Building Contracts: What to Watch Out For

09-Jun-23

32 min

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Creating a successful building contract is an integral part of any major construction project, as it outlines the rights and obligations of all parties involved. This powerful document serves as a roadmap for the project to be completed on time and within budget. But crafting an effective building contract can be complex – so what should you look out for?

The first step is to ensure that everyone involved has a clear understanding of each other’s roles and responsibilities, as well as how disputes will be resolved. Having comprehensive payment terms is also essential; this should include allowances for unforeseen circumstances or delays, as well as provisions for late payments or non-payment.

When defining the scope of work that needs to be done, it is important to include a detailed description of the work itself, plus its timeline and budget. Finally, make sure that your building contract is legally binding - by having it reviewed and signed by qualified legal professionals before the project begins.

At tiktok��˰� we understand how important having a well-drafted contract can be – which is why we provide free building contracts templates with our community template library. Our team are dedicated to helping you create an effective document without needing any specialist knowledge – giving everyone access to powerful legal documents with just a few clicks! Read on below for our step-by-step guide on how to use our template library today!

Definitions

Interviewing multiple contractors: The action of speaking with multiple potential contractors to ask questions about their experience, qualifications, and references.
Checking references: Investigating the past work of potential contractors by obtaining information from other clients.
Reading reviews: Examining what other people have said about a potential contractor’s work.
Setting an agreed-upon start and end date: Deciding on a start and finish time for the project that both parties agree to.
Specifying the materials and labor to be used: Clearly outlining the items and personnel that will be used during the project.
Establishing a payment plan: Developing a plan that outlines how and when payments will be made.
Setting a timeline for each stage of the project: Creating a schedule for each step of the project.
Establishing payment milestones: Setting dates by which payments should be made to ensure the project is progressing according to plan.
Discussing payment options: Considering which payment methods can be used for the project.
Obtaining necessary building permits: Making sure the proper permits have been acquired before the project starts.
Ensuring all contractors are properly licensed: Confirming that contractors have the necessary certifications to legally complete the project.
Understanding local zoning regulations and building codes: Being aware of the local laws and regulations regarding the construction.
Liability insurance: Coverage that protects a contractor from any legal action or financial loss that could be a result of the project.
Worker’s compensation insurance: Protection for both the contractor and the workers in case of an injury on the job.
Property damage insurance: Insurance that guards against damage to the property during the project.
Allocating a contingency budget: Allotting funds in case of unexpected costs or delays.
Planning for alternate solutions: Having a plan in place for what to do if something goes wrong.
Identifying potential sources of additional funding: Finding other ways to get money if the contingency budget is not enough.
Identifying all costs associated with the project: Discovering all the expenses associated with the project, including materials and labor.
Accounting for additional costs: Planning for extra costs, such as permits and materials.
Setting a limit on total project costs: Limiting the total cost of the project in the contract.
Understanding the terms of the contract: Being aware of the agreement between the parties.
Knowing when to involve an attorney: Determining when it is necessary to bring in legal representation to settle a dispute.
Seeking mediation when possible: Attempting to resolve disputes without taking legal action.
Establishing clear communication protocols: Setting up rules for how the parties will communicate.
Scheduling regular project updates: Planning meetings to monitor the progress of the project.
Documenting all communication: Recording all conversations to make sure everyone is on the same page.
Maintaining a project log or journal: Keeping a record of the project that documents any changes or updates.
Tracking all financial transactions: Monitoring all payments to ensure they are made on time.
Filing all paperwork and records in an organized manner: Storing all documents in a way that allows for easy access.

Researching and selecting the right contractor for the job
Interviewing multiple contractors
Checking references
Reading reviews
Writing a clear and thorough contract that outlines all responsibilities and expectations
Setting an agreed-upon start and end date
Specifying the materials and labor to be used
Establishing a payment plan
Establishing a payment plan and timeline for the project
Setting a timeline for each stage of the project
Establishing payment milestones
Discussing payment options
Ensuring all permits and licenses are in place before the start of the project
Obtaining necessary building permits
Ensuring all contractors are properly licensed
Understanding local zoning regulations and building codes
Understanding the various types of insurance needed for the job
Liability insurance
Worker’s compensation insurance
Property damage insurance
Preparing for potential construction delays and budget overruns
Allocating a contingency budget
Planning for alternate solutions
Identifying potential sources of additional funding
Working with the contractor to develop a realistic budget
Identifying all costs associated with the project
Accounting for additional costs (e.g. permits, materials, etc.)
Setting a limit on total project costs
Knowing your rights and responsibilities when it comes to resolving disputes
Understanding the terms of the contract
Knowing when to involve an attorney
Seeking mediation when possible
Keeping an open line of communication with all parties involved in the project
Establishing clear communication protocols
Scheduling regular project updates
Documenting all communication
Ensuring that all relevant documents and records are kept up-to-date throughout the project
Maintaining a project log or journal
Tracking all financial transactions
Filing all paperwork and records in an organized manner

Get started

Researching and selecting the right contractor for the job

Compare the experience and qualifications of different contractors
Read customer reviews and ratings
Make sure the contractor is insured and licensed
Check that the contractor specializes in the type of work you need
Ask for and contact references
When you have selected the contractor you want, you can move on to the next step.

