CONTRACTING WITH YOUR BUILDER

The construction contract is a critical document because it spells out the scope of the project, the responsibilities of each party, and any remedies for resolving disputes. Make sure the contract serves your interests and not just those of the contractor.

The best approach is to talk with the contractor before the contract is drafted and discuss the details to be included. Once the document is prepared, read it carefully. A reputable contractor will not attempt to force you to sign a contract on the spot or say that the price will change if it is not signed right away. It is not unrealistic, however, for a contractor's estimate to be valid for only 30 to 60 days, as a protection against potential changes in the price of supplies or labor.

The cost of the project should be itemized to show the cost of building materials, decorative finishes and labor, and whether certain supplies or materials are not included. If you want to buy your own light fixtures, for example, the contract would indicate that you will supply them and that the contractor will install them.

The contract also should include a payment schedule that spells out when the contractor will be paid and any requirements that must be met prior to disbursement. Some contracts split the payments into three installments of 30 percent each and a final payment of 10 percent, plus the cost of any change orders. There also should be a provision that allows you to withhold payment if certain conditions, such as completion and quality of certain work, are not met. Among the other issues to cover in a contract are:

The start and end date and hours the contractor will typically work (whether any of the work will routinely be completed after hours or on weekends).

Guidelines on who orders supplies, obtains building permits, and makes decisions on minor and major project changes. Will you or the contractor be picking up supplies or will they be delivered? Do you want to approve all structural and design changes that arise or give the contractor authority to make decisions on certain technical changes? Who will be responsible for checking the deliveries to ensure all the materials arrive safely and as ordered?

Whether the contractor is required to remove construction debris and/or clean the job site at the end of each day.

Provisions for handling unavoidable delays and terminating the contract.

As you review the contract, ask questions and make sure you are comfortable with the wording before you sign it. This is a binding agreement so you may want to consider having an attorney review it. You may consider asking your Fannie Mae-approved lender to review the information as well.

More Information On Home Building

CONSTRUCTION TO PERMANENT LOANS
STEPS TOWARDS CONSTRUCTION LOAN PLANNING
SELECTING A CONTRACTOR
REQUESTING AND REVIEWING BIDS