Types of Remodeling Contracts

There are few main types of remodeling contracts to make yourself aware of upon finally selecting a contractor to supervise your project. At this point in time, it’s time to enter the contract negotiation. When negotiating the price and terms of the contract, you’ll have a better understanding of what’s being offered, and how you can benefit.

As stated before, there are a few generally accepted ways to deal with a contractor for purposes of managing your remodeling project. You can hire a general contractor to basically handle the job themselves from start to finish. Or, you could be the ‘GC’, and manage the job yourself.

If you are selecting a general contractor to completely supervise your project, consider these options:

signing contract

Lump-Sum Contract
This is when a remodeling contractor charges one base price for the total job, from beginning to end. He is responsible for all aspects of the job, including obtaining and payment for all materials, installation, and total labor costs. The total price will generally include a mark-up of anywhere from 15% to 25%. You will make payments (draws) to him at various times during the remodel. Hold the last draw (5%) until everything is completed to your satisfaction.

Cost-Plus
Another popular type of agreement when selecting a general contractor, as this is when a contractor is paid to manage the job only. He will break down all sub-contractor, materials, and any other costs associated with the project. You then pay for all materials and their subsequent delivery, and all labor costs (to the GC). When the job is completed, you then pay him an agreed-upon management fee for his time. Excellent for keeping track of all total costs, and how dollars are being spent.

When hiring sub-contractors such as electricians, plumbers, framers, etc., consider one of the following options:

Time-and-Materials
This pertains to the type where the contractor is expected to provide the labor and materials. Small contractors like to employ this type because of the flexibility with which they can determine the time the job would actually take. If it’s just a one, or two-man operation, he can then more accurately assess his hourly rate, which in turn, helps you have more precise costs for your budget. His mark-up (if any), is generally included in the hourly rate.

Make sure to ask that the hourly rate (or total labor charge) is the final cost for his services. In other words, there are no extra fees or surcharges added on upon completion of the job.

Hourly Rate
This is probably the most popular choice when selecting a sub-contractor. You agree to an overall hourly rate (in most cases he will already have a standard rate), and also agree to cover all material costs as well. Also ask him to give you a reasonable estimate of total time (labor) involved for all necessary installation, both rough and finish stages, and a materials list (including cost of delivery) and when he will need those items delivered.

In this option, you get more control over how the money is spent, and where it’s going. Highly efficient for management, and budgeting purposes.

Again, as was the case in Time-and-Materials type of contract, make sure the hourly rate includes any mark-up (it should be included) he might require. You just don’t want any surprise charges and fees added on at the end of the job.