Contract Clauses to Consider

Contracts may seem like a lot of dull legal jargon, but the truth is they are an important part of protecting you and your clients’ welfare.

“It is vital for both parties involved to be fully aware of the details of the job,” says Fergus Murphy, a carpenter and framer in New York City. “Deadlines, how to pay, what is included, etcetera. Unless it’s a private, smaller job, there is almost always a contract,” Murphy says.

Murphy says that while individual contracts vary, the three main aspects they should cover are: “First, set up when payment is made for the job; second, the owner will pay in full when the job is done and third, if payment is not made on time, the contract should delineate what happens next, such as a lawsuit or fines,” Murphy says. He also recommends that there should be witnesses present when the contract is signed, such as a partner, coworker, accountant, or lawyer representing either the construction or the client side. “This is important to ensure that it’s all legit and that one person can’t try to go back on [his or her] word,” he explains.

Eli Gilman of G&M Custom Homes in Phoenix, Ariz., agrees that detailed payment clauses in contracts are essential. Gilman’s company uses a standard service agreement, which an attorney drafted, and they customize it per the client. “As a non-attorney, I’d rather trust a construction attorney to come up with the proper documentation,” he explains. “The payment schedule is spelled out very explicitly, which we modify accordingly.”

What other clauses does Gilman have in his contract? “Parameters of the work scope or job description. Everything from payment, issues of change orders, issues of permits, HOA approvals, all that sort of stuff,” he says. “It’s never unilateral; it’s always stressing communication.”

For builders and remodelers such as Gilman who tend to do larger jobs, working without detailed contracts isn’t even a consideration. “They provide protection for us and they also provide a very good framework for everybody to work and ensure a clear working relationship,” he says.

Joe Kaplan has signed many contracts during his years with Kaplan Construction in Chicago. Kaplan, whose business plan centered around converting apartments into condos, says many of the subcontractors he worked with would use boilerplate contracts they got out of contractor books. “To me as a homeowner and a developer, [contracts] allow me to budget everything properly,” he says. “I have that protection. I can cross that line item off my budget.”

For Kaplan, the essential clauses are hold-back clauses, materials clauses, and change-order clauses. “I want to see time limits and I want to see a hold-back clause if those deadlines aren’t met, where I can withhold part or all of the final payment,” says Kaplan. “And then also I want to see the specific materials that are going to be used.”

According to Kaplan, change-order clauses in contracts are common. “There are always changes in construction; it is a matter of fact. There’s always going to be changes; either I’m going to change my mind on how to approach it because of what I see when I do demo, or the client will change their mind about what might work better or not work better. The clause just says if there is a change, we will fill out a change-order statement. And it’s written down so we all know.”