ARTICLES & INTEREST
Three Types of Home Renovation Contracts Explained
August 21, 2019
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By Rick Incaio of Lifestyles by Barons
The home renovation process has changed over the last decade. For instance, there are new contractual agreement models your designers and contractors that change how your renovation is delivered. These different methods will impact how you pay, who takes on the risk, and how long it takes for your renovation to be completed.
Three types of contracts are used most often in a home renovation. The difference between each start at the beginning of your renovation. If you work with a professional contractor, he/she can explain the benefits and risks associated with these contract types to you in detail. They are:
1. the traditional lump sum contract;
2. the design-build contract; and,
3. the construction management contract.
Three Common Renovation Contracts
1. The traditional lump sum contract
This renovation process begins as the homeowner works with a designer to develop what the renovation will look like, including the selection of finishes such as tiles, paint, light fixtures, etc.
Once a design is complete, the homeowner should receive three quotes for the renovation from three different contractors. Each quote can include a fixed price to deliver the desired work and design. It’s important to note that in some renovations unknown issues may arise that can cause extra work to be completed – like additional electrical work to upgrade to modern standards, for instance. Any changes or errors in the design may be charged to the homeowner as an extra cost, though contingencies should be set in place to help offset these types of costs.
2. The design-build contract
This is a newer type of contract where the design/build contractor is the only point of contact the homeowner coordinates with. In this case, the homeowner will hire the design/build contractor at the very beginning of the renovation process.
The design/build contractor is responsible to work with his/her staff and/or network to secure the designers and the trade contractors for your project. The homeowner will set a project budget with the design/build contractor. An advantage of this contract type is that you can start construction knowing what the final finishes are going to be, and you can modify the finishes in advance to help keep within your target budget.
3. The construction management contract
With this contract type, the homeowner pays the contractor for his/her management services separate from the renovation costs (such as materials and labour). This means as the homeowner you can make changes during the design and construction. The advantage here is that you have full transparency of the costs for everything.
What clauses need to be included in these contracts?
In any contract, it’s important to make sure these items are identified clearly:
The work and materials that are included and excluded from the contract
The schedule of work, including important milestones
A payment schedule detailing when payments are to be made and the work that is to be completed, related to the payment
How changes are to be managed, including requirements for documentation and how costs are to be credited or charged
The expected quality of workmanship
How disputes are to be resolved/managed
Insurance requirements for the contractor and the homeowner
Protocol outlining when and how the contractor and homeowner can communicate, and reasonable expectations for decision making and responses
Warranty terms being provided
Allowances for signage or photography of the project to be used by the contractor
By ensuring these clauses are in your contract, you're helping to clearly define expectations. Your contract is your first point of protection in any renovation should a contractor deviate from the written agreement.
Choose the contract type that is best suited to your project and what you feel comfortable with. A complete and comprehensive contract protects you and your contractor and sets everyone up for a successful project.
Rick Inacio is the vice president of sales for Lifestyles by Barons. Established in 1993, Lifestyles by Barons is a full build and design company offering turn-key solutions for those looking to renovate part of their home or build a new custom home. Members of RenoMark and BILD, the company was a finalist in the 21st annual Renovation and Custom Home Awards.
Have a question? Get in touch!
If this column has generated any thoughts or questions regarding a past or future renovation, please send your questions to email@example.com and look for our answers to your questions in the next Ask a RenoMark Renovator column.