Bicknell Law Offices

Owner's Checklist Before Starting a Project

The pre-construction planning phase is the most important part of the project for the Owner. This is the time where many of the most important preventative legal steps will be taken. Consider taking the following steps:
Step 1. The Importance Of Good Detailed Design Work:
Make certain that if you have a dispute with your design team that you have the right to use their work product. See the article titled: “Who owns a design” elsewhere on this site. Don't scrimp on your design fees and advance planning! Unless you are entering into a Design-Build Agreement (which is a more complicated and risky type of Agreement), make sure you have a good, fully detailed set of plans and specifications. The better the planning, the better the project.
Be sure you have a good, detailed Agreement with your Design Professional that spells out just how much detail he will give you for a stated price.
Step 2. Steps To Take During The Bidding Process:

Ask around for quality Builders who work competitively and furnish GOOD VALUE for a fair price. Always use licensed Contractors to perform the work! Seek value, not just a low price.
Prequalify the Contractors who are bidding your project. Require references, evidence of proper Worker's Compensation insurance and Comprehensive General Liability insurance, and evidence of current State licensing and a valid contractor's state license bond in the minimum amount of $10,000.
Do not confuse this Contractor's State License Bond with a performance, payment or completion bond. These are very different types of bonds and do not afford the same types of potential coverage to the Owner. The license bond protects you only if the contractor violates the contractor’s license law, not if the contractor fails to perform.
Have a Construction Agreement prepared and ready to go (or at least reviewed)prior to the time you are ready to award the contract to the Contractor. Planning now can save lots of money and heartache later.

Step 3. Obtain Information from the Contractor's State License Board:

In California, you can call 1-800-321-CSLB and obtain information on the contractor’s status from the Contractor State License Board's automated phone computer system. This automated phone response system is extremely informative and very simple to use. (If you have access to the Internet, you can obtain the same information at http://134.186.44.81/CSLB_Library/License+Request.asp )
Before calling this number, all you need to know is the license number of the contractor whose license and bond status you want to verify. You should also request a copy of the pamphlet published by the State entitled What You Should Know Before You Hire A Contractor.
This pamphlet briefly explains such things as Mechanic's Liens and consumer protection types of forms and disclosures that should accompany any Home Improvement Contract furnished by the Contractor in California.

Step 4. Check your own insurance for the project.

Prior to signing a contract for work on a new house, addition, or commercial project, contact your insurance company and let them know what type of project you are undertaking and ask them for a recommendation on what type of additional insurance (if any) to purchase to properly insure yourself during the project. With new construction and many larger remodels and additions, your agent will probably recommend a "Builder's Risk" or "Course of Construction" policy. The owner typically pays the cost of this type of insurance on the project.

Step 5. The Importance of the Construction Agreement and who to enter into contracts with:

Don't underestimate the value of a good Construction Agreement. It will be the "road map" that guides your business relationship, the vehicle that often controls the disbursement of your construction funds, and the primary method by which you address, resolve and assign the sometimes hidden risks associated with your project.

Rule #1: Have Written Agreements!

Notwithstanding the ultimate importance of mutual trust and respect between the owner, contractor, and design professional, the owner should utilize good written Agreements with all the parties working on the project.
This includes the design professional, contractor, and any subcontractors hired directly by the owner.

Rule #2: Be careful about serving as your own general contractor.

Keep in mind, that from a legal perspective, having one general contractor who is responsible for most all aspects of the construction project (and all subcontractors and material suppliers) is preferable to having multiple Construction Agreements with numerous different subcontractors and suppliers. If you do not understand how the project will be built you cannot schedule the subcontractors to appear on the project in the right sequence. A general contractor can and should do that for you.
Where a general contractor is responsible for the entire project, if a problem later develops with part of the finished project (such as a construction defect or a subcontractor's failure to pay a supplier that results in the recording of a mechanic's lien against your property), you have "one stop shopping" and responsibility. The buck stops with the General Contractor who will ordinarily be primarily responsible for initially addressing and perhaps correcting the problem.

Rule #3: Don't underestimate the importance of who furnishes the construction agreement.

Your goal should be to sign a detailed construction agreement that fairly allocates risk between the parties. However, the Owner can be in a better position if he furnishes a well drafted Construction Agreement, rather than signing the Contractor's Agreement. Where the Owner furnishes the Agreement, contract clauses can be inserted that specifically address the risks and needs the Owner faces on the project.

Where the contractor furnishes the Agreement, the interests protected may largely be his own, or the agreement may not contain sufficient detail to adequately address many important aspects of the business relationship. It all depends upon the agreement.

