I have issues with the EXPLANATION your builder tried to give you regarding the 5% deposit he is asking you to pay to him. He says this provides the bank with extra security... HUH? How can your giving extra money to the builder possibly make the bank more secure???? Yes, banks want you to have skin in the game but I suspect that bank would much rather have that extra 5% of yours in a deposit account in their bank ready to pay out to builder once he has earned it than in builder's pocket before builder has even broken ground. And, it actually sounds like the 5% is going to have to come out of your loan amount rather than out of your pocket now. If so, what builder is actually asking for is a 5% draw from the bank before he ever does any work. NO WAY! The last thing banker's want is for builders to get any of bank's money BEFORE they earn it. Getting money upfront (before work is done) is how shyster builders operate. They are the ones who then disappear leaving you with a half-built house and not enough money left in the bank to finish it...which often forces the homeowner to walk away leaving bank owning the half-built home. If builder had said something like: "the 20% down is to purchase the land. You will then own it outright and I will give you the deed for it immediately. That means that, if you then decided you wanted to, you could walk away from me and go find someone else to build your house on the land. So I want an additional 5% deposit to ensure that you'll stay with me and let me build your house because otherwise I don't want to sell you the land." Well, that would have made sense and at least sounded honest. (That is, assuming the land without a house is actually worth that 20% and you could build the house you want for the remaining 80%.) But "pay me an additional 5% because it will give the bank more security" is, IMHO, pure flim-flam! And, if builder will attempt to flim-flam you at this point, he'll do the same thing repeatedly over-and-over again as the work progresses. Frankly, this is a red flag that should make you wonder if you even want to get into a contract with this guy at all. At the very least, ask your builder - in the presence of your banker - to explain to you EXACTLY how your putting more money into buider's pocket before he actually does any work for you is somehow going to make banker feel more secure. And then ask your banker if he agrees with builder's explanation.

OK, for those who may be early in their journey for the design and construction of a custom home, construction contracts include terms, conditions and costs for labor, materials and the builder's profit and overhead. It is important to understand that there is risk to both the owner and the builder in a construction project. The differences in construction contracts are primarily due to: 1) who takes the major risk; 2) who has to pay for cost over-runs and how cost is determined; 3) who keeps the savings if the project costs less than the estimate and how savings are determined. Here is a brief summary of the major types of construction contracts: --Lump sum or fixed price: This is the simplest type of contract which consists of a total fixed price for all construction related activities. There may be cost saving provision for early completion and a cost penalty provision for late completion. This type of contract is often used when there is a very clear construction scope and when a clearly defined quality of work, materials and schedule have been agreed upon. --Guaranteed maximum sum: costs are estimated as in a lump sum contract, but builder profit is limited to a specified amount. There may be a financial incentive to share savings, If actual costs are lower than GMP, but if costs are higher than GMP the builder pays the difference and the profit is reduced accordingly. --Cost plus: This type of contract consists of actual costs or expenses directly from the construction activity. Important for these contracts to include specifics about builder's overhead (including material, labor and insurance costs) and profit. Cost plus contracts may be: 1) Cost plus fixed fee; 2) Cost plus fixed percentage; 3) Cost plus w/guaranteed maximum price; 4) Cost plus with guaranteed maximum price and bonus for savings below GMP, among other types of cost plus contracts. This type of contract requires the owner, or owner's agent, to monitor and manage the contract much more closely than the previous two types of contracts. --Time and materials, or unit price: May be used when/if project scope is unclear, not defined and/or for limited trades. Seldom used for an entire project, but may be common for some limited subcontractor work, i.e., painting, flooring, etc. Time and materials contracts must include a mutually agreeable hourly or daily rate, including applicable additional expenses that may arise. Unit price contracts, like a lump sum contract, pay a subcontractor an agreed upon price, regardless of the actual cost to do the work. For T&M contracts, owners may wish to establish a cap or project duration that must be met in order to minimize owner risk. Every builder has their own experience and preferences, so for the best owner-builder relationship, the type of agreement must be acceptable to both parties. The issues of allowances and changes in scope, resulting in change orders, are common to all types of construction agreements and these conditions should be covered in carefully and thoughtfully delineated terms, no matter the type of contract. Obviously, the best situation is a project with no allowances and no change orders, but that is seldom practical and realistic. Now that we have covered the issue with a broad brush, we can return to sharing experiences about which ONE type of construction contract is preferred and why.

