Contracts, payments and change orders

Fixed price or cost-plus

Choosing between a fixed price and cost-plus is the first structural decision, and both answers are legitimate. The problem is almost never which one you chose. It is holding one while believing you have the other.

A guaranteed maximum price is the useful middle ground and is worth asking about by name: cost-plus billing with a ceiling, so you get the transparency without the open end. Whether a contractor will offer one depends on how knowable your project is.

What the contract has to contain

Some of these are required by statute in some states. All of them are worth having everywhere.

• The parties, with the contractor’s legal business name, address, and licence or registration number where the jurisdiction issues one.
• The scope, room by room, describing what is removed and what is installed.
• The documents it is priced from. Drawings and specifications identified by version and date, so a later change is visibly a change.
• The price, and the basis for it (fixed, cost-plus, or capped cost-plus).
• Allowances as amounts, with what each is expected to buy, and how an over- or under-run is settled.
• Exclusions, written out. The most useful paragraph in the document.
• The schedule. Start date, substantial completion date, and what counts as an excusable delay.
• The payment schedule, tied to milestones.
• The change order procedure, including who may authorise one.
• Insurance. General liability and workers' compensation, with certificates to be provided.
• Permits. Who applies, who pays, and who schedules inspections.
• Lien waivers. What will be provided, by whom, and when.
• Warranty on workmanship, with a duration, stated separately from manufacturers' product warranties.
• Dispute resolution. Mediation, arbitration or litigation, and who bears costs.
• Termination. The circumstances, the notice required, and how work in place is valued.
• Cleanup and site restoration, and what standard applies at completion.

Deposits and the payment schedule

The principle worth internalising is that you should never be significantly ahead of the value delivered. That is the position from which a homeowner has the least leverage and the most exposure, and every payment structure should be read against it.

Deposits. A deposit should be proportionate to what the contractor must commit before starting, typically ordering long-lead materials. Some states cap what a home improvement contractor may take before work begins; many do not. California, for instance, limits it to the lesser of a fixed dollar amount or a percentage of the price, which is frequently misquoted as a national rule and is not one. Find out what your state provides.

Progress payments. Tie them to completed and, where permitted work is involved, inspected milestones: rough-in complete and passed, drywall complete, cabinets set, substantial completion. Payments tied to calendar dates fall due whether or not anything happened, which quietly moves the risk of delay onto you.

Retainage. A percentage held from each payment until the punch list is closed. It exists because the final few per cent of a project is the least profitable part of it and therefore the easiest to defer indefinitely. Ask for it, and make its release conditional on the punch list being agreed and completed and the permit closed, not on a date.

Change orders

A change order is a written amendment to scope, price and schedule, signed before the work happens. Every time. Including small changes. Including changes the contractor suggests. Including the ones agreed in a corridor while everyone is being agreeable.

The reason to be absolute about this is that the failure mode is predictable: work proceeds on a verbal understanding, two people remember it differently, and the disagreement surfaces on an invoice when neither party can prove anything. It is the most common source of remodeling disputes, and it is almost entirely preventable at a cost of a few minutes each time. A change order should state:

• What is changing, described specifically.
• What it adds to or subtracts from the price, and how that was calculated.
• What it does to the completion date, including "no change", which is itself worth recording.
• Signatures from both parties, dated, before the work begins.

Agree the pricing mechanism for changes in the contract itself, so that you are not negotiating a rate at the moment you have least leverage, which is when the wall is already open.

Liens and lien waivers

In many states, subcontractors and suppliers have a direct right to record a mechanics lien against your property if they are not paid, including when you have already paid your general contractor in full. That asymmetry is the part homeowners find hardest to believe and the part most worth protecting against.

The routine defence is to exchange lien waivers with every payment: a conditional waiver at the time of payment and an unconditional waiver once it clears, from the general contractor and from any subcontractor or supplier large enough to matter. Preliminary notices, prescribed forms and filing deadlines all vary by state, and some states provide additional mechanisms such as joint cheques. On a project of any size this is worth twenty minutes with a lawyer in your state at the start.

The clauses that matter when things go wrong

Contracts are usually read for what happens when everything works. These are the paragraphs that decide what happens when it does not:

Before you sign

• Read the exclusions first, then the payment schedule, then the dispute clause. In that order.
• Confirm the licence or registration number directly with the issuing board, not from the contract.
• Get certificates of insurance from the insurer or broker, and check the dates cover your project.
• Test every allowance in a real showroom.
• Check whether your state gives you a right to cancel, and how long it lasts.
• Ask who will actually be on site day to day, and who your single point of contact is.
• On a large project, have a lawyer in your state read it. It is the cheapest line in the budget.

HyreRemodel is an independent remodeling resource and connection platform, not a remodeling contractor and not a law firm. We do not draft or review contracts and we do not give legal advice. Contract law, lien rights, deposit