I recommend that you have a lawyer review your contract. What needs to be included will vary from state to state and will also vary depending upon the builder's standard contract. A home is a big investment and it is worth paying a lawyer to make sure that your investment is protected. You can bet that the builder will start with a contract that is written in his best interests--not that he is intending to take advantage of you, just he will want what is easiest for him.

Carolyn53562 said it. And if possible, find a lawyer who frequently works with building contracts. Read the proposition, and don't hesitate to ask questions until you completely comprehend every sentence.

Do be sure that the final portion of the payment to the builder can be held until the punch list is completed. That's your only leverage, and if you are working with a bank or mortgage company, be careful that their contract also specifies that the final payment be held until after all work is completed.

Do a search on this forum (at bottom of the first page); there have been many posts about the pros and cons of different types of contracts. There are numerous variations, and you should be comfortable with the type chosen. IMO, the best contracts protect both builder and buyer -- and are writtten to acknowledge the fact that neither group is 100% angelic. The contracts I prefer call for a lot of time and hands-on attention from the owner, but it's quite possible to have a good contract that relies totally upon the builder. Just remember that the less attention you pay to details, the more attention the builder must engage -- and you'd better be positive that both his abilities and his character can handle the challenge.

The AIA (Architectural Institute of America) has standard contracts that you can buy and modify with the help of a local lawyer to suit your particular situation. We'd picked one up to use for our build... but then GC'd ourselves instead.

It's a great starting point, and with the help of a lawyer, you can add clauses to protect you.

Here's a few things to consider:
1. Any deposit or down payment should be escrowed or a first lien on the property should be filed by your lawyer. You need to be the first creditor in line, not the bank.
2. Completion Dates - make them hard and include financial incentives and penalties for making and missing them.
3. Be as specific about finishes, fixtures and appliances as possible.
4. Clearly define the Change Order process and that it must be done as an addendum to the contract.
5. Clearly define the draw schedule based on milestones (clearly defined) that are signed off on by you... if the building loan is yours.

The agreement between an owner and a builder should be a standard one that has been tested in the courts in your state. It should also be suitable for your project delivery system with revisions to accommodate any special conditions. Without more information I can only warn you to avoid simple contracts written by builders. If you show us the contract I can tell you what is missing but it would take me many hours to write out what should be in all of the possible contract types.

Obviously, the expenditure of a large amount of money for any service should involve professional guidance and assistance but the only people specifically trained to do this (other than a very few lawyers) are architects, and few owners are willing to pay for that service so they get caught between people with too little specific knowledge and people with a serious conflict of interest.

As a contractor, we would NEVER accept the AIA specifications that bdpeck outlined.

Thanks Meldy.

Jason, what's the beef with any of those 5 items?

1. You don't think a buyer should get protection for their deposit or down payment? They should just trust a contractor with tens of thousands of dollars? Absurd.
2. I admit, this is the toughest one, because as Meldy pointed out, you must provide for material delays, weather and unforeseen events. That's why I would lean more towards incentives than penalties. But at the end of the day, a professional builder should be able to set a worst case date and stick to it.
3. How could you not want to know as much of this upfront and in writing if you're a builder.
4. Any contract that doesn't outline this should get on the schedule of a court or arbitrator as soon as it's signed.
5. Again, do buyer's not deserve some protection from contractors who take draws for uncompleted work and walk?

Jason, maybe you've managed to not need these items addressed in any of your work, but through personal experiences and that of friends, these are all items that could've avoided stress, un-needed costs, strains on the builder-buyer relationship and resulted in a much better experience for all involved.

My lawyer wrote my contract, but included no penalties for not finishing on time.

So a projected 6 to 7 month build [and we knew it would go at least a month or two beyond that] ended up taking over 2 years, and my garage still isn't done.

At the very least, I think my builder should have been paying my rent those extra months. It would have given him incentive to actually get the job done, as opposed to spending his time on the client that was closeset to owing him a big check.

I say get an attorney whom has pursued/defended contracts dealing with building and vacant land law. We needed our lawyer for both the builder and the county.
Priceless. County wanted an easement for future road(not). We gave it to them but they flubbed the paperwork and wanted us to sign again. Needless to say our lawyer was hot that we signed without him. County held the building permit until they received a nice letter from him. They never did get that easement.
Builder contract had many holes for unnecessary risk on our end. The lawyer took care of that with a re-written contract that both parties agreed on.

When looking/dreaming about your dream home, some of these things slip your mind. I figure hiring the lawyer needs to be up there with a good architect drawing the plans and a second engineer putting his ok on them.

