06 Jul Detailed home reno contract ensures contractor’s cash flow
Since a contractor’s primary focus during any home renovation is to be paid for the work, it’s vital to have a clearly written contract precisely detailing what the project encompasses and the costs involved, says Barrie civil litigator Scott Hawryliw.
“When contractors take on a job, there is always a certain amount of risk, even if there’s a deposit, as they have to buy materials up front, and suppliers want their money immediately and not when the project is done,” says Hawryliw, founder of SRH Litigation.
“Contractors take on liability since their employees rely on regular paycheques, plus there are all the subcontractors involved,” he tells AdvocateDaily.com.
The best way to ensure steady cash flow is by having clients sign a detailed contract, specifying what is to be done and how much the homeowner will pay for it, with the document spelling out when financial remuneration is due, Hawryliw says.
He notes it is standard practice to ask clients to pay 10 per cent upon the signing of the contract, then more payments as the job progresses.
Once the project is underway, and the homeowners get a sense of how the finished project will look, Hawryliw says many clients will ask for changes, or additional tasks not covered in the original contract.
“As a contractor, make sure you have the homeowner sign a change order for the new work,” he says. “If you don’t, the client may claim that the cost should have been covered by the original contract, and you could have a hard time recovering money for that extra effort.”
Hawryliw says there are two types of construction contracts and each deals with cost issues differently. The first stipulates that all work will be done at a set hourly rate, with the cost of the materials added on top of that, while the second one establishes a final price up front.
Both types of contracts have their advantages and disadvantages, he says.
Hawryliw gives the example of a homeowner who meets with several people to discuss a home renovation. If a contractor says a big project can be done within a month, the client could demand the completion day to be stipulated in the contract, which will cause a real headache for the contractor if problems arise.
“Most contractors are juggling a couple of other jobs at any one time, so they may not be able to have a crew on- site every day,” Hawryliw says. “Tell that to the homeowner, rather than lock yourself into an unrealistic timeline.”
Getting out of a contract can be tricky, he says, depending on the situation.
“If the homeowner just stops paying and meeting the obligations under the contract, the contractor needs to protect their construction lien rights, and leave the site and wait to be paid,” Hawryliw says.
Under the Ontario Construction Lien Act, a lien must be registered at the Land Titles Office within 60 days from the date the work is completed or when the materials were supplied to the project job site, he explains.
If the contractor’s efforts are defective or not up to the standard expected, Hawryliw says the contractor is given a chance to remedy that.
“If that remedy is not acceptable, the contractor could be in breach of the contract, and the owner can come after the firm for additional costs,” Hawryliw says.
He says homeowners are concerned about getting quality workmanship done at a fair price, while contractors want to be adequately rewarded for their efforts.
“After all, it’s not their house, and they are paying their staff and subcontractors, plus for materials, so they need to ensure they have money coming in when they need it — and according to the contract,” Hawryliw says.