Contract Negotiations

Learn what to put into the contract
to protect you and your home contruction project. This topic reviews clauses in the contract to avoid costing you money later on.


Page Topics:

  1. building specifications
  2. labor specifications
  3. negotiating the contract
  4. payment retainers
  5. change orders / extra clauses
  6. other parts of the contract
  7. understand liens
  8. contractor evaluation form
  9. selecting contractor checklist

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Building Specfications

The owner specifications should be part of every contract before you sign.

The specifications should include all supplies that will be used and what services will be rendered.

Step3: see our discussion on assembling your project specifications


Your specifications should list the brand, make, model, number, style, type, color and any other descriptions,

plus whether the materials used in construction will be new or used. Ensure that the specifications are exact in detail to protect you from inferior use of products and to compare "apples-to-apples" specs with several lenders.

Be as detail as possible for every room in the house.

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Labor Specifications

Labor and sub-contract specifications should be part of every contract before you sign

labor and service specifications are generally referred to as general conditions or terms of conditions


Specifications should list clean-up clauses, date of commencement, acquisition requirements, trash removal, transportation of workers, dump fees, etc.

you should specify whether alcoholic beverages may be consumed on your property

  • get everything down in writing; never accept a verbal agreement

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Negotiating the Contract

The contractor will supply a bid or estimate after looking over the project

make sure the contractor bids on the Contract Specifications to avoid misunderstandings

  • all bids should be in writing
  • all bids should specify which materials will be used


Take the time to review the bid or estimate —

walk away from any pressure tactics to sign the contract prematurely

  • be careful what you sign — signed bids may act as a contract agreement


It's best to receive two or more bids to compare contractors

if each contractor received the exact project specifications, you should be able to compare bids apples-to-apples — best overall bids should be priced in the middle- to high end

if the submitted bids are over budget, work with the contractors on recommendations where you can cut costs — then resubmit the reduced plan through the bid process


You may sign the contractors contract or supply an owner's contract —

either way, have an attorney look over the contract

view sample bid proposal
samples of contractor forms

sample residential construction schedule
what's inside the construction contract

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Payment Retainers

The contract will specify payment schedules that generally have 5-6 or more draws during the contract period

a draw will be made at the end of a construction phase to pay for work completed

about 5-7% of the initial bid is enough money to begin the project — builders will then submit invoices for a draw


You should maintain a minimum 10-20% retainer at the final draw —

this draw is released upon final inspection of the construction

allow anywhere from 2-4 weeks on the retainer to confirm that everything is in working order — once the money leaves your hands, you will find it difficult to get the required attention


If a lender is doing the financing, have the lender make payments directly to the owner, not the contractor, or have the payments issued in both names

this way you can check invoices and review work orders to confirm that you are not being billed twice or for items not part of the project

get in writing that the lender must receive or satisfy all lien releases from suppliers and subcontractors before issuing any payment and that a copy be supplied to you

lenders will often inspect the premise prior to release of a funds — they do not inspect for quality

you may want to hire your own inspector to check the quality of work before signing any phase completion form

upon final payment, make sure you have all final releases of the lien and a copy of the final invoice showing that the contract has been paid in full


More information about selecting your contractor:
from the national association of the remodeling industry

view warning signs

lookup state, county and city governments for information about contractor licensing:

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Change Orders - Extra Clauses

You will most likely want to change something or add an extra during the construction period

a change may be better materials, different colors or another texture. Extras may include more space or a second closet


Make sure the contract allows for change order / extra clauses before you sign

if you make a change order, get it down in writing

these changes become part of the original contract that should be signed by the contractor and owner before going into production

never accept a verbal agreement to a change — and never leave a voice mail, email, or written note hoping the contractor will add the request to the contract

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Other Parts of the Contract

agree to dates of acceptance
(the date when the contract is signed),

date of commencement
(the date when the work is to begin),

and date of completion
(the date when work is to be completed)

discuss with the contractor delay clauses — this allow you to assess a penalty if controlled delays push completion date beyond the agreed to date.

note: if you insert a penalty clause, the contractor may request a bonus for early completion. You need to run the numbers to determine whether this is beneficial to you.

make sure the architect, contractor, owners and any designers to the contract agree to the dates before the draftsman completes your plans

you want to avoid any delays in your project schedule — it can cost you money


The contract (if needed) should include a list of subcontractors — plumbers, electrical, roofing, etc. — with all applicable business information

request their names, address, business licenses, etc.

the contract should list the name, address and phone number of all suppliers — you will most likely receive notices or lien releases from these players. It would be nice to have a file to track these players.

make sure the contract states that you will be released from all liens upon payment — you will want to have a copy of all releases for your files


Get performance statements and unforeseeable work clauses

performance statements guarantee that the work and supplies meet specification and building code requirements

unforeseeable clauses fixes leaking pipes, non-working electrical

state in the contract that the contractor is responsible for all required building permits

insert liability and warranty clauses that protect you in the event of damages, injuries, etc.

have your attorney review


You may request a purchase allowance, which allows you to shop for materials of your choice

the difference in the purchase price as stated in the contract is refunded to the contractor or owner, depending on the price you pay


Insert a cleanup clause and work schedule of when the work should be performed

make it a habit to drop by to see that the contractor adheres to the agreed schedule

lookup state, county and city governments for information about contractor licensing:

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Understand Liens

A construction lien allows any contractor, sub-contractor or supplier that has not been paid to place a lien on your property as security for payment

a lien against your property will inhibit you from selling or obtaining financing, in some cases, until that lien is paid

the most common liens occur when the subcontractor fails to pay his suppliers, even though the full invoice has been paid by the owner to the subcontractor

the suppliers can then place a lien on your property for payment

the general rule is to never make a payment without receiving a release of lien from the contractor, sub- contractor and supplier, and whomever else is involved


In some states, it is required that the sub-contractor and/or supplier notified you that they will be performing some work and/or providing some supplies

if you state does not require it, request it in the contract.

save these notices as a reference file for tracking who may have a lien on you until final payment

it is recommended that the contract has a provision that the contractor is responsible for obtaining all liens

if not, then that responsibility falls upon you

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