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7 key elements of a construction contract


Before entering into a construction contract, people in California should pay strict attention to several key elements.

Any time someone is asked to sign a contract in California, a thorough review should be conducted. This is especially true of residential and commercial construction agreements. Whether it’s a restaurant kitchen remodeling project or building a new home, both the property owner and the construction company have a considerable amount of time and money on the line.

Here, we take a look at seven items that both parties should pay strict attention to prior to signing the dotted line.

1. Money

For just about anyone entering into a construction agreement, money is at the top of the list when it comes to determining factors. Typically, this figure is discussed and negotiated long before the contract is ever drafted, which means there should not be any surprises when getting the document.

However, just because the number has already been agreed upon does not mean that this part of the contract should be glossed over. The price listed in the contract should be clearly stated, including any additional fees or charges. A contractor should include all potential charges to avoid a future dispute.

2. Making payments

Especially when it comes to large projects, payment methods and structures should be clearly outlined. For example, setting up a payment plan – such as monthly installments – should list due dates. Additionally, the contract may list ways the payments could be collected, through avenues such as cashier’s check, automated draft or credit card.

3. Builder information

Under California law, any licensed builder must include his or her license number in the contract (as well as in subcontracts). Property owners should be wary of builders who are unwilling or unable to provide a license number.

4. Materials

On any given construction project, a wide variety of materials could be used. If either the property owner or builder has particular interest in using a certain material, it should be outlined. For example, a homeowner may feel strongly about having real wood floors installed as opposed to an engineered material. To guarantee it, or at least hold a builder accountable for doing so, it should be outlined in the contract.

5. Timeframes

People in the construction industry know that delays are to be expected, or at least planned for. Therefore, the timeframe for which the project is to be completed should take into account weather or other potential obstacles. Completing a project early is rarely an issue, but going past the deadline could be problematic and costly. In fact, failing to finish the job in time could mean the builder is on the hook for expenses the property owner could incur, unless this part of the contract is clear.

6. Penalties

Speaking of incurring costs, any potential penalties should be included in the document. That includes penalties for late payments and penalties for violating certain terms in the contract.

7. Dispute resolution

Finally, experts recommend outlining a way for any disputes to be resolved if the parties cannot do it on their own. Many documents include an arbitration clause, as this avenue is often less costly than going to court.

It is wise to have an attorney review any contract before signing. People who have concerns about this issue should speak with a real estate attorney in California.