What Should I Look for in a Contract and Binding Agreements?

Here are some precautions to follow while dealing with contracts and binding agreements. A contract is a legal agreement between two or more people. A written agreement is one of the most important communication tools for both you and the licensed contractor. It insures there are no misunderstandings about what a job will include. A thorough contract tells how the work will be done, when it will be done, what materials will be used and how much it will cost.

Disagreements over home improvement projects can cost time and money. Besides producing bad feelings, they also can lead to lawsuits or other legal action. A well-written contract can prevent that.

TIP To learn more about contracts, please read CSLB's publication Terms of Agreement, A Consumer Guide to Home Improvement Contracts.

When you need a written contract

In California, there must be a written contract for all home improvement projects over $500 in combined labor and materials costs. That contract must include specific information about your rights and responsibilities. In addition, any changes made to that contract must be in writing, be legible, be easy to understand, and inform you of your rights to cancel or rescind the contract. If you are promised something verbally, make sure that it is also included in writing.

What to include in a contract

A contract should contain everything agreed upon by you and your licensed contractor. It should detail the work, price, when payments will be made, who gets the necessary building permits, and when the job will be finished. The contract also must identify the contractor, and give his/her address and license number. A good contract also has warnings and notices about the right to cancel, mechanics liens, and allowable delays.

REMEMBER

• Get it in writing. Since a written contract protects both you and the contractor, all agreements should be put in writing. It should be as specific as possible regarding all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply. For example, the contract should read "install oak kitchen cabinets, manufactured by Company XYZ, model 01381A, as per the plan," not just "install kitchen cabinets."
• Don't sign anything until you understand the contract and agree to the terms. Anything you sign as authorization to move forward with the project could become the contract. Ask questions until you understand and agree to all the terms before signing. You also may wish to review the proposed contract with an attorney.
• Make sure the contract includes everything that is agreed to, up to and including complete cleanup and removal of debris and materials, along with special requests like saving lumber for firewood or saving certain materials or appliances. Also give instructions regarding pets, children or areas where materials may not be stored.
• Never sign a blank or partially blank contract. Once you sign, both you and the contractor are bound by everything set down in the contract. Make sure to get a copy of the contract, and keep it for your records.
• Always update your contract. Even after you have signed the contract and the work already has begun, you may want to make some changes. If you have added or subtracted work, substituted materials or equipment, changed the completion date, etc., make sure to note it in writing on a "change order," and include any price changes. After a change order is signed, it becomes part of the written contract.
• For swimming pools, make sure that you receive a Checklist for Homeowners - Swimming Pool. One must be provided in the contract, as well as a plan and scale drawing showing the shape, size dimensions, and construction and equipment specifications. You may wish to refer to Swimming Pool Construction for more information.
• Make sure your cancellation is in writing. You may cancel within three (3) days of signing a contract, but it must be mailed before midnight of the third day.
• Make sure the financial terms are clear. The contract should include the total price, when payments will be made, and whether there is a cancellation penalty. You should expect to make a down payment on any home improvement job. That down payment should never exceed 10 percent of the contract price or $1,000, whichever is less.

ALERT There is one exception to the down payment rule noted above. If the contractor has a Blanket Performance and Payment Bond on file with CSLB, this bond is in the amount of work the contractor does at any one time.

With this bond in place, the contractor can ask you for the entire contract amount up front. Also, he/she is not required to set up a schedule of payments and do not have to provide you with information about mechanics liens. This type of bond does offer consumers a certain level of protection, but is rare. Only about two dozen companies have been approved to use them.

You'll be able to find out if your contractor has this type of bond when you check the license status.