Peace

Many contracts make the final payment too small. You have to have some big bucks owed to get some contractors back to complete the punch list. My experience is that contractors HATE to do the finish work and will postpone or even walk away from a measly 10 - 15% of contract owed. (That next new build with two hefty percentages due within months is much more appealing.)

Make the final payment big enough that you could hire someone else to complete the list if the GC walks. Word the contract so that if the GC doesn't perform in X days, he forfits that last payment.

Our GC could have pulled a fast one. Our contract said he was owed final payment once the house had a certificate of occupancy. First of all, a CO is bare minimum: working furnace, light, sink, etc. Secondly, our house was a partial teardown; we never LOST the CO.

Why pay a lawyer with limited construction law experience to draw up a custom contract when the lawyers at the AIA have been studying and refining these kinds of contracts for 115 years, and use wording and provisions that have been repeatedly tested in courts across the U.S.?

Of course you have to know how to modify any standard contract form for your project.

I had a contractor thank me for introducing him to an AIA contract and a more sophisticated project delivery method because it allowed him to get higher end clients although he disliked the AIA contract on our project because he had been a production framer and it was a lot more work for him. I won't use him again because he's still lazy and cuts corners.

All pretty good advice so far. Generally, the extent and magnitude of deligence and protection is proportionate to the cost of the project. Not that any one contract deserves any less protection than another by any means but a 250K build might be fine with a standard AIA contract and legal review while a million dollar home would need much more deligence. More deligence costs a good bit more but generally pays for itself in the end. If you stand to lose a lot, paying for some insurance is worth it.

Four years ago when we first started our build process, building was at its peak and most/many builders would not even consider the bid process much less a performance hold back. You paid them a non-refundable deposit to give you a cost estimate, if you did not like it or could not agree on terms, you lost your deposit. And the thought of a hold back/retainer until complete and final performnce under the contract was absolutely laughable at the time. No builder would even consider it. Back then it was a builder/contractor's market. However, the market has returned to an owner's market again and an owner can once again insist on measures that protect their interests too.

My recomendation? - 1)If a builder EVER says he would never agree to standard, prudent and industry standard contract terms, run, do not walk, away! IMO, this is the first sign of a contractor who likes to redefine when they think they have done enough and the contract is complete (usually to their benefit,not yours); 2)Pay an attorney to review everything; 3) Pay an architect to oversee the project (admittedly this is usually only necessary on large/high dollar builds); and 3) and absolutely, positively, no exceptions insist on a final performance/completion hold back. Make provisions to have the amount escrowed if necessary to make sure the builder/contractor doesn't try to hold it over your head to keep you from closing at the last minute. This can be very important if you are about to lose your interest rate lock or loan coommitment, especially in today's mortgage environment.

Yes, I learned these things the hard way. Now I am facing the cost of an attorney on the back end to enforce specific performance under the contract. a contract paid in full. Hand shakes, smiles, personal commitments and reassurances are great but money (a hold back) is better.

capecodfan

This piece of advice, from my brother-in-law who is a builder, saved us $25K on our kitchen when we built our custom home a few years ago: Do NOT get locked into using one particular kitchen designer / showroom regardless of the allowance. This is a sure fire way of getting raped by the kitchen people.

We went to the showroom that our builder recommended we check out, BUT were not required to use. The kitchen designer / showroom ASSUMED that we were locked into his shop. He priced our kitchen (without appliances and without countertops) at $45K. We bought them elsewhere for $20K.

Did you ever say where you were building?

"Why pay a lawyer with limited construction law experience to draw up a custom contract when the lawyers at the AIA have been studying and refining these kinds of contracts for 115 years, and use wording and provisions that have been repeatedly tested in courts across the U.S.? "

Because lawyers at the AIA design contracts to protect architects when they get sued by owners or builders, and such contracts do nothing to protect builders or owners.

As a builder, I also would never use a contract devised by the AIA or anyone else for that matter.

If an owner chooses to provide their own contract, whatever the source, that is a customer most builders will avoid.

By using your own contract you will have the added risk of likley not getting the choice of the builder you want.

flip side- as an owner, I would never choose a builder that would demand that I use their form contract rather than a negotiated one. Added risk of not getting the choice of builder you want??! Surely you jest!

And that's where the middle ground is, and why you should consult a lawyer.

Did capecodfan say there would be an architect involved? If so, I missed it.

It is natural that an AIA contract would include an architect as the project administrator but all the parties need to do is strike the references to an architect and state that the contract will be administrated by the Owner (or his/her representative). The sections of an AIA contract that offer the most important protections for the owner do not mention the architect.

