover that your client has chosen to proceed against you somewhere that is just far enough away or inconvenient enough that you can’t afford to pursue the matter. It doesn’t cost anything before you sign the contract to specify that disputes will be heard in the county where you live or work.

This might seem like a lot for a residential job, but it costs nothing to include these in a contract and any one of these items can be very expensive to omit.

Illustration by Arthur Mount

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