Welcome to building in California. :-) I'm not an attorney, but have negotiated a lot of contracts in my day, and I built a deck (though it was DIY) so hopefully I can shed some light. 0. The drawing should include all the details Jon Mon mentioned. You want a set of drawings that has sufficient detail that if the contractor does something different than you were expecting, you can refer to them to decide whether or not he complied with the contract. You don't want to rely on verbal exchanges you had. 1. 24 months sounds like a solid warranty. 2. What John said. 3. Neglect and negligence are common legal terms. No worries about defining them. But it might be worth a conversation with the contractor about his recommendations on the things you should do to avoid being neglectful (that would be care & feeding). Negligent would be doing stupid things, like running a truck into the railings and breaking them. 4. Consequential loss or damage is indirect loss or damage resulting from damage caused by the contractor. For example, if, when digging footings he cuts an electrical line, he would need to repair the electric line but wouldn't have to replace the food in your freezer that thawed while the power was out. I think this is reasonable. 5. Check state law. 6. The best protection is to "underpay" as you go. In other words, have some money in reserve so he's got an incentive to finish. I'd keep final payment at 25% or more. You could build in a penalty for late completion, but you run the risk of him cutting corners to meet the deadline, so it's a fine line to walk. Plus weather and inspections could delay things beyond his control. 7. This means that if one of you agrees to skip a contractual provision once, the other party can't take that as a blanket permission to skip it in the future. As an example, if I've hired a GC to remodel my kitchen and the contract says he's got to leave the place clean at the end of each day, I might go on vacation for a week and say "you don't need to clean up daily while I'm gone" since I won't be living there. When I get back, he can't take the fact that I waived the cleaning requirement once as a precedent that he doesn't need to clean daily anymore. Or your contract might specify payment every Friday, but one Friday it's raining so he doesn't come to work and says it's ok to pay him Monday. You can't switch all your payments to Monday. This is standard stuff, and fine to have in a contract. 8. Definitely put in the verbiage that his work will meet or exceed IRC, CBC, and any local codes. But don't rely on that to ensure compliance. That just gives you teeth if you have to sue him later. It's much better to ensure that it IS compliant when built, and the best way to do that is to have it engineered and inspected. I don't know if CA requires a structural engineering review on a deck, but if they do, then do it. If they don't, and it's just for your peace of mind, a cheaper way to go would be to get decks.com to engineer you one. It's $99 and they provide footing placement and diameter, joist sizing, and even a materials list. Great deal, IMO, and I was very happy with their service. On permits/inspections, from someone who paid $100 for my permits for a similar size deck, I agree that $2-3K is highway robbery. But that's California. My company supplies modular elevators all over the country and the ones we ship to California cost ~20% more because of the extra engineering requirements they make us do. Some of it is justified because of the seismic risk, but a lot of it is just bureaucracy. That said, inspections make sure your contractor is doing what he should UP FRONT, and I've heard stories of people having difficulty selling their homes because the buyer finds unpermitted work, or local inspectors making people tear down unpermitted work. It sucks, but that's the price of living in California. 9. Again, it depends, but my company is in the process of hiring a SE in CA to do calcs on a 40 foot high welded steel structure and I estimate our total costs (at $110/hr) will be around $2000. So I'd shop it, if you can't use the decks.com option. Or get the decks.com drawings and have the SE just do the calcs, which should save some time and $$. Find someone who does a lot of decks so that they're used to them and are thus more efficient.

There are several different categories of construction contracts, but it's important to understand that these contracts are all about risk management and which party takes the greater financial risk. For example, in a Fixed Cost contract, all costs of the scope of work are included and the builder has all the risk to complete the scope of work within the Contract Sum. At the other end of the spectrum are Time and Materials contracts in which the owner is billed on a regularly scheduled basis for the material used and time of workers which has been incurred. In this type of contract the owner has all of the risk for completion of the scope of work. Finally, there are a host of "Cost Plus" contracts, in which the owners are billed for the cost of the work incurred plus general contractor's OH and profit. In it's simplest form, this is not much different that Time and Materials contracts. As a result, many Cost Plus contracts include a "guaranteed not to exceed" or "maximum cost" provision, and perhaps other provisions as well. For an incentive, there may be an added agreement between owner and general contractor to share in any savings below the maximum cost number in a ratio of, say, 50%-50%. In this type of contract, risk is shared to a greater or lesser degree between both owner and builder. It's always amazing to me that many consumers simply accept a builder's "standard" contract for construction and never think about the risk management aspect of construction contracts. My advice is to find builders with good business reputations, but it means nothing if it's not in a printed and signed contract for construction. Get the right words, for all parties, on a piece of paper which can be signed and monitored for the duration of the project.