General contractor agreement—How-to guide

A good general contractor agreement outlines the rights and responsibilities of the contractor and the property owner.

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by LegalZoom staff

Contents

Updated on: February 13, 2024 · 23 min read

• 1. Overview
• 2. Do's & don’ts checklist
• 3. General contractor agreement (cost plus fee) instructions

1. Overview

Hiring a general contractor is a nerve-wracking experience for any home or property owner. This company or individual will be in charge of your entire project, whether it be completely new construction or a major remodeling, and the owner is putting one of its most valuable assets in someone else’s hands.

A good general contractor agreement outlines the rights and responsibilities of the contractor and the property owner. Vague, verbal agreements can lead to disputes and ill will. It’s best for all parties to detail their respective roles in writing before starting work. Your property is your haven. With the enclosed agreement, you can ensure it’s in the hands of the right contractor.

The enclosed document can provide a good starting point for your general contractor arrangement. You and your contractor must continue to discuss the terms of your agreement, settling questions about work parameters, payment, and responsibilities. Once you have agreed on contract terms and have signed the attached form, each party can focus on its area of expertise—the company on the development of its business and the consultant on the services to be performed.

2. Do's & don’ts checklist

1. State laws governing general contractors vary widely and can have a tremendous effect on your contracting arrangement. In some cases, specific information must be included in the contract, and in others, language must be excluded from your agreement. For example, certain states require that general contractor agreements entered into for home improvement purposes include information about how to file a complaint against the contractor with governmental bodies. In others, the contract may not waive your right to a jury trial or any provision of a relevant statute.
2. Approximately 36 states prohibit certain contractor acts, including the following:
   1. Abandoning a project
   2. Failing to perform as promised
   3. Misrepresenting essential facts
   4. Demanding or receiving payment before the contract is signed.
      Consequences for these behaviors will vary from place to place. If you feel that your contractor has or is violating your agreement, contact a lawyer in your area immediately.
   1. “The owner agrees to pay any increases in labor or material costs that may arise after the effective date of the agreement.”
   2. “If any of the specified materials are not available for any reason, the contractor reserves the right to substitute with similar materials.”

   3. General contractor agreement (cost plus fee) instructions

   The following provision-by-provision instructions will help you understand the terms of your agreement. The numbers below (e.g., Section 1, Section 2, etc.) correspond to the provisions in the agreement. Please review the entire document before starting your step-by-step process.

