Review Contractor Contract
The contract is your only protection if things go wrong. A well-written contract clearly defines what will be built, when, for how much, and what happens when the unexpected occurs. Take time to read every word before signing—this document governs a $100,000+ investment.
Quick Summary
Time to review
2-4 hours minimum
Max upfront payment
10% of contract
Consider hiring
Construction attorney
Essential Contract Elements
Detailed Scope of Work
The scope must be specific enough that any contractor could build exactly what you agreed upon. It should include:
- • Reference to specific architectural plans (by name, date, version)
- • Complete list of what's included (and excluded)
- • Specifications for major systems (HVAC size, electrical panel capacity)
- • Site work details (demolition, grading, access)
- • Utility connections and responsibilities
- • Cleanup and debris removal
Key test: If the scope section doesn't clearly describe what you're getting, it's not detailed enough. Vague scope leads to disputes.
Materials and Specifications
Every major material should be specified by brand, model, or detailed description:
- • Windows: Manufacturer, series, glazing type, energy rating
- • Roofing: Material type, manufacturer, warranty class
- • Siding: Type, manufacturer, thickness
- • Flooring: Material, manufacturer, style name
- • Cabinets: Manufacturer, line, door style, finish
- • Countertops: Material, edge profile, thickness
- • Plumbing fixtures: Manufacturer, model numbers
- • Appliances: Manufacturer, model numbers
- • Paint: Brand, finish, color codes
Watch for: "Builder-grade" or "or equivalent" language gives contractors flexibility to substitute cheaper materials. Get specifics.
Project Timeline
The contract should specify clear timeline expectations:
- • Start date: When work will begin (or conditions for starting)
- • Substantial completion: When the ADU will be livable
- • Final completion: When all punch list items will be done
- • Milestones: Key dates for foundation, framing, rough-in, etc.
- • Delay provisions: What happens if contractor misses dates
- • Force majeure: How weather, permits, supply issues are handled
Consider including liquidated damages for excessive delays—a daily penalty (e.g., $100-200/day) after a grace period motivates timely completion.
Payment Schedule
A fair payment schedule protects both parties and ties payments to completed work:
Recommended Payment Structure
- Contract signing5-10% maximum
- Permits approved, materials ordered10%
- Foundation complete15%
- Framing complete15%
- Rough-in complete (passed inspections)15%
- Drywall and insulation complete10%
- Finish work complete15%
- Final completion and punch list10% (hold until complete)
Critical: Never pay more than 10% upfront. In most states, this is the legal maximum. Contractors asking for 25-50% deposits are either financially unstable or planning to disappear.
Change Order Process
Changes will happen. The contract should define exactly how they're handled:
- • Written requirement: All changes must be documented in writing
- • Cost breakdown: Material, labor, and markup shown separately
- • Markup percentage: Typically 15-20% for overhead/profit
- • Approval process: Both parties must sign before work begins
- • Timeline impact: How changes affect the schedule
- • Credit for deletions: How you're credited for removed work
Protect yourself: Include language that says no change order work begins until you sign written approval with a set price. Verbal approvals lead to disputes.
Warranty Terms
Understand exactly what's covered and for how long:
- • Workmanship warranty: Typically 1-2 years minimum
- • Structural warranty: Should be 10 years on foundation/framing
- • Systems warranties: HVAC, plumbing, electrical (varies)
- • Material warranties: Pass-through of manufacturer warranties
- • Response time: How quickly defects will be addressed
- • What voids warranty: Conditions that cancel coverage
Get all manufacturer warranties transferred to your name. Some contractors keep these—you should have them directly.
Other Important Contract Provisions
Insurance Requirements
- • General liability (minimum $1M)
- • Workers' compensation
- • Builder's risk insurance
- • You listed as additional insured
- • Certificates provided before start
Permits and Inspections
- • Who applies for permits
- • Who pays permit fees
- • Who schedules inspections
- • Who is responsible if inspection fails
- • Timeline for obtaining permits
Site Conditions
- • Access requirements and hours
- • Material storage location
- • Protection of existing landscaping
- • Cleanup frequency and standards
- • Parking for workers
Dispute Resolution
- • Mediation before litigation
- • Arbitration (binding or non-binding)
- • Which state laws govern
- • Attorney fees provision
- • Right to cure period
Termination Rights
- • Your right to terminate for cause
- • Your right to terminate for convenience
- • How work-to-date is valued
- • Return of materials/plans
- • Notice requirements
Lien Waivers
- • Conditional waiver with each payment request
- • Unconditional waiver after payment clears
- • Waivers from subcontractors
- • Final lien waiver at completion
- • Protection against mechanic's liens
Contract Red Flags
Large Deposits Required
More than 10% upfront is illegal in many states and always risky. Reputable contractors have credit with suppliers and don't need your money to start.
Vague Scope Language
Phrases like "as discussed" or "per verbal agreement" are unenforceable. Everything must be in writing with specific details.
One-Sided Termination
If the contractor can terminate easily but you can't, the contract is unfair. Both parties should have reasonable termination rights.
No Timeline or Penalties
A contract without completion dates or delay provisions gives the contractor no incentive to finish on time.
Waiving Your Rights
Language requiring you to waive rights to sue, file complaints with licensing boards, or leave negative reviews is a major red flag.
Unlimited Change Order Markup
If the contract doesn't cap markup on changes, you could pay 50%+ premium for every modification. Typical markup should be 15-20%.
Contract Review Checklist
Frequently Asked Questions
Should I hire a lawyer to review the contract?
For a $100,000+ project, spending $500-1,000 on a construction attorney review is worthwhile. They can spot one-sided clauses, missing protections, and help negotiate better terms. Look for attorneys who specialize in construction law.
Can I negotiate contract terms?
Absolutely. Most contractors expect some negotiation. Focus on key terms: payment schedule, change order markup, warranty period, and completion penalties. A contractor unwilling to negotiate reasonable terms may be difficult to work with.
What if the contractor uses a standard form contract?
Standard contracts (like AIA) are generally fair but may still need modifications. Add an addendum with your specific requirements: material specs, timeline details, and any terms you've negotiated that differ from the standard form.
How long should I take to review the contract?
Take at least a few days. Never sign same-day under pressure. A contractor who demands immediate signatures is raising a red flag. Read every word, ask questions about anything unclear, and get modifications in writing.
What's the difference between fixed-price and cost-plus contracts?
Fixed-price means you pay the agreed amount regardless of actual costs—good for budget certainty but requires complete plans. Cost-plus means you pay actual costs plus a percentage—more flexible but less predictable. For ADUs, fixed-price with clear scope is usually better.
Ready for the Next Step?
Once you've reviewed and signed the contract, the next phase is preparing your property's utilities for the ADU, starting with an electrical panel assessment.