If you get anxious when it's time to dot the I's and cross the T's in a remodeling contract, you're not alone—that's the buzz in the Journal of Light Construction Forums. Yes, all standard contract forms enable contractors to spell out the scope of work and nail down terms and conditions, but experienced pros will tell you that they never really know the true scope of a job until demolition starts. Does your contract protect you from having to correct defects that you can't see in a pre-bid inspection at your own expense?
Case in Point
Writing in the JLC Forums, a North Carolina bath remodeler says: "I'm doing a job where on the outside everything appeared to be in order, but when I started working, there were some serious issues that needed fixing before I could complete the job properly. The customer expressly stated that he did not want to pay more—that I should have considered the extra work before giving him a price. Now mind you, I do factor in a percentage for contingencies, but sometimes that doesn't cover the extra time it takes. How do you guys word your documents to state that sometimes the unexpected happens and it's not our fault, so you will have to pay extra for correcting the unexpected?"
Dave Meiland, a Washington State contractor, offers his approach: "I only price what I can see right in front of me. I cannot see your subfloor, the plumbing in your walls, the lousy wiring you have, the buried J-boxes, the missing insulation, the dry rot around your windows, etc. If you price the demo of what you can see, and the installation of the new work, leaving any remedial work as an allowance you should be OK."
Contingencies and Allowances
The terms "contingencies" and "allowances" have specific meanings in the context of a legal construction contract. A contingency is a predetermined amount or percentage of the contract held for unpredictable changes in the project. Cash allowances provide a convenient method of allocating construction funds to portions of the work that cannot be specified with sufficient particularity for competitive bidding at the time of contracting—they're most often used as budget placeholders for products and materials that haven't been selected and priced at the time a contract is drawn.
So if you put an allowance or contingency clause in a contract, would it require your client to pay extra to correct conditions not anticipated in the bid or the total contract price? Legally speaking, no—and in fact, it might obligate you to refund some money to the client if unexpected conditions didn't materialize. Sums allocated to allowances and contingencies are meant to be figured into the overall contract price, not charged over and above (see "Contract Clauses That Keep You In Control," JLC, May 2012) for more information on effective use of allowances and contingencies in construction contracts).
Contract Language to Address Hidden Conditions
More than one savvy JLC Forums contributor suggests addressing unknowns by inserting a "concealed conditions" or "hidden defects" clause in the contract. Justin Thomas, a Virginia carpenter, shares his company's version:
CONCEALED CONDITIONS: This Agreement is based solely on the observations Contractor was able to make with the structure in its current condition at the time this Agreement was bid. If additional concealed conditions are discovered once work has commenced which were not visible at the time the proposal was bid, Contractor will stop work and point out these unforeseen concealed conditions to Owner so that Owner and Contractor can execute a Change Order for any Additional Work.
The wording here relieves both the contractor and the client from the potential consequences of a bid based on insufficient information. It provides a conventional legal mechanism—change orders—for adjusting the price of a job if necessary with agreement from both parties (also see "How To Write Ironclad Contracts," JLC, September 1992, for alternate wording for a contract clause addressing "hidden, concealed, or unforeseen conditions.")
Harold Hammerman, author of Running Your Remodeling Business and the namesake of a prestigious NARI award for education and training, advises contractors who insert language or otherwise modify standard contract forms to have any changes reviewed by a lawyer.
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