What to Look for When Signing Your Contract
Now that you’ve found a contractor and accepted their bid, it’s time to sign the contract. Before you sign, make sure you read through it carefully and understand everything that’s in it, because everything in there is written to protect you and the contractor during your solar, hvac, roofing or windows project.
If this is the first time you’re signing a contract, you may not be aware that there are two types of contracts: a fixed price contract and a time and materials contract. When a contractor presents you with a fixed price contract detailing the scope of the project, it shows he or she listens to you. This type of contract is all inclusive—detailing permits, labor costs, building materials, refuse collection, etc. The benefits of a fixed price contract include that the contractor has to pay for any extra costs not written in the contract, as well as paying for labor if they go over the timeline.
A time and materials contract, on the other hand, is always subject to change based on the time and materials the project calls for. This type of contract doesn’t give you, the homeowner, any certainty of cost or timeline. If presented with this style of contract, ask if your contractor would be willing to draw-up a fixed price contract. If they are against it, you should look for another contractor in your area that is comfortable with using a fixed price contract.
Aside from the type of contract, there are other items that you should look for in a contract. Below is a checklist for items that should be included before your sign on the dotted line.
All contracts should include:
- Contact information for your contractor
This ensures that you’re able to contact them if you have a problem. They should include their mailing address, phone numbers, a fax number if available, and an e-mail address.
- An overview of the project
Make sure they understand the scope of the project including details you shared and goals for the project.
- Detailed outline of materials and what they will cost
Look for an itemized list of materials that will be used for the project, again the more detail the better. Will the materials be new or sourced from another site? Who will purchase materials, the homeowner or the contractor? Is there a delivery fee?
- Proof of liability and license
This is a big one. Make sure the contract says the contractor is licensed in your area and carries the appropriate amount of liability insurance to protect you should something happen on the job site.
The timeline sets milestones for completing the job and includes a finish date. Look for language that spells out penalties for missed deadlines or late work. If it’s not in its own section, look in the payment section.
- Payment terms and schedule
This connects the project milestones with a corresponding payment. The payment schedule will also detail how much your contractor requires as a down payment. It should never be more than 30%. Look for the ways you can pay your contractor as well as the penalties for missed deadlines if not included in the timeline section. A best practice is to hold 10% until the job has been completed to your satisfaction, and you’ve signed off on it.
- Hours of work
Make sure your contractor shares what hours and days you can expect them to arrive at your home to begin work, as well as when they will wrap up for the day. Even better if your contractor addresses where they will store the materials and tools at the end of each day.
- Who will secure permits
The contract should say that your pro will secure all necessary permits and required licensing for your project. If there is no language addressing this, bring it up to your contractor and have a revised contract drawn before signing anything.
- A procedure for making changes
The contract should have a plan in case something changes—if your contractor needs to use different materials, or a problem is discovered that needs to be addressed before they can move forward. This ensures you’re aware of everything and no changes can be made without you being aware of them, as your contractor will need you to sign off on the new scope of work. This plan also gives you some room to change your mind mid-project without derailing the whole thing.
- A termination clause
No one wants to think about breaking up with their contractor, however a termination clause protects you and the contractor from staying in a bad project. This section provides detailed reasons the contractor or homeowner can pull out from the project: missing deadlines significantly, a failure to pay, unsafe work environments, etc.
Similar to the liability and licensing section, the contract needs to have language describing the contractor’s lien. This ensures subcontractors can’t hold you responsible if the contractor doesn’t pay them.
- A “Punch list” clause
A “punch list” is a list of small fixes that will be required after the main project is completed. A best practice is to estimate that cost, double it, and withhold payment for that amount until the “punch list” is complete. Paint touch-ups are often included in this list.
- Third-party contractor information
Some contractors hire third-party contractors to run the job. If your pro plans on doing this, make sure it is written into the contract that they are responsible for any work done. Should you have a problem with the third-party contractor, your contractor is responsible.
- Information about warranties
Find out if your contractor offers warranties for their work. If so, make sure those warranties are written into the contract.
- Dispute resolution information
The dispute resolution may be written in with the termination clause, however it may have its own section. Find out if there are procedures in place to resolve any disputes between contractors and homeowners, as this could avoid the need to invoke the termination clause.
We are a society of skimmers these days but this is one document you don’t want to skim—read the contract carefully and speak up if you’re unsure about anything. Print this checklist out to have next to you as you’re going over the contract. Use it to make notes and ensure that your project is off to a great start!