How to write a builder's contract
A builder's contract protects both you and your client should disagreements arise during the construction process or after completion of the project. Whether you're submitting a firm bid or a construction estimate, you're entering into an agreement to provide a service in return for payment.
A builder's contract will let your clients know what to expect from you and what you expect from them. You can develop a standard builder's contract and adapt it to any project.
Identify the property and the owners. This information appears at the top of your contract and it clearly states the physical address where you will be building. Enter into a contract only with the owners of the property. If a tenant wants to hire you, you still need a contract with the property owner to protect your rights to collect payment or attach a mechanic's lien if the tenant defaults on your payment agreement.
Specify the work in detail, including any applicable time frame. The more descriptive you, the more protected you are. If you're constructing an entire home, you can refer to blueprints of the project. For example, you might write, "Bob's Building will construct a ranch style home as determined by blueprints supplied by the owner." If you or the owners want to alter the blueprints, specify the alterations here or detail them on a separate page to be attached at the end of the contract.
State the financial terms of the building contract. Some clients do not understand that you incur expenses before you ever break ground on their job. If you can't financially carry the costs of building permits, site inspections or a builder's risk policy, include those items in the contract and assign payment directly to the client. Alternately, set up a system of financial draws that will occur upon completion of predetermined stages, such as completion of the excavation and foundation, completion of framing and boxing, and so on. You can make these stages as frequent as necessary in order to cover your expenses.
Spell out the requirement for Change Orders. Most disagreements between a builder and a client occur when the owner requests a small change and is then surprised by the additional cost. Set forth in the contract the need for a Change Order for all deviations from the original plan.
Determine client and builder liability in the contract. If you offer a warranty, make a note of it here. Some states insist upon a warranty for structural defects. If the client is hiring other subcontractors, make it clear that you are not liable for any problems that arise as a result of their negligence.
Contact your state or local building authority. In some states, building contracts are controlled by a state or country regulatory board and a copy of your contract must be on file. If this is the case, the building authority will provide you with a checklist of required contract items and suggested items.
- Err on the side of adding extra details instead of skimping on the project description and expecting the client to understand. The client is hiring you because he does not have the building expertise---don't assume he understands anything. Gather everyone's signatures. To be a legally binding contract, both you and the client must agree to the terms and sign on the dotted line.
- Make sure the client is aware that he is responsible for every expense on the job. If you pay for something, make it clear that you expect reimbursement. Consider having your attorney look over the contract.