   • Introduction. Identifies the document as a general contractor agreement. Write in the date on which the agreement will become effective (often the date on which it is signed). Identify the parties and, if applicable, what type of organization they are. Note that each party is given a name (e.g., “owner”) that will be used throughout the agreement. The hiring party is called the “owner,” and the contractor is called the “contractor.”
   • Recitals. The “whereas” clauses, referred to as recitals, define the world of the agreement and offer key background information about the parties. In this agreement, the recitals include a simple statement of your intent to enter into a general contractor arrangement.
     There is an optional clause in the recitals that asks you to provide the contractor’s registration number and its date of expiration. In some states, home improvement contractors are required to have this number and to include it in all agreements to do home improvement work. If you hire a contractor who is not properly registered, you may forfeit your rights under certain consumer protection and other laws. Review your state’s regulations for additional details.
   • Section 1: Scope of work. The parties’ agreement that the contractor will be providing services on the property described, and that the specifications of this work will be more specifically set out in Exhibit B. Insert a description of the property on which the work will take place (e.g., address and area on the property, if relevant). Attach a list of the work that will be done by the contractor as Exhibit B to the agreement.
   • Section 2: Time of completion. This is a provision that is essential in contractor agreements. Certainly, everyone is familiar with the experience of having a project drag on and on (for legitimate and illegitimate reasons). Setting time boundaries up front is a good way of ensuring your project will remain on track.
     • In the first subparagraph, enter the date you want work to start and end. The bracketed word “substantially” allows for some leeway in the completion date. In other words, it means that all-important work has been done. If this doesn’t describe your arrangement, delete the word “substantially.”
     • The second subparagraph is optional and allows the owner to assess a penalty against the contractor for finishing work behind schedule. For obvious reasons, contractors will generally oppose the inclusion of this subparagraph.
     • The third subparagraph is also optional and is the flip side of the second subparagraph. It provides for a bonus payment if the contractor finishes ahead of schedule. If you decide to include the penalty subparagraph, it’s a good idea to include the bonus one as well.
     • (a) Contract sum; payments. Establishes that the contractor will be paid for the actual costs it incurs plus an additional fee. Enter the amount of the additional fee that you intend to pay the contractor.
     • (b) Actual cost of construction. Allows you to specify what will be included in “cost.” Review all of the listed items—by including these in this section, you agree to repay the contractor for its costs in these areas. The references to “overhead expenses” are bracketed, as some jurisdictions specifically prohibit the inclusion of these expenses as costs of construction. Review your state’s laws for additional details.
     • (c) Restrictions on payment. The exceptions and clarifications to the general rule set forth in subsection (b). In other words, this subsection allows you to limit or explain further what you will consider costs.
       • Staff charges. Indicates that the owner will reimburse only for employees actually working on the property, and only for the time that they are there. There is also a section allowing you to list what salaried employees (if any) will be eligible for reimbursement.
       • Overtime wages. Provides that overtime wages will be reimbursed only to the extent that they are actually paid out to the workers who earned them.
       • Overtime premium charges. States that the owner will be responsible for any premium charges related to overtime (e.g., time and a half, etc.) only if he or she approves those charges in advance. In addition, if the reason for the overtime is because of the contractor, the owner will not be responsible for the premium.
       • Taxes. Limits the owner’s liability with respect to taxes and requires the owner’s prior approval before it will reimburse for employee benefits.
       • Direct charges. Provides that they will be reimbursed at reasonable rates and to the extent necessary to perform the work.
       • Payments; invoices. Relates to the timing of payments. Enter the number of days after invoicing that you intend to make payment.
       • Affidavit of contractor. Indicates that before any payments will be made, the contractor must provide an affidavit that there are no liens on the materials it has provided. If you want to include other requirements in this affidavit, you should feel free to do so here.
       • Withholding of payments. Lists the circumstances under which payments will be delayed or withheld. These include poor work product and failure to make payments to subcontractors.
       • Final payment. The parties’ agreement about when the final payment of the contract price should be made. Enter the number of days after completion that this payment will be made.
       • Waiver of owner’s claims. Statement that once the final payment has been made, most of the owner’s claims are automatically waived (in other words, can no longer be made). There are specific exceptions carved out for poor work or unsettled liens.
       • Waiver of contractor’s claims. Statement that once the final payment has been made, most of the contractor’s claims are automatically waived (in other words, can no longer be made). There is an exception made for claims the contractor made and listed in writing before it received the final payment.
       • Maintenance of financial records. Good recordkeeping is an essential element of a cost-plus-fee arrangement. Since you will be paying for the contractor’s costs, having a paper trail confirming those costs is important. Enter the number of years after the end of work that you will require the contractor to maintain these records. This may prove useful for audits or other questions that may arise.
       • Maximum amount payable. A reiteration that the owner will not pay for amounts above a certain maximum. Enter in the same number you entered above.
       • Audit rights. This is the other side of subsection (g). You’ll want to keep the right to look at the contractor’s books, in addition to ensuring that it retains those books.
       • Requirement on subcontracts. Extends the documentation requirement to any subcontractors or other contract holders who enter agreements with the contractor. Essentially, they are also required to maintain careful records, especially where the owner thinks that the relationship between those companies and the contractor is a close one.
       • Payment failure. If the owner does not make any of the required payments (except as set forth earlier in this section, i.e., if the contractor provided inadequate work), the contractor is here given the right to stop working until it is paid.
       • Correction of defective work. Indicates that any defects found in the work within a certain period of time will be corrected or otherwise fixed by the contractor at its own cost. Enter the number of years this warranty will last.
       • Normal wear and tear only. States that the contractor will only be responsible for damage occurring from usual events. In other words, if you do destructive or dangerous things to the property, the contractor won’t be responsible.
       • Can the contractor and its employees use your bathroom and phone?
       • Can the contractor and its employees keep their lunch boxes in your refrigerator?
       • Do you care if the workers arrive at 8:30 a.m. instead of 8 a.m.? If you do, what are the consequences?
       • Where will the workers park?
       • Where will the incoming materials and trash piles be situated on your property?
       • How often will you expect the contractor to contact you about the progress of the work?
         This is not an exhaustive list: think carefully about what will matter to you during this work. If you do not wish to include any additional requirements, delete this section. If you do remove the provision, correct the section numbers and references in the agreement.
       • ​Document the work in phases, and ensure the work is detailed chronologically or sequentially.
       • Identify any dependencies or timing issues (e.g., does a certain phase have a deadline? Can one thing happen only if specific tasks are completed?).
       • Identify and describe any specific milestones that must be reached (e.g., at what point is the project “half completed”? What is “substantial” completion?)
       • Will progress reports be required? How often?
       • Will the owner make assessments during the construction? How often?
       • Are there specific brands or product types you want used? Types of materials?
         Listed on Exhibit B are a few general categories that you may want to address when drafting the document. Once you and the contractor agree on the scope of work, you should both sign the exhibit.
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       This article is for informational purposes. This content is not legal advice, it is the expression of the author and has not been evaluated by LegalZoom for accuracy or changes in the law.