The most important aspect of an AIA contract is that the Owner is in control of the project and not the builder. If it were my money, I would not give control of an expensive project to someone with such an obvious conflict of interest. If the owner doesn't have the necessary expertise then it is wise to hire a representative who does. If you don't particularly care about quality or cost control or think the builder will protect your interests instead of his own then by all means turn the project over to the builder and use a construction industry standard form many of which are copies of the AIA forms using the same names and terms but with many fewer protections for owners. If you want a quick education about what should and should not be in a contract, put these contract forms side by side.

As far as lawyers go I have met few who know much about construction law and those who do charge $300+ an hour because they handle construction litigation. It is best to use a standard form and have it reviewed by a lawyer for mistakes.

As far as I'm concerned, owners can do whatever they want; I only have to worry about my clients and they are well protected.

I would be interested to know which specific AIA contract forms are thought to be written for the protection of the architect and where those who hold such opinions have seen those documents since they are not available online or for free.

Again, using an AIA contract is just as silly as using a realtor's contract.

AIA is in the business of selling contracts just as are some web-attorneys.

You can even find the same kinds of canned boilerplate 'contracts' in office supply stores.

Trouble is, AIA is not in the business of writing or negotiating contracts between owners and builders.
They are in the business of writing contracts for architects that protect the architects from lawsuits by builders and owners.

Why would anyone use the AIA with such paltry 115 +/- years experience at writing contracts when lawyers have been doing a better job protecting their clients for centuries?

Again, ANY builder that does not supply his own well established contract is not worth his salt as a builder or businessman.

No builder in his right mind is going to use an owner's or any other 'canned' contract provided by the AIA, the PTA, the NAACP, IRS, AAA, GEICO, or the SPCA.

An experienced builder will already have his well proven contract available drawn already up by his own attorneys and for his own protection and simply won't negotiate.

You want a builder who will do otherwise?

And I will show you a builder who won't be around longer than the warranty on your home.

Negotiate the contract wth the builder....

Now that's rich! lol

"The American Institute of Architects (AIA) announced the results of its 2008 Market Surveys Report which gauges the industry's opinions and ongoing experience with AIA Contract Documents. The AIA surveyed architects, commercial contractors, owner/developers and construction attorneys six months after making updates to its Contract Documents and launching Integrated Project Delivery: A Guide.

The survey results show that one of the top perceived benefits of AIA Contract Documents is that the documents are widely-accepted in the construction industry, a benefit that is bolstered by findings that the respondents choice is to use standard documents that are accepted across the industry. The additional top benefits include that using AIA Contract Documents saves time and that they are fair and balanced for all parties.

Of the entire sample of lawyers, contractors, owners, architects and developers, 89 percent agreed that AIA Contract Documents are widely-accepted in the construction industry. In addition, two-thirds of respondents, including 82 percent of commercial contractors, agree that the documents are written to be fair and balanced for all parties, and nearly 8 in 10 construction law attorneys use the documents to save time."

Definitely use an attorney -- it could have saved us tens of thousands, and years of headaches and frustrations. Also, we did have enough sense to escrow some money, but our builder owed the IRS and when that money was finally released, the IRS garnished it before it could come to us (the IRS considered it the builder's money that he owed us, and they got first shot at it!).

Contract documents produced by the construction industry such as the relatively new "ConsensusDOCS" shift more of the project risk to the Owner and reduces an Architect's role to that of consultant to the Owner so that the Owner must provide administration of the contract.

For Owners without sufficient resources, this approach can be a problem. But, ironically, it reduces the liability of the Architect since he/she is only responsible for his/her drawings. The perception that AIA documents are written to protect the Architect from risk is due to the fact that these documents continue the traditional century old role of the Architect as the administrator of the contract and therefore it is necessary to distinguish in the contract between the responsibility of the Owner, the Architect and the Contractor.

For those who are accustomed to a builder offering essentially design-build-administration services to an Owner with limited or no involvement by a design professional and without a properly written contract for that particular project delivery method, the AIA contract forms make no sense, hence outraged characterizations - the favorite debate tool of the semi-educated.

AIA documents are not appropriate for all projects but I would recommend trying try to start with one and modify it as needed (even without an architect involved) just so that the parts I didn't change could be relied upon to hold up in court. For a lawyer to produce such a reliable document he/she would need to pretty much reproduce an AIA contract with modifications. That seems pointless when you can buy an AIA contract for $8 and ask your lawyer to make modifications for your project. The AIA logo on the bottom of each page is the best bargain in the construction industry.

"Why would anyone use the AIA with such paltry 115 +/- years experience at writing contracts when lawyers have been doing a better job protecting their clients for centuries?"

AIA documents are updated on about a 10 year cycle because project delivery methods as well a construction techniques are constantly evolving and changing. Nothing produced more than 15 years ago would be useful to a project today.

