· by Michael Blair, Nashville's Contractor
Many of the arguments between a homeowner and a builder come down to scope. Each side believed something different was included, and nothing on paper settles it. Tennessee’s Attorney General and Division of Consumer Affairs make the same point in their guidelines for home repair contracting, which say that insisting on a written contract can head off some of the most common problems with home repair contractors. Whether the job is one of our custom homes or a remodel of a house you already live in, these are the clauses we want settled before anyone signs.
Scope in detail
“Renovate the bathroom” describes a wish. The contract needs the specific work, the specific materials by make and model, and a plain list of what is left out. The state’s guidelines tell owners to be specific, with samples, model numbers and pictures, and warn that a contract silent on the quality of materials leaves that choice to the contractor.
Exclusions deserve the same care as inclusions. Painting the new drywall, hauling off the old fixtures, patching the floor where a wall came out: each is easy to assume and easy to leave off, and one line saying who does it answers the question before anyone has to ask. The same guidelines ask that every contractor bid on exactly the same work, with each bid itemized and detailed, and a written list of exclusions is the quickest way to see whether two bids really match.
How should a contract handle payments and dates?
Payments should follow progress. The Department of Commerce and Insurance’s brochure on selecting a contractor caps a down payment at one-third and tells owners to keep each payment behind the work, and it counts pressure to pay more than half the cost up front as a red flag. Tie each payment to a stage you can walk through and see finished, such as framing inspected or cabinets set; the reasoning is in our post on paying a contractor without losing leverage. If you want part of each payment held back until the punch list is done, write the amount and what releases it into the contract. Go carefully at the end of the job as well, because the Attorney General’s guidelines warn that signing a certificate of completion or making a final payment could have adverse legal consequences if you are unsatisfied with the work.
Those guidelines also list what a contract should specify: a beginning and completion date, an exact and detailed description of the work, the total cost, an exact payment schedule, and the warranty or guarantee you can expect. Add what happens if the finish date slips, and say who pulls the permits. Metro Codes’ guidance for renovating a house says the permit triggers the required inspections and that scheduling them is the applicant’s responsibility, and an owner who lives in the house may pull the permit, in which case the inspections are the owner’s to book. Owners who plan to hire the trades themselves and run the job should read our comparison of hiring a general contractor and managing the work yourself first, since an owner-pulled permit makes you the party answerable for the work meeting code. The state brochure tells owners to make sure the contractor obtains the permit, and our post on permits and inspections in Nashville walks through the steps. The license matters here too: the Board for Licensing Contractors’ contractor license page says a prime contractor needs a license before bidding or even negotiating a price once the project reaches $25,000, and in Davidson, Rutherford and seven other counties the Home Improvement license covers residential remodeling from $3,000 to $24,999.
- Detailed scope, with the exclusions written out
- Named materials, models and allowances
- Payments that follow finished work, never ahead of it
- How change orders are priced and approved
- Who pulls permits and schedules inspections
- Warranty period and what it covers
How should a contract handle change orders?
Every project has them, so the contract should say how each one is handled. What matters is that the mechanism is agreed before the first one comes up: written, priced and signed before the work happens. The Attorney General’s guidelines say to accept no verbal agreements and to put any change in the contract in writing, initialed by both parties.
A change agreed out loud on site is a common source of dispute, since a conversation in a half-framed room leaves nothing to check three weeks later. Pricing each change before the work is our addition to the state’s rule, and the same guidelines warn that changing your mind partway through a project is costly. Our post on change orders covers how a run of small ones adds up.
Allowances
An allowance is money set aside in the contract for a choice you haven’t made yet, such as tile, light fixtures or appliances. When the figure sits below what your selections will cost, the difference comes back later as an added charge, and a quote that looked lower at signing may not finish lower.
Ask what each allowance buys and at which supplier, and check it against real prices before signing. The state’s rule that every contractor bid on exactly the same work applies to allowances as much as to anything else, because two bids with different tile allowances are priced on two different bathrooms. If you would like ours itemized that way, ask us for a free estimate.
Sources
- Tennessee Attorney General and Division of Consumer Affairs, Guidelines for Home Repair Contracting (2011) — A written contract avoids common problems; be specific with samples and model numbers; bids on exactly the same work, itemized; no verbal agreements, changes in writing and initialed; what a contract should specify; changing your mind is costly; final payment and certificate of completion warning; attorney review
- Tennessee Department of Commerce & Insurance, Consumer Tools for Selecting a Contractor (2018) — Never more than one-third down, payments not ahead of the work; more than half up front a red flag; contractor obtains the permit
- Metro Nashville Codes & Building Safety, I Want to Renovate a Single-Family Residence — The permit triggers required inspections; the applicant schedules them; an owner-occupant may obtain the permit
- Tennessee Board for Licensing Contractors, Contractor license — License required before bidding or negotiating a price on projects of $25,000 or more
- Tennessee Board for Licensing Contractors, Home Improvement Contractor — Home Improvement license for residential remodeling from $3,000 to $24,999 in nine counties, Davidson and Rutherford among them
FAQ
What a Construction Contract Should Say — questions
Is a written contract legally required in Tennessee?
Whatever the legal answer for a given job, the state treats it as essential. The Attorney General’s home repair guidelines say to get a contract in writing and that a contractor unwilling to provide one is not someone to do business with. Licensing does change with the size of the job: the Board for Licensing Contractors requires a contractor’s license once a job reaches $25,000 and a Home Improvement license for residential remodeling from $3,000 to $24,999 in Davidson County and eight other counties. If a lot of money is at stake, the same guidelines suggest having a local attorney review the contract before you sign.
What is retainage?
Money held back from the payments until the work is complete and the punch list closed. The amount and what releases it are for you and the contractor to agree, so write both into the contract. Tennessee’s Attorney General warns that signing a certificate of completion or making the final payment could have adverse legal consequences if you are unsatisfied with the work, so settle the last items before you do either.
What is an allowance and why does it matter?
A sum written into the contract for something you have not picked yet, such as tile, fixtures or appliances. If it is set below what your selections will actually cost, you pay the difference later. Ask what each allowance buys and where, compare allowances line by line when you compare bids, and check them against real prices before signing.
What is a change order in construction?
A written change to the contract, priced and signed by both parties before the work it covers happens. Tennessee’s Attorney General tells homeowners to accept no verbal agreements and to put each change in writing, initialed by both sides. Agree in the contract itself how changes get priced and approved, before the first one arrives.