Interviewing multiple contractors

Prepare a list of questions to ask potential contractors
Create a list of criteria to compare contractors against
Schedule interviews with each contractor
Ask questions to evaluate each contractor’s experience, skills, and availability
Ask for quotes and compare prices
Ask for references and contact them
Evaluate the contractor’s overall professionalism and attitude
Make sure you have a good rapport with the contractor
When you have identified the best contractor, you can check this step off your list and move on to the next step of checking references.

Checking references

Contact previous clients of the contractor to verify the quality of their work
Ask the contractor for a list of references and contact information
Ask the references about the contractor’s work ethic, pricing, and level of communication
Ask what the contractor did well and what could have been improved
Make sure the references are not related to the contractor or have any other conflicts of interest
When you feel confident about the contractor’s references, you can move on to the next step.

Reading reviews

Read online reviews, customer testimonials, and ratings from previous customers
Speak to the contractor directly and ask for references from past customers
Ask questions about the contractor’s experience, customer service, and quality of work
Ask for proof of insurance and certifications
Once you have gathered enough reviews, you can make an informed decision about whether the contractor is right for the job
You can also use the reviews to negotiate with the contractor to get the best deal
Once you are satisfied with the reviews, you can move on to the next step in building contracts: writing a clear and thorough contract that outlines all responsibilities and expectations.

Writing a clear and thorough contract that outlines all responsibilities and expectations

Have a clear and concise introduction that states the name of the parties involved, the effective date of the agreement and the purpose of the agreement.
Set out the services to be provided, including the specific tasks, timelines and any deliverables, in detail.
Include any legal requirements that must be met.
Define the payment terms, including payment dates, the method of payment, and any applicable late fees and interest.
Specify any additional rights and obligations that either party may have and any warranties or disclaimers.
Include a confidentiality clause if applicable.
Make sure to include a dispute resolution clause so that any disagreements can be resolved in a fair and amicable manner.
Include an assignment clause, which allows either party to assign the agreement to another party with the written consent of the other.
Add a termination clause that defines how either party can end the agreement and the consequences of doing so.
Include a governing law clause that specifies the laws that will govern the agreement.
Have both parties sign and date the agreement.

How you’ll know when you can check this off your list and move on to the next step:
Once you have included all of the necessary information in the contract, reviewed it for accuracy and both parties have signed it, you can move on to the next step.

Setting an agreed-upon start and end date

Identify a start and end date for the project
Make sure that both parties agree to the dates and sign off on them
Include a clause in the contract that outlines penalties for late completion
Consider adding a clause that outlines the agreed-upon date for payment if the project is completed on time
Make sure to include a clause that allows for extensions in the event of an unforeseen delay
Once both parties have agreed to the start and end dates, ensure that they are included in the contract and that both parties sign off on them
You can check this step off your list once the start and end dates have been agreed upon and both parties have signed off on them in the contract.

Specifying the materials and labor to be used

Clearly define all materials and labor needed to complete the project in the contract.
Create a list of all materials and labor needed, including estimated costs and a timeline for completion.
Include a description of the quality of materials and labor expected.
Get approval on the list of materials and labor needed before starting the project.
Make sure this list is as detailed as possible, to help avoid any misunderstandings.

Once you have agreements on the list of materials and labor needed, you can check this step off your list and move on to the next step.

Establishing a payment plan

Determine the payment plan that works best for you and the contractor.
Consider the length of the project and the amount of money it will cost.
Discuss payment milestones and ensure that both parties agree on the timeline.
Decide whether payments will be made in installments or when the project is completed.
Ensure that any payment plans are written into the contract.
Make sure that both parties are clear on late payment fees and other penalties.
Record the payment plan and timeline in the contract and have both parties sign it.

How you’ll know when you can check this off your list and move on to the next step:

Once you have discussed and agreed upon the payment plan and timeline and it is written into the contract, then you can move on to the next step.