If you pay a lot to a lawyer to draw up a custom contract don't be surprised if it tends to follow the AIA format and uses similar wording. A contract from a builder is likely to take a similar approach. No organization has ever come close to matching the diligence of the AIA in the production and improvement of construction documents.

"If an owner chooses to provide their own contract, whatever the source, that is a customer most builders will avoid."

In the past 40 years I have designed and supervised the construction of countless homes and home renovations, 4 college dormitories, 2 hotels, 2 regional shopping centers, thousands of units of multi-family housing, and several major historic restorations with no problem getting contractors to bid and no objections to using an AIA contract with one exception.

On a $40 million hospital addition the contractor substituted his own contract contrary to the bid documents and without notice to anyone and I spent a month of my spare time listing the differences and issuing an addendum to the contract. Fortunately, the formats were very similar. I never let it happen again.

Exactly which AIA forms does an owner need when contracting with a builder for a new house? Does the same form cover fixed price and cost plus or a combination of the two? Are there any documents incorporated by reference that an owner needs to review or have on hand?

I would use the small projects form A105 for residential Stipulated Sum contracts if that possibility ever came up and the abbreviated form A117 for Cost of the Work with a Fee contracts with or without a GMP. They both include their own short general conditions but the latter might be hard to find because I don't think any current AIA document replaces it but you can always google it and buy it somewhere or any architect should have it if they do small projects.

There doesn't seem to be much rhyme or reason to what forms the AIA chooses to maintain so I have saved all of the forms since the mid 60's. I actually belonged to that organization for 30 years, but I don't remember why.

These contracts deal primarily with the basic considerations like responsibilities of the parties, insurance, termination, disputes, etc. Specific project issues like allowances, etc. are covered in Division 1 of the Specifications. Since many builders think a specification is a list of materials and upgrades such project specific issues might have to be added to the agreement form.

In all the years I have practiced architecture, I have never dealt with a more complicated, variable set of instructions than those required to build a house but at least there are fewer of them to deal with and check. When all parties are constitutionally and culturally predisposed to have a different idea of what is expected of them and of others, chaos can quickly ensue. Sometimes I miss the order of the big projects; the contractors' project staff were all engineers and respected the roles of others; but the hours were long and stressful and the pay low.

You NEED an attorney, preferably one who has construction litigation experience. Have the contract written to protect YOU. Make sure it includes provisions for structural engineers to inspect and approve the work before payments are made.

Never sign a contract provided by the builder.

I lived through a homebuilding nightmare, complete with years of litigation. Protect yourself now.

Here is a link that might be useful: Homeowners Against Deficient Dwellings

The aia forms are good. We bought the forms on the recommendation from the architect. They would be even better if you could get a builder to agree.

A builder won't agree. Why would they?

Taking this one step further, I would specify fireplace BTUs and sizes, railing(wood or iron) choices, trim packages, trash removal, utility bills, warranty start??, granite/counterrop specifically,width of hardwoods/tile choices, toilet/sink colors, (white is cheapest, all else upgrades). Etc.
My builder fought me on this simple upgrades, despite it being a custom designed home....

I think the OP was asking about the Agreement between the Owner and the Contractor rather than the technical specifications. A contact for construction is usually made up of the Agreement, the General Conditions, the Specifications and the Drawings. Sometimes these parts are compressed and/or combined but the specifications should always be separate since they are more subject to revision during the work.

If you put the AIA form in the bid package then you know that the contractors who submit a bid are the ones who accept the fact that the Owner wishes to retain a certain amount of control of the project rather than be at the mercy of the Contractor.

"If you put the AIA form in the bid package then you know that the contractors who submit a bid are the ones who accept the fact that the Owner wishes to retain a certain amount of control of the project rather than be at the mercy of the Contractor."

That's not necessarily true; you can certainly have a contractor who wants/allows/agrees with the idea of maintaining some owner control without using an AIA contract.

Jason,
Yes, I agree.

You can do it your way and I can do it my way; there is no right or wrong way.

In any event, a contractor can always describe alternatives in the bid offer so no one is necessarily excluded. However, modifying the clauses involving division of responsibilities and administration of the contract should be done by someone who knows the subject very well. This is, in fact, the essence of the agreement.

It would be better to substitute a contract written by a contractor trade organization like ConsensusDOCS since transfer of risk and project control is essentially how they differ from the AIA documents.

I don't expect all contractors to want to use the AIA forms but there is no reason to disrespect an owner's right to use them; it is, after all, the owner's building.

This is why you need a lawyer to write your contract to protect YOUR best interests. Remember, YOU are hiring the builder and it is YOUR money and YOUR house, make sure the documents you sign reflect this so that you have a better chance of actually getting what you pay for.