Your Construction Quote or Estimate Does Not Adequately Protect Your Interests
November 2024
Construction Concepts: Ferrucci Russo Dorsey represents homeowners on residential construction projects, as well as residential contractors. Ferrucci Russo Dorsey created this blog to provide bite-sized, easy-to-read posts aimed at educating homeowners in home construction projects with regard to important legal concepts.
Whether your project costs $100,000 or $3,000,000, your construction quote or estimate is not sufficient to define the terms of your agreement with your contractor. You should have a separate contract once you have approved the quote or estimate that has the proper protections in place in the event there is a dispute regarding the project.
A project quote or estimate provides an estimate of the cost of the work in a very broad sense but does not outline a specific scope of work. Often times, a quote or estimate employs the concept of an “allowance” which if not correctly defined can lead to disagreement down the road. A clearly defined scope of work should provide clarity about what specific tasks the contractor will be responsible for completing, when the work will be completed, and what the project will cost. In addition, the scope of work should clearly define the materials to be used, and what regulatory and safety requirements the contractor must follow. Regardless of the amount of your construction project, ensuring that your contract contains a clearly defined scope of work is a critical step to ensure both you as a homeowner and your contractor start off on the same page.
A quote or estimate does not state how a contractor is to be paid, or what happens in the event of project delays. There are many different types of payment provisions in construction contracts. For example, a contractor can bill on a time and materials basis, a cost-plus a fee basis, or a guaranteed maximum price basis, to name a few. There are pros and cons to each of these, and having an experienced attorney to guide you through the varying types of payment can ensure that you are selecting the best payment type for your project and your budget. For example, how “actual costs” are defined can avoid major disagreements at project completion. In addition, defining when a contractor must submit applications for progress payments, and when you must review and approve those applications, is an equally important step to ensure the project progresses.
Your construction contract should also establish a process to handle project delays. As a homeowner, you may be renting a property or apartment until your residential construction project is finished. The last thing you want is to get stuck in a situation where your rental or lease is up, but your residential construction project is not finished. That is where a well-written procedure for delay becomes important. For example, you may wish to include a delay provision that provides for liquidated damages (fixed compensation for losses associated with the project delay) in the event your contractor causes your project to be delayed.
A quote or estimate does not provide a process to address changes to the project, or what are known as “change orders”. A change order is a document submitted by the contractor to the homeowner, either at the homeowner’s request or at the contractor’s request, to provide for a change in the project scope and budget. For example, if you are redoing your kitchen and the initial scope of work provided for a specific type of cabinetry, but then you chose to upgrade to more expensive cabinetry, a change order would be issued to acknowledge this change and account for an increase in the contract budget. Having a clear process in the construction contract for how and when change orders will be issued and actually agreed upon in writing, ensures that the project progresses in an organized fashion and saves you from the surprise of increases in the contract budget at the end of the project.
Lastly, a quote or estimate does not provide a procedure for how to handle disputes with your contractor, and it does not designate the forum once a dispute arises. Having a clear procedure to follow in the event a dispute arises can help expedite resolution of the dispute and can save valuable time and money. Understanding the differences between mediation, arbitration, litigation and the costs associated with each, will help you make an informed decision on which forum is best to include in your contract to define your dispute resolution procedure.
Samantha Ferrucci, Esq.
Associate Attorney at Ferrucci Russo Dorsey P.C.
Ferrucci Russo Dorsey PC is a law firm based out of West Warwick, Rhode Island. The firm specializes in business litigation and receivership. To speak with experienced construction and business litigation attorneys, please visit https://www.frlawri.com/, email us at sferrucci@frlawri.com, or call us at 401-455-1000.
