FIXED-FEE VERSUS TIME-AND-MATERIALS CONTRACTS
How to decide what kind of contract you'll need to get your home repair or home improvement job done most effectively.
A home repair or improvement contract is almost always one of two basic types: fixed-fee or time-and-materials. The one that is right for you depends on the type of job you have in mind and how certain you are about just how it should be done.
Fixed Fee - If the job you want done can be described clearly in a sentence or two, and if you can write clear and detailed specifications for how you want it done, you may be ready to enter into a fixed-fee contract.
- A fixed-fee contract is the one most people are more familiar with. Its basic form is "I will pay ABC Home Renovators $N,NNN.nn when they have replaced my roof as specified."
- The great advantage of a fixed-fee contract, from the homeowner's point of view, is that the cost is known and agreed to in advance.
- The great disadvantage of a fixed-fee contract, on the other hand, is that the details of the job are locked down and tied to the price. Any unforeseen change, whether due to a change of heart or inspiration on your part, or some condition of the house that was discovered in the process of the work, or any other circumstance, may require a time-consuming renegotiation of the contract. At a minimum, every change which will either increase or decrease the time or money required to complete the work should be formalized in a written Change Order signed by both you and your contractor and attached to the original contract.
Time-and-Materials - If your project is open to change and inspiration as the work unfolds, and if you welcome input from and a dialogue with your contractor(s), you may be better served by a time-and-materials contract. It can save you time, stress and money - from implementing cost-saving opportunities as they arise and from reducing the amount of time your contractor has to spend on paperwork. You still need to start the process by describing your ultimate goal or goals in a sentence or two and specifying, in writing, how you want the work done.
- The basic form of a time-and-materials contract is "We, ABC Home Renovators, certify that we will replace the roof on the Doe residence as specified. Mr. and Mrs. Doe agree to pay for the time and materials required to complete the work. The estimated total cost is $N,NNN.nn, with 20% of the total not due until completion."
- The great advantage of a time-and-materials contract is that the details of the job can be worked out as work progresses. Unforeseen changes are just a part of the process. Every Friday - or when you and your contractor have agreed - you meet and discuss job progress and any changes that will affect either the cost or the completion date. You then pay the contractor a "draw" amount that covers expenses since the last draw, less the 20% or so you are holding until completion.
- The disadvantage of a time-and-materials contract is that the final cost and completion date are estimates. In renovating an older home, this may be the case anyway. Just be sure to check out your contractor's references with an eye to whether he or she has done satisfactory work under this type of contract before.
~ Bill Lewis