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The Perfect Elements of a Contract to Build a Beach House

A perfect all-inclusive contract basically consists of four documents in combination:

  • DRAWINGS
  • SPECIFICATIONS
  • AGREEMENT
  • CONDITIONS

DRAWINGS are a graphic representation of the work to be performed consisting of a site, foundation, floor, roof, elevation, and cross section plans. They show the location, character, dimensions, and details of the work.

SPECIFICATIONS are a written description of the work to be performed consisting of product identification, types of finishes, and standards for performance. They explain the work to be performed in terms that are not easily displayed in graphic form.

AGREEMENT identifies the parties to the agreement, the date, payment schedule for the work, the basic commitment of the Trade Contractor to construct the described project in accordance with the Drawings and Specifications, the schedule on which the work is to be performed, and the signatures of the parties. Usually, this form is quite brief, but it incorporates by reference the other parts of the contract.

CONDITIONS clarify in detail the rights and obligations of the Owner, Trade Contractors, and those activities which will be shared by mutual agreement. These clauses deal with various subjects such as Owner, Construction Manager, Architect, disputes, change orders, schedule, liability insurance, safety, inspections, corrections, arbitration, termination, jurisdiction.

All parties will want to be familiar with all the WRITTEN REQUIREMENTS of an enforceable contract. Here’s a list of 16 conditions between an Owner and an Materials Provider and/or Contractor that you’ll want to put into writing. Consult with an attorney practicing construction contract law to review your contract documents before forming an agreement.

Business Documentation. The legal business name, address and business owner, or legal representative, should be stated. Indicate license numbers, professional certifications, proof of bond to cover work performed, proof of occupational insurance, personal and property liability insurance (contractor), and errors and omissions insurance (designer). Be sure statutory notice is provided according to your state’s law!

Scope of Work. You should identify what will be accomplished. What do you intend to do? What type of work will be performed? The preferred method is to simply refer to Drawings and Specifications, and let those documents do the talking for you, rather than try to re-describe or summarize the scope of work. If drawings and specifications are not yet created, describe how these documents will be created and what fees will be associated with their creation.

Contract Price. How much will be charged? Does the price include sales tax or not? Who is responsible for getting the permits and scheduling inspections? Is the price fixed on drawings and specifications, or cost plus a percentage with an estimate, or based on an hourly fee? Can you break the work into phases of completion?

Schedule of Payments. How are you going to pay? Is there going to be a down payment or retainer fee paid? Are there going to be progress draws? Will you utilize a voucher system? Is the balance due on completion of work? How long after substantial completion of work is final payment due?

Terms of Payments. How do you determine substantial completion of work: when the permit is issued or signed off or some other more definitive date? Will a notarized waiver of lien be required? Will dual signature checks be utilized? How often will the lender’s representative visit the site to verify progress? Never agree to an assignment of funds!

Interest. Will you be charged interest? If so, on what amount are you charged interest? When does interest begin to accrue? If the schedule exceeds the time allotted by lender, who pays any additional interest or penalties?

Site Meetings and Workplace. Where will meetings take place and how frequently? Who will have the authority to call meetings? Who will observe work to be accomplished and become the contact person for all questions and inquiries? Who will maintain workplace clean up and safety? Who will be responsible for maintaining portable toilet, first aid kits, signage, and temporary services on site?

Building Codes. Who is responsible for conformance of drawings and specifications to the building code? What happens during course of construction if building codes change or a field inspector changes the interpretation of a plans examiner?

Lender Requirements. Will both designer and contractor complete a construction cost breakdown form and description of materials using lender’s forms? How will you proceed from a very general estimate of costs of work to be accomplished to a specific budget based on a thorough cost analysis? Who are the specialty contractors and suppliers for each phase of the design and build endeavor?

Change Orders. How will changes to scope of work be documented? Are change orders going to be in writing, or can they be authorized orally? How will changes be billed? Will charges or credits be based on time and material at cost or markup price? Will receipts be provided for materials or work outsourced to others? Is payment to be made in advance for changes or at the time of the next progress billing? Are hourly rates established for residential designer, contractor, or staff person?

Disputes and Remedies. If there is a misunderstanding, how will it be resolved? Are you going to spend endless years in mediation or arbitration, or are you going to resolve this through Mandatory Arbitration Rules, which is set up and paid for by the Superior Court system in your state? Will disputes be settled in accordance with the American Arbitration Association and their Construction Industry Arbitration Rules? How will legal fees be paid? Can you terminate the relationship without paying penalties or additional fees to a designer or contractor?

Warranty. What kind of warranty is being offered for products and services? Who is responsible for maintaining warranty? How long does the warranty remain in effect? Will the designer or contractor agree to maintain warranty of habitability according to provisions of your state’s law? What limitations are placed on warranty? Does warranty cover workmanship, products and materials? Who is responsible for collecting and disseminating product specifications, warranties, and installation instructions?

Unforeseen Conditions. Who is responsible for identifying or removing hazardous waste? Who identifies and fixes structural defects, nonconforming plumbing, mechanical or electrical conditions, or concealed problems with the structure? Who takes financial responsibility for theft and vandalism? What special conditions arise during inclement weather that may affect work schedule or performance?

Scheduling. Whose responsibility is it to schedule the work? If the workplace is not ready at each phase of construction, then who takes responsibility? Who pays for unnecessary trips to the workplace? Are provisions given for labor and delay damages? Who determines who will be responsible for causes of delay? If work is interrupted, how will you correct the problem?

Correction or Completion of Work. Who has the right to create the final punch list? Who has the right to complete pickup work? Will any payment be withheld for any reason? Is it necessary to report deficiencies in writing or can these be described orally? How long is a reasonable opportunity to perform corrections? Who will determine substantial completion of a phase of work for designer or contractor’s work?

Acceptance of Conditions. Is there a place for signatures by owner and designer and contractor indicating their Agreement? When is the start date of acceptance? How long are conditions in effect? Whose forms are to be utilized for formal agreement?

Becoming familiar with each of these issues begins with an informal meeting of all parties either together or separately to discuss the expectations of each participant. This meeting will open lines of communication on these issues and inform all participants of what is expected of them during the course of construction. No firm agreements should be made during information gathering meetings; this is a time for becoming acquainted with the various issues which contribute to the overall project success. It’s always a process of progressive approximation so agree to meet again to discuss the “Conditions” of your “Agreement.”