Most residential construction disputes happen because the
contractor and the homeowner have different expectations about
how a job will be handled. I estimate that 90 percent of the
disputes I've seen in my legal practice could have been avoided
if the contractor had furnished the owner with a well-drafted
construction agreement. A good contract spells out job costs,
payment schedules, scope of work, exclusions, timetables, and
warranty information, and includes clear language on how
disputes will be handled.
Of all these issues, I've found that exclusions are most likely
to be given short shrift. Many builders overlook them
altogether — especially when rushing bid preparations for
small jobs. But exclusions are just as important as the scope
of work. Unless you specifically exclude the areas of work that
you are not going to perform, the owner might assume they are
included in the price. An exclusions section is critical
because it helps prevent misunderstandings and gives the owner
a full and realistic picture of the job and its cost.
Contractually agreeing to exclude detailed areas of work also
gives the builder a clear legal basis from which to charge for
legitimate change orders, should these excluded items come up
during the job. If you don't pay attention to exclusions, you
could end up personally absorbing the cost of certain changes,
just to get the final check. Over the course of a year, this
could add up to thousands of dollars.
Chances are that your customer will really appreciate having a
list of excluded items as part of the contract. On larger jobs
I usually recommend scheduling a preconstruction conference
with the owners to go over every page of the agreement before
signing it. Typically, they are most interested in the scope of
work and the exclusions.
Two Types of Exclusions
The exclusions section of your contracts should include a list
of project-specific exclusions and a list of standard
exclusions.
The items you list in the project-specific section depend on
the particular job; they usually reflect your discussions with
the homeowners and any unique circumstances surrounding the
project. For example, let's say you're doing a bathroom job and
the owners tell you they'll purchase and install the towel
bars, shower door, and so on. You need to list those tasks in
the project-specific exclusions section of the contract. Later,
if the owners forget this conversation and expect you to
perform those tasks at no extra cost, you're covered, because
the exclusions are spelled out in the contract.
With the standard exclusions, there's no need to start from
scratch. Instead, you begin with an extensive boilerplate list
that covers many parts of a project — some not applicable
to your particular job — and revise it as necessary (see
"Standard-Exclusions List").
Beyond the Contract
The primary contract isn't the only place where you need an
exclusions list. You should also make sure you understand what
is not included in a subcontractor's bid. Exclusions from an
electrical bid, for example, might include finished light
fixtures or exhaust fans, as well as permits or permit fees.
Once you know what isn't covered, you can either exclude those
items from your agreement with the owner or have the sub give
you a price for the excluded work so you can include it in your
bid.
Some owners will want a written preliminary ballpark estimate
before moving on to the contract. Any such estimate should have
a list of exclusions. If you create an estimate to replace the
cabinets and install a skylight in a kitchen, for instance, you
might include language that the estimate doesn't encompass "new
appliances, any electrical work, or any drywall work beyond
that required for the skylight well."
Making absolutely clear what will and won't be included in your
estimate immediately establishes you as an honest, up-front
business person — and quickly turns away owners who are
just tire-kicking.
Gary Ransone is an attorney and contractor
based in Soquel, Calif. This column was adapted from his book
The Contractor's Legal Kit.