Are you renovating your kitchen? Or doing a full gut renovation on your property? The most important step to avoid a catastrophe is to create a detailed contract with your contractor. This agreement with your general contractor acts as a roadmap, with clear expectations and protection for all parties involved.
One frequent mistake is the failure to include sufficient detail or being too vague. You cannot have a contract that simply states "install high-quality countertops" without specifying the quantity, location, type, or style.
Ambiguous descriptions can lead to scope creep, material allowance overruns, timeline days, and subpar quality of work. For instance, if the contract just says "install kitchen cabinets," it might be unclear whether this includes removal of old cabinets, disposal, or even painting.
So what do we need to include in a general contractor agreement? As we work in Chicago, we structure our agreement around these concepts.
A solid contract relies on a comprehensive scope of work. Think of it as the foundation of your entire agreement.
Start by clearly outlining your renovation goals, and follow up with an in-person or virtual consultation to ensure both you and the contractor understand the vision for the project and expectations.
Next, arrange a site walkthrough to pinpoint any additional needs or potential challenges. Hopefully, based on actual field measurements, past project data, and estimating software, your contractor can develop a detailed estimate that lays out the cost of labor and all materials for each phase of the project. This clarity upfront helps set aligned expectations and creates a smooth start to the renovation process. You also need a detailed explanation of each cost item to solidify a clear scope of work for that specific task.
Experienced general contractors provide computerized plans to show the current existing conditions and the proposed final floor plan. The two plan drawings should call out everything to be removed and clearly label the scope of work to be completed.
Depending on the size and scope of the project, an architect may need to provide a more detailed set of plans to get the necessary permits.
Chicago’s unpredictable weather can sometimes affect project schedules, so it’s essential to set estimated start and completion dates. A full schedule should be mentioned once the final plan and scope of work are discussed. The GC and homeowner should agree to the schedule. Regular schedule updates should be completed to track the progress vs. the baseline agreed upon schedule. A baseline schedule is a reference timeline to track key project milestones. To make sure the project is moving in the right direction, you will compare your progress with the baseline timeline.
If the project is large enough, liquidated damages (LDs) should be considered as well. Liquidated damages are a predetermined amount that is paid to the owner if the project is delayed. LDs assist both the GC and owner. If there is no initial agreed-upon amount, determining a fair compensation becomes more time-consuming, leading to further losses. Liquidated damages can compensate the owner for lost rental income or extended financing costs.
A sample clause can be:
“If the contractor fails to achieve substantial completion of the project by the agreed-upon completion date of March 30, 2025, the contractor shall pay the owner liquidated damages in the amount of $300 per calendar day until substantial completion is achieved. This amount represents a reasonable estimate of the actual damages the owner may suffer due to delay, and the contractor agrees that this sum is not a penalty."
A good idea is to give incentives to GCs for early completion instead of penalizing them. That’ll create higher chances of your project finishing ahead of time and create better alignment with you and your general contractor.
A financial agreement is the backbone of any contract. What’s the total cost? Have that in your written agreement. Mention a payment schedule that reflects project progress and key milestones, such as rough inspections passed or drywall completed. Project phases typically divide payments into an initial deposit and subsequent installments.
Depending on the project scope, you can divide the payment into milestone payments. It’s best to divide small renovation projects into 3-4 milestones. Too many payments can cause a paperwork nightmare.
What’s the typical change process? How do you track it? Is there a software system to track everything and notify the owner? Talk to your general contractor about this.
Your contract should include a process for handling change orders—any alterations to the original project agreement. This section should outline the process for documenting and approving changes, as well as their impact on the budget and timeline. You can
A well-documented plan should help you avoid project changes down the road, but if the inevitable happens, there should be a process for handling the change.
A clause should address unexpected events beyond human control, including weather-related delays, natural disasters, supply chain disruptions, or unforeseen structural issues. Some delays are outside of the general contractor's control, and it needs to be clear what happens in case an event happens.