Ultimately, a comprehensive Construction Agreement that fairly allocates risk between the parties, regardless of who furnishes it, is the best type of Agreement to use.

If you sign the Contractor's Agreement, make sure you understand it first. Make sure it's in plain English, or in your primary language. Be sure it does an adequate job of addressing the Owner's risks, not only the Contractor's risks. Also, make sure the Contractor's Agreement addresses the small details that are important.

If the Agreement is not comprehensive, descriptive, understandable and acceptable to you, DON'T sign it, start negotiating!

Typically most Owners want to enter into what's referred to as a fixed price or lump sum agreement where the Contractor agrees to furnish all labor and materials for a stated amount of work in exchange for a stated sum of money.

Beware of time and materials agreements. They can easily lead to disputes.

You have several options when it comes to how to handle the Construction Agreement. First, you can furnish your Agreement to the Contractor to sign however, you are well advised to obtain some legal assistance with this option.

Second, you can review and then sign the Contractor's Agreement.

Third, you can review the Contractor's Agreement and negotiate additional clauses you want him to put in his Agreement.

Fourth, you can draft and attach an Addendum that controls and supersedes errors or omissions in the Contractor's Agreement. This addendum should include specific terms and conditions that better protect and more fairly address the owner's interests. After signing the addendum, you will also then sign the contractor's agreement after striking clauses from the contractor's agreement that conflict with your addendum.

Rule #4: Consider having these very important contract clauses in your agreement.

The language that follows is NOT contract language. The language that follows discusses important terms and conditions which you should consider making contract requirements.

Clause #1: Scope of work description and contract exclusions:

Make sure the scope of the work included in the contract is clearly defined in writing. This clear scope of work definition can come from your plans and/or from a written description that you, or the design professional or the Contractor prepares. This clear and detailed scope of work description must then be incorporated in writing into your Agreement if it is to provide you with any contractual security. Incorporate, describe and refer to the plans, written specifications, any invitation to bid you may have, and any Addenda by the Design Professional or the owner in the scope of work description section in your Agreement with the Contractor.

Also, insist that the Construction Agreement contain a list of contract exclusions so that you are very clear on what work the Contractor is NOT doing as part of the contract. Often there can be ambiguity in this area where the Contractor thinks he is not doing certain work as part of the contract price and the Owner thinks he is doing this work. Having in writing and being very clear about what is NOT being performed is just as important as knowing what IS being performed by the Contractor for the stated price.

Clause #2: Change Orders:

Expect some. Budget for them. The better your advance planning and the fewer "upgrades" you make during the project, the fewer Change Orders you'll have. However, it's almost unheard of to have a project without a few Change Orders. Insist in your contract that all Change Orders be placed in writing and signed by the parties prior to the commencement of any additional work.

Clause #3: Payment Schedules and Retention:

The Owner should consider whether the Construction Agreement should require 10% retention from all progress payments.

NOT pay the contractor for more work than he has actually completed. Also, by law, under nearly all circumstances, Home Improvement Contracts for residential construction work may not demand more than 10% of the contract amount, or $1000., whichever is LESS, as the contract down payment.

Clause #4: Performance and Completion Dates:

Make sure that your contract specifies the commencement and approximate completion dates of the work. Nothing is more frustrating than having no idea when a project will realistically be completed. If a Change Order changes the completion date, make sure you know how it has been adjusted. Specify these dates in your contract.

Clause #5: Contractor's Insurance:

Require your Contractor's insurance agent to issue you insurance binders for Worker's Compensation and Comprehensive General Liability Insurance with a 10-Day Cancellation Notice provision so that if the contractor's insurance lapses during the project, you will know about this in advance and can insist the Contractor obtain other coverage.

Finally, request that you be specifically named "additional insured" under the Contractor's Comprehensive General Liability policy. The binder you are sent will indicate on the face of it whether you have been named an "additional insured" under the policy. If you are a named "additional insured" you may have additional rights in the event you need to submit a claim against the policy. All of these insurance matters should be handled PRIOR to the time work commences on the project.

#6: The Dispute Resolution Clause in The Agreement:

The Owner should make sure all players in the construction project are bound to the same dispute resolution forum, including the designer, the contractor and any subcontractors. Any type of alternative dispute resolution is initially decided by contractual agreement of the parties and should be specified in your construction agreement. Generally, mediation is a good starting point and there are several private organizations that administer mediations. See the articles on this site regarding arbitration and mediation.

Clause #7: Warranty Clause:

Make sure you know what is expressly warranted by the Contractor and for how long. Get it in writing! If you need more information on implied warranties created by State Statutes, contact an attorney.

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.