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What You Should Know About Construction Contracts

Whether you are a builder or you are someone who has hired a builder to construct your custom home of another building, having a well-crafted construction contract is one of the most important parts of the process. A construction contract will spell out the terms of your arrangement and will help you both to avoid disagreements and misunderstandings after the project has started.

To create a successful contract, there are several areas that should be covered.

Type of contract

Not all construction contracts are the same. Depending on the project, there are several different types you might want to consider. For example, a fixed-price or lump sum contract is an agreement to pay a fixed price for a completed job. Cost-plus contracts on the other hand include an agreement to pay for materials and labour, but they may also have an upper cap to help keep you within your budget. Other types of construction contracts include time and materials contracts as well as unit-pricing contracts.

Regardless of the type of contract that you choose, certain elements will be common to all of them. These include:

  • Name of the contractor and their contact information – the contractor’s license number should also be included.
  • Name of the homeowner/homebuyer and their contact information – this should not only include their current contact information but also the address of the property where the work is being done. (A title search should be completed to confirm ownership).
  • Legal description of the property – this should be on record at the City Clerk’s office.
  • List of attachments – Attachments will include blueprints and other documents relating to the specifics of the job.
  • Price and terms of payments – this should include the final cost as well as how and when the homeowner/homebuyer will make payments (for example, installments).
  • Failure to obtain financing – there should be a clause that says how the homeowner/buyer may terminate the contract if they cannot obtain financing.
  • Description of the work to be done and its completion date – to ensure that the builder and the homeowner are on the same page, there should be a detailed description of what is being built and the date of
  • Right to stop the project – this clause protects the builder and allows them to stop work if the homeowner hasn’t paid them.
  • Right to withhold payment – this clause protects the homeowner by allowing them to stop payment if certain conditions haven’t been met or if there is poor workmanship.
  • Remedies of breach of contract – allows either party to sue for breach of contract.
  • Proper licenses, permits and insurance – builders should check with both the province and the municipality to ensure they have all the necessary licenses, permits and insurance.
  • Unforeseen circumstances – this outlines what happens when there are unforeseen circumstances such as tornado, flood, or if needed materials become unavailable.
  • Inspection and access – this allows the builder to have unlimited access to the property during the project and for the homeowner to be able to inspect the property at reasonable times.
  • Change orders – allows for either party to deviate from the contract when there is mutual signed consent.
  • Warranties – outlines what guarantees the builder will give on materials and their work.
  • No liens by subcontractors – this clause states that the contractor is responsible for any liabilities with subcontractors and protects the homeowner from getting a lien from a subcontractor.
  • Damages and limitation of liability – the builder and the homeowner can agree upon what damages will be due upon missed deadlines and other unforeseen problems.
  • Disposal of materials and clean up – The builder agrees to clean up and remove excess materials.
  • Signature and date by both parties.

Contact Levy Zavet today

When drafting a construction contract, there are a lot of elements that must go into it to ensure that you are protected. If you would like one of our lawyers to draft or review a construction contract for you, contact us today.