What type of insurance is required for a renovation project in Chicago? Your general contractor must carry general liability insurance. Other types of insurance required can be “worker’s compensation insurance” and “builder’s risk insurance. "
Builder’s risk insurance is necessary from day 1 of the construction project. The property owner or developer should get this insurance. It typically covers the structure under construction, materials, and equipment on-site, in transit, or stored elsewhere. The builder’s risk insurance protects against fire, theft, vandalism, windstorms, hail, and explosions. Your policy may also cover soft costs like permit fees and legal expenses caused by delays. The builder’s risk insurance can also provide coverage for lost rental income or loss because of business interruption.
The worker’s compensation insurance is carried by your GC. It ensures that the workers receive fair payment for their work as outlined in the contract. Check if your general contractor has W2 employees and has worker’s compensation. If not, W2 employees are the GCs subcontractors carrying workers comp.
How do you pull building permits to begin the renovation work? If your project qualifies for EPP (Express Permit Program), then you don’t have to secure permits in the traditional way. Your GC must sign the contract electronically before a permit can be issued. Not every renovation project qualifies for EPP, so make sure to check the criteria and adjust the timeline if you need to get a permit traditionally. Review this article about the Express Permit Program in Chicago.
If it does not qualify for the EPP, then the project must go through the city’s standard building permit process. You will need to submit a detailed permit application to the Chicago Department of Building. Support your application with comprehensive documentation, such as a licensed architect or engineer who might have to approve your plan. After extensive technical review, your permit may be approved, but you might have to do inspections during the construction project.
It goes without saying, but professionals working on your property should be licensed. Contractors performing structural, electrical, plumbing, or HVAC work are required to have the appropriate licenses issued by the City of Chicago. If you are a general contractor managing the entire project, you need a general contractor’s license, particularly for projects involving permits.
A lien waiver is a legal document signed by your contractor to waive their right to file a lien against your property after they have been paid for their work. It protects property owners from potential claims or liens that could be placed on their property if the contractor fails to pay subcontractors, laborers, or suppliers.
You can request a lien waiver from the GC, but you should ideally get a lien waiver from all subcontractors who worked on your project because each of them have the right to put a lien against the property if they weren’t paid for the completed work. You take this action to safeguard yourself in the event that the general contractor neglects to compensate the subcontractors.
A contractor warranty is a written guarantee about the quality of material and workmanship used in a construction project. Think of it as insurance against substandard work or faulty material. A contractor may offer a 1-year warranty for general repairs and a 5-year warranty for structural components.
Discuss any guarantees or warranties on work performed and materials used. Even after the project's completion, a warranty can provide reassurance about its quality and workmanship.
Even the most well-laid plans can lead to conflicts. Lack of provisions for dispute resolution is a common oversight. Whether through mediation, arbitration, or legal action, your contract should outline the dispute resolution process. That’s where details come into play. If you have clear expectations, you can minimize the chances of going through a dispute.
It’s best to communicate contract termination in a written way via certified email. Make a reference to the original agreement and explain why you’re ending the contract. Write in detail any last steps (like site cleanup or payment) that need to be completed. You can also give a resolution period to give the other party some time to resolve the problem. When in confusion, talk to a real estate attorney. It’s important to terminate the agreement carefully to avoid legal disputes.
Commonly Ignored Details in a General Contractor Agreement
A well-thought-out contract is the blueprint for renovation success. Basically, it talks about the scope, timeline, and payment terms. Good contracts are established to safeguard all parties against potential issues. Without a solid contract, you are leaving yourself open to misunderstandings, project delays, and unexpected expenses. With a good contract, you can foster long-term relationships while receiving quality work for your renovation project.
If you're planning a renovation project or considering your options, reach out to us for a consultation. Together, we can turn your vision into reality with confidence and expertise.
*This article is for educational purposes only. It’s not legal advice.