The importance and contents of a good Contract.: NC

Recently there have been discussions about problems between contractors and owners. I sincerely believe that the first and most important step is finding a contractor that the owner can trust. This is accomplished by simply checking out references and ensuring that the contractor is licensed and insured.

While price is an important issue, it is more important that the owner recognize the ability and knowledge that the contractor is bringing to the table. If you are simply picking a contractor because of his/ her price then you will learn the hard way of the proverb – a fool and his money are soon parted.

Prior to taking on a project, I screen my clients in order to determine if I can work with them. My experience has shown me that it is better to have a good relationship of trust with a mediocre contract in hand versus a great contract with a client that is apprehensive and distrusting. The same should hold true with the owner.

What contracts are and what they are not.

Contracts can be in the form of oral or written. When a man’s name and integrity meant something then oral contracts were as good as gold. However because we live in such a litigious society and


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integrity is a rare trait these days, I advise one to use written contracts.

Contracts are nothing more then what is called “a meeting of the minds”.
This definition alone explains the importance that all parties understand what is expected of them.

Contracts should not be written in a fashion to gain leverage over the other party.
Not only does this serve no purpose other then creating tension between the parties involved, it also gives ammunition for a good attorney to show a jury that his client was being manipulated and taken advantage of by a calculating and cunning individual.
Criminal cases are won by showing elements of law being violated; civil cases are more likely to hinge on emotions and intentions that were involved.

Elements of a good contract

My contracts consist of no less than 31 articles that cover anywhere from 10 – 30 pages with each page being initialed by both parties. I do not claim that the contents and format that I use is all encompassing however it has fit my needs and I have yet to have a client that has objected to its articles, I present this as only a guided outline.

I have a General Conditions Contract of which I typically consist of 17 articles and then there is the Contract itself which will have no less then 14 articles.

The General Conditions Contract will have the following;

1) Parties Involved
2) Location of the Project
3) Articles about the General Conditions Contract itself
4) Owner responsibility and obligations
5) Contractor responsibility and obligations
6) Relationship of both Parties
7) Articles of Unknown Conditions, including how to proceed
8) Changes in Work (work orders)
9) Time Limits
10) Correction of Work
11) Termination clause of the Contract
12) Insurance policies and responsibilities
13) General Site Conditions and Authority at the site. (I frown upon owner visiting the site when I’m not there – insurance reasons)
14) Hazardous materials, wastes and disposal
15) Article of Arbitration Clause
16) Warranty agreement
17) Article of Acceptance

The Contract will have the following;

1) Parties Involved
2) Location of the Project
3) Articles about the Contract
4) Scope of work (should be detailed)
5) Time of Completion
6) Contract Price
7) Progress Payments
8) Duties of the Contractor
9) Duties of the Owner
10) Change orders, Change Amendments, and adjustment to Finish Schedule
11) Articles of Termination of Contract
12) Attorney Fees (prevailing party entiled to fees)
13) Occupancy / Closing
14) Acceptance of Contract

If you are wondering why there are more articles in the General Conditions Contract, it is because I (and my attorney) know the importance that certain conditions should exist prior to getting into the actual details and scope of the project. As I stated in the beginning of this column, it is more important that both parties have an understanding and working relationship with one another. By having such then you have laid a foundation of trust and commitment that can be built upon.

Even small projects often exceed thousands of dollars, paying an attorney to draw up a generic contract that can be changed as conditions warrant is a small price to pay.
Many attorneys have pre-canned contracts that will suffice. I do not advise that you use the Estimate / Proposal contract that are bought at your local office supply store or supplied by some contractors / subcontractors.

If you have further questions then feel free to contact me.

Note: NC_Yank is a licensed building contractor and home inspector in the state from which he derives his name and while he had no say so in his birth place, he was smart enough to move south of the Mason Dixon line once he had the means.

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The importance and contents of a good Contract.

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The importance and contents of a good Contract.

TCI Comment section - where you are the moderator!

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Real Estate Investing
Community