Once a month
or so I give a talk to a class of young men and women studying for careers in construction.
I usually make a point that construction is a heavily regulated industry. That wasn't true 50 years ago. Today, government takes an interest in every construction project, from the moment the
contract is signed through final inspection. You could probably cite a dozen examples.
I’ll mention just one.
All states
set standards for construction contracts, especially residential construction. And
among residential jobs, home improvement gets the most scrutiny from government.
A prime example: Six states prohibit time and material (“cost plus”) contracts for
home improvement work:
· California -- Business and Professions
Code § 7159(d)(5).
· Illinois -- Compiled Statutes Title 815,
§ 513/15
· Massachusetts -- General Laws 142A, § 2(a)(5)ZZ
· Nevada (residential pools only) -- Administrative
Code § 624.6958-2(f)
· Pennsylvania -- Statutes Title 73, § 517.7(a)(8)
· Tennessee -- Code Annotated § 62-6-508(a)(5)
That doesn’t make sense to many of the
students I counsel. Nearly every home improvement job includes a surprise, something
you couldn’t anticipate. “How can I set an exact price before work even starts?”
Good question. The answer: You don’t have to – if the contract includes allowances,
alternates or unit prices. All three are perfectly legal, even where state law prohibits
cost-plus contracts.
Allowances
It's common to leave the final decision
on some part of the job to a later date. For example, at the time the contract is
signed, the owner may not have picked out finishes such as flooring, appliances
or fixtures. The actual cost won’t be known until the owner makes those decisions.
So just include in the contract your best guess of the cost. That’s an “allowance.”
If what the owner ends up selecting costs more or less than the allowed amount,
the contract price adjusts automatically.
Alternates
Many contractors offer alternate quotes
when bidding a job. For example, the basic quote might assume an interior wall is
a partition and not load-bearing. The alternate might specify an additional cost
if a support beam is required for code approval. What gets built and the cost depends
on job requirements. Use alternate bids to protect yourself against surprises.
Unit
Prices
When the exact scope of the job isn’t
known at the outset, price work by the unit. For example, the amount of sheathing
or flashing needed may not be known until the roofing tear-off is done. Fine. Write
a specific quantity of sheathing and flashing into your contract. Then quote a price
per square foot for either more or less than the specified quantity. The price of
the job adjusts automatically as requirements change.
One thing has not changed in the
last 50 years: If you know what you’re doing, you’ll find a way to get the job done.
To see how allowances, alternates and unit pricing fit into your jobs, have a look
at Construction Contract Writer. The trial version is free.
