Essential Precautions: What to Watch Out for Before Signing Your Home Construction Contract

Embarking on a journey of home construction or renovation is a profound endeavor, with the power to shape our happiness and bring contentment to our families. At the heart of this process lies the pivotal step of entering into a construction contract, which serves as the foundation for understanding the project's scope and responsibilities for both homeowners and contractors. However, it is crucial to be well-informed about the critical considerations and potential pitfalls that can arise during construction. Join us as we delve into the essential factors that pave the way to success in the realm of home construction and renovation, all while navigating the intricacies of construction contracts.

What is a Home Construction Contract?

A home construction contract, also known as a construction agreement or contractor agreement, is a legally binding document that outlines mutual agreements between the homeowner (the employer) and the construction contractor (the employee). It specifies the payment terms for the contractor and establishes the responsibilities of both parties involved in the construction project. The contract must clearly define the construction details, obligations, and completion timeframe. Clarity, feasibility, and fairness are essential elements of a well-drafted contract that ensures the satisfaction of both parties.

Essential Details to Include in a Home Construction Contract

Date and location of contract

To specify the effective date and duration of a construction contract, providing information on when it becomes legally enforceable and its overall term.

The Homeowner & Contractor's Personal Information

Such as names, addresses, and other relevant information.

Scope and Nature of Responsibilities

The homeowner agrees to clearly define in the contract the specific type of home construction to be undertaken by the contractor, including details such as the architectural design, and the location of the construction site.

Price and Payment Milestones

At what percentage is the payment made before commencing the work? Is it a lump sum payment? Is it a progressive payment?

Contract Duration

From the start of construction to completion, approximately how many months does the construction process typically take?

The Homeowner's Responsibilities

• Clear details should be included in the contract regarding milestone inspections for each phase of work.
• The homeowner has the right to order a work stoppage and withhold payment for the affected portion if there are deviations from the approved plans or if the contractor fails to rectify damages as notified.
• The homeowner has the right to order a work stoppage and withhold payment for the affected portion if there are deviations from the approved plans or if the contractor fails to rectify damages as notified.
• The right to request additional modifications, reductions, or changes to the original construction design or materials within the agreed-upon timeframe without canceling the contract, provided that written agreement and mutual consent are obtained from both parties.
• Inspection and acceptance of work for each phase, with the homeowner having the right to reject any changes to materials that affect the structural integrity and standards outlined in the original plans.

The Contractor's Responsibilities

• The contractor must carry out the construction accurately and complete it according to the agreed-upon contract within the specified timeframe.
• The contractor has the option to subcontract portions of the work but remains fully responsible as specified in the contract.
• Any additions or reductions to the scope of work not in accordance with the original plans must be documented in written form and notified to the homeowner.
• The contractor must consent to allow the homeowner or their representative to inspect and evaluate the materials used, construction site, and processes to assess compliance with the plans and BOQ (Bill of Quantities).
• If materials used in the construction deviate from the specifications outlined in the contract, the homeowner or their representative has the right to suspend construction activities and reject materials that do not meet the specified construction account details immediately.

Tools and Equipment

In order to assess whether the quality is appropriate for the nature of the work, there should be supporting documentation attached at the end of the contract. Additionally, a document specifying the itemized list should be provided for the purpose of verification.

Quality Assurance of Deliverables after Project Handover

• The duration of the work warranty period depends on the type of work and negotiation, typically ranging from 1 to 5 years. If any damages occur to the house within the warranty period, excluding natural disasters, such as roof leaks, cracks in the walls, or any other non-natural causes, the contractor agrees to repair and restore the house to its original condition.
• In the event that the employer or homeowner undertakes remodeling or renovation work that violates engineering principles and causes structural damage to the house, it will be considered the end of the "Quality Assurance of Work" immediately.

Cancellation of Contract and Remedies for Damages

It is important to clearly specify the consequences if either party violates the terms and conditions of the contract, resulting in damages. Therefore, it is necessary to outline the details of the conditions in written form, notifying and obtaining the consent of both parties to take responsibility in case of such circumstances.

Signatures

The homeowner, the contractor, and two witnesses

Things to look out for before signing off

Contract Details

It is crucial to clearly specify all the terms and details in the contract to prevent any ambiguity and protect against the risk of engaging an unreliable or unprofessional contractor. Failing to do so may result in potential disadvantages for us once the contract is signed.

Percentage of Payment for Each Milestone in Accordance with Work Volume

By referring to the bill of quantities (BOQ) or the account showing the price and quantity of materials used in construction, the percentage of payment for each milestone should be determined appropriately.

Clear, Reasonable Construction Process and Timelines

Specify clear dates and times for delivering the work in each milestone before making payment.

Warranty Period after Construction

In case of damages or defects occurring after the delivery of the project.

The right to cancel the contract

In the event that the contractor fails to fulfill their responsibilities or does not proceed according to the terms specified in the contract.

Frequent issues between the homeowner and contractor

Even though the home construction contract has been signed, approved, and construction has commenced, issues may still arise. Therefore, every homeowner should be aware of these matters to stay informed regarding the contractor. Generally, the problems are often related to the following issues:

• Delays in construction project completion within the specified timeframe can be attributed to various factors. These factors may include external circumstances beyond control, such as adverse weather conditions or natural events. In such cases, it is possible to have discussions and flexibility to accommodate the situation. However, if the delays are caused by the contractor's lack of responsibility or slow progress, in this scenario, the contractor must take full responsibility for the consequences.
• The final construction budget has increased because the contractor secretly made changes or additions to certain parts beyond the original plan and agreed-upon terms.
• The contractor requesting an additional payment beyond the agreed-upon installment for the work, or dishonestly claiming the deposit money, eventually neglecting and quitting the project.
• Disputes regarding the substitution of construction materials or house plans used in the construction process.
• Unsatisfactory work outcome.
• Contractor team changes, initially employing a skilled and efficient team that produced satisfactory results. However, after the change, either by replacing the team or reducing the number of experienced workers, the quality of the work has decreased, resulting in further delays.

Good Luck!

Constructing a home is a substantial investment, offering the advantage of fulfilling personalized needs compared to buying pre-allocated properties. However, it's crucial to prioritize the construction contract or hiring process. If uncertainties arise or confidence wavers, exploring new projects with PropertyScout can be a valuable option. Our aim is for the insights shared in this article to benefit all readers.

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