For Homeowners: What Is A Contract? (1 of 2)

If you’re planning on having any sort of major work done to your home-such as a remodel, renovation, or repair, a major part of project success is a good contract. As the owner, having a general understanding of what a contract is, and its major pieces will help you negotiate with your contractor, or through an attorney, to get a good contract signed. Contracts are signed by someone called a “party” to an agreement. A contract protects both “sides” to an agreement if negotiated properly. It will spell out the scope of the work, who does what, how much the project will cost, and how long it is supposed to take.
There are a few different types of contracts and a number of different documents that should be included in a contract. The owner may contract with both an architect and a general contractor, and depending upon permit requirements, with just a general contractor. Many contracts that are signed today use standard forms provided by industry associations with the most popular supplied by the AIA.
Most homeowners have never gone through the experience of having significant work done on their homes, whether it be a remodel, renovation, or a repair of some sort. For this reason, most homeowners will be unfamiliar with the process, especially with the specifics regarding a contract with a contractor.
WHAT IS A CONTRACT? A simple explanation of its function is that it should record the terms of the agreement between the parties. Generally, a very simple definition of a renovation/repair contract is that it will state the services/products that will be provided and the delivery approach terms for that/those service(s), the agreed upon price, and the fact that both parties have agreed on everything (usually with a signature on the signature block when the contract is written).
However, contracts for construction work are usually more complicated and contain several lengthy component parts than what this simple definition contemplates. For that reason there are standardized forms that are quite often used, especially when a lawyer isn’t involved (not recommended). Typically, a construction project such as a remodel or renovation will require the services of multiple contractors and possibly designers, and the contract duties of each should be spelled out in separate agreements with all participants.
Renovation/repair contracts have several classifications. One classification relates to how the contract is “priced,” as opposed to how the services/products will be “delivered.”
As for pricing, there are three different and commonly used types of contracts in the building trades-lump sum, cost plus, and cost plus with max price. Each of these “pricing approaches” have pluses and minuses, depending upon the owner’s risk tolerance for increases in prices for the work.
No matter what type of “price approach” that is agreed upon, there are generally three “delivery” methods a contractor can offer to an owner. These approaches have come to be known as:
    •    Design-Bid-Build – The owner enters into a contract with both an architect and a general contractor, after the contractor supplies a “bid;”
    •    Design Build – One firm (usually a general contractor) provides all services, including design;
    •    Construction Manager at risk – The owner enters into a contract with a single entity who then manages other contractors and designers. Another subpart of this approach is where the owner can hire one entity to act as the owner’s agent but the owner remains “at risk.” This variation is called construction manager “as agent.”