Establishing a payment plan and timeline for the project

Negotiate the payment plan with the contractor, taking into account the total cost of the project and how much you can afford to pay for each stage of the project
Reach an agreement on the payment plan that is suitable for both you and the contractor
Set a timeline for each stage of the project, outlining when payments are due and when work should be completed
Discuss any penalties that may be incurred if the contractor fails to meet the timeline and payment schedule
Document the timeline and payment schedule in the contract and make sure that both parties sign and date the agreement
Once the payment plan and timeline are set, you can check this off your list and move on to the next step.

Setting a timeline for each stage of the project

Break down the project into stages such as design, development, and testing
Establish a timeline for each stage, such as when it should start and when it should be completed
Make sure to include a buffer of time in case of any delays
Consider adding deadlines and milestones throughout to ensure progress is being made
Have both parties sign off on the timeline and milestones
Check the timeline periodically to ensure it is being followed
Once all the stages and milestones have been completed, the project can be marked as complete
Make sure to document any changes or delays in the timeline, and both parties agree to the new timeline

Establishing payment milestones

Decide on the payment milestones that have to be met during the course of the project
Consider whether there should be any additional payments in addition to the initial payment when the contract is signed
Set an amount for each payment milestone and include details of when it is due in the contract
Make sure that payment milestones are clearly agreed upon, such as after a certain number of hours or weeks of work are completed
Include a clause that states that payment is only due when the milestone is met and that any delays in payment will result in delay of the project
Make sure that payment milestones are realistic and achievable for both parties
How you’ll know when you can check this off your list and move on to the next step: When you have established the payment milestones, specified the amount of each payment, and included details of when it is due in the contract.

Discussing payment options

Agree on the payment terms, including when payments are due, when progress payments are made, and when the final payment is due
Make sure you have a written agreement of the payment terms
Decide on a payment method - cash, cheque, bank transfer, etc.
Discuss any possible deductions from payments, such as late payment fees
Make sure you have a way to track progress payments and any deductions
Once all payment terms are agreed upon and a payment method is selected, you can check this off your list and move on to the next step.

Ensuring all permits and licenses are in place before the start of the project

Obtain all necessary permits and licenses for the project from the local government
Ensure that all permits and licenses are approved and in place before construction begins
Consult with your local building and safety department to make sure you have all of the appropriate permits and licenses
Check with your lawyer to make sure that all the necessary paperwork is in order
Make sure that all of the necessary paperwork is filed and approved before the start of the project
Once all of the permits and licenses are in place, you will be able to proceed with the project

Obtaining necessary building permits

Understand the necessary permits and licenses needed for your project
Check with local zoning and building departments to determine any additional requirements
Obtain the necessary building permits from the local building department
Make sure that the contractors you hire are able to obtain the permits
Pay any fees associated with the permits
Once all the permits are obtained, you can move on to the next step.

Ensuring all contractors are properly licensed

Contact the local licensing board in your area and ask if the contractor has the proper license and if it is up-to-date
Check the contractor’s references to ensure he is trustworthy and has the experience necessary to do the job
Verify that the contractor’s insurance is current and adequate
Make sure the contractor agrees to follow all local building codes and any applicable state laws
When all of these requirements are met, you’ll know that you can move on the next step of understanding local zoning regulations and building codes.

Understanding local zoning regulations and building codes

Research applicable zoning laws and building codes in the area where your project will take place
Verify that all contractors are familiar with and abide by the local zoning laws and building codes
Make sure contractors have the necessary permits and certifications for the project
Double check that the project doesn’t violate any local zoning laws
Determine if any special inspections or certifications are necessary for the project

Once you have researched and verified that all contractors are familiar with and abide by the local zoning laws and building codes and that all permits and certifications are in place, you can check this off your list and move on to the next step.

Understanding the various types of insurance needed for the job

Research the types of insurance typically required for a building contract, such as workers’ compensation, property damage, and public liability insurance.
Consult an insurance broker or agent to get a better understanding of the types of insurance available and how much they will cost.
Compare quotes from different insurers to find the best deal.
Get written confirmation of the insurance policy and coverage you have chosen.
When you have all the necessary insurance coverage, you can move on to the next step.

Liability insurance

Research the type of liability insurance you need for your project, such as general liability and project-specific liability
Contact your insurance provider to find out what types of coverage they offer and what the costs are
Determine the limits of liability that you will need for your project
Purchase the insurance policy that best fits the needs of your project
Make sure the policy covers all the liabilities you need
Keep the policy with the contract, or keep a copy of the policy in your records
Once you have purchased the necessary liability insurance, you can check this step off your list and move on to the next step.

Worker’s compensation insurance

Understand the legal requirements for worker’s compensation insurance in your state.
Research the different types of worker’s compensation insurance available, and decide which type is right for your business.
Understand the coverage limits of the worker’s compensation insurance you’ll be purchasing.
Get quotes from different insurers and compare the different coverage options.
Purchase a policy that provides the coverage you need at a price you can afford.
Make sure to have the policy reviewed by a lawyer to ensure that it meets all legal requirements.
Have the contractor sign a document confirming that they have the required worker’s compensation insurance in place.

You will know you can check this step off your list and move on to the next step when:

You have researched and purchased a worker’s compensation insurance policy that meets all legal requirements.
You have had the policy reviewed by a lawyer.
You have the contractor sign a document confirming that they have the required worker’s compensation insurance in place.

Property damage insurance

Ensure that the contractor holds the proper property damage insurance, which should cover any damage to the property due to their work
This should include any damage to the property, both inside and out
Verify that the coverage is up to date and that the amount of coverage is adequate
Ask for proof of insurance and make sure the contractor provides it before any work begins
Once you’ve verified that the contractor has the necessary property damage insurance, you can check this off your list and move on to preparing for potential construction delays and budget overruns.

Preparing for potential construction delays and budget overruns

Research local contractors and review their project timelines and budgets
Research the local building codes, zoning laws, and other legal requirements
Assess the construction site to identify potential issues that could cause delays or budget overruns
Create a plan for addressing any potential issues
Have a backup plan for labor and material shortages
Have a plan for dealing with any unexpected weather delays
Estimate the total time and cost of the project
Keep track of every change in plans or materials
Have a plan for dealing with added costs or unexpected delays

You can check off this step when you have completed all of the research and have a plan for each potential issue.

Allocating a contingency budget

Calculate the budget for the entire project and then allocate a portion of it to the contingency budget.
Make sure you are aware of all the potential problems that could arise and plan for them in the contingency budget.
Include a line item for each potential problem and assign a dollar value to that item.
Ensure that the contingency budget is included in the overall budget and that it is approved by all parties involved.
When the contingency budget is approved, you can move on to the next step in the process.

Planning for alternate solutions

Brainstorm potential solutions to any issues that could arise during the building contract
Discuss all possible solutions with the other party and come to an agreement
Document the accepted solutions and make sure both parties are in agreement
When both parties agree to a set of solutions, you are ready to move on to the next step of allocating a contingency budget.

Identifying potential sources of additional funding

Research available grants and other sources of free money that may be available to help with the contract project
Ask the contractor if they are aware of any additional sources of funding that may be available
Identify any other organizations or individuals who may be interested in contributing financially to the contract project
Check with local, state, and federal sources for funding opportunities
When you’ve identified all potential sources of additional funding, check them off your list and move on to the next step.

Working with the contractor to develop a realistic budget

Review the contractor’s project budget, including all labor and material costs
Negotiate with the contractor to ensure all costs are reasonable and necessary
Make any necessary adjustments to the budget to ensure it is realistic
Secure any additional funding sources as needed
Request regular project updates from the contractor to ensure the budget is being adhered to
Once you have agreed on a budget and all funding sources have been secured, you can check off this step and move on to the next.

Identifying all costs associated with the project

Research the labor and material costs associated with the project
Reach out to all potential contractors for a detailed cost breakdown
Make sure to include the cost of any permits, inspections, or other additional services
Ensure that all costs are included in the contract
Evaluate the final cost of the project and confirm that it is within your budget
Check off this step once you have a full understanding of all the costs associated with the project.

Accounting for additional costs (e.g. permits, materials, etc.)

In order to accurately account for additional costs, you should research any local laws, permits, and regulations that may apply to your project.
Make sure to factor in the costs of any materials you may need to purchase for the project.
It’s also important to consider any other costs that may arise during the course of the project.
Once you’ve done your research and accounted for any additional costs, you can check this off your list and move on to the next step.

Setting a limit on total project costs

Make sure all parties agree on a maximum price for the project
Estimate the total cost of the project, taking into account any additional costs such as permits, materials, labor, etc.
Confirm that the client understands that the total cost of the project may exceed the maximum price
Put the maximum price and any additional costs into the contract
Make sure any contingencies for cost overruns are clearly laid out
When all parties agree on the final cost of the project and sign the contract, you can check this step off your list.

Knowing your rights and responsibilities when it comes to resolving disputes

Learn about the legal process for resolving disputes, including the availability of arbitration and litigation
Research the applicable state and federal laws and regulations
Familiarize yourself with the parties’ rights and responsibilities as spelled out in the contract
Understand any limitations of liability or remedies that may be specifi