Contracts: An Underused Contractor’s Tool

Before you begin work for a customer, it’s crucial to have a contract in place. A contract protects you and your customer by setting out, ahead of time, the expectations you both have. While some parts of your contracts will change depending on the type of work, the size of the project, or your business preferences, there are some basic parts that should always be in your home improvement contracts.

First, you should always have a written contract with your customers. Many states actually require home improvement contracts to be in writing if certain criteria are met. For example, Wisconsin’s Home Improvement Practices Act (Wis. Adm. Code ATCP 110) requires contractors who accept payment before the job is completed to have a written contract that contains certain key parts. Regardless of whether it is required, a written contract can reduce the chance of a dispute (for example, over what work was included) later on and also serve as evidence to support your claim if a dispute does crop up.

So, what should be in your written contract? Many states have specific legal requirements and limitations for home improvement contracts. You should consult a local attorney to make sure you comply with your state’s laws. Generally, however, there are seven (7) things all home improvement contracts should have:

1. Price: The contract should include the total price, plus any finance charges (particularly if you allow payment plans). If the project is for time and materials, specify the cost of materials, the hourly rates involved, and any conditions that might affect those prices.
2. Work description: A good work description lists not only what you will do, but what materials you will use. More detail is better. For example, if you install windows, identify how many windows you’ll be installing, who manufactures them, their make/model, their color and size, and so on. The work description is also a good place to note if something isn’t included. Using the same window example, you might want to note that you do not install shutters on the new windows.
3. Time period: Identify the start date and completion date. If you don’t know specific dates, include the time period during which the work will take place. It’s also a good idea to note if there are factors (i.e., weather) that could alter the schedule and how that will be handled.
4. Contact information: Your written contract should include your name, address and phone number. If you want customers to contact you by email, include that as well. You should also include the name and business address of the salesperson or agent who worked with the customer.
5. Security interests/construction lien rights: If you plan to take out a lien, mortgage or other security interest (usually as part of financing), then you should make sure it’s clearly stated in the contract. Additionally, some states require certain notices be given to homeowners about contractors’ and subcontractors’ construction lien rights. A local attorney specializing in construction law can set you on the right path.
6. Guarantees and warranties: If you make any guarantees or warranties about your products and/or services, they should go in the contract, along with any conditions or, just as importantly, limitations on them. In some cases, you may also want to note or include any guarantees or warranties made by manufacturers of the products used.
7. Signatures: Ideally, you want a contract signed by both you and the customer. Ultimately, the most important part is to have the homeowner signature as that is the party against whom you could potentially end up enforcing the contract in court.

We highly recommend that you work with a local attorney to customize your basic terms and conditions in the contract for your business.

Even with all of the advantages of having a written contract, many contractors resist them because they know that a project often changes as it goes along. The good news is that there’s a simple way to address this issue: change work orders are additional written and signed documents that can be incorporated into your contract if changes need to be made. Together, they can help you stay on the same page with your customers and protect you from disputes down the road. –Valerie Revnew

NARI member and attorney Val Revnew practices exclusively in business consulting and litigation at Epiphany Law. She provides assistance to financial institutions, employers, contractors, and business owners who must resort to the courts to enforce or defend their legal rights. She also assists clients in enforcement of leases, sales contracts, buy-sell agreements, non-compete agreements, and estate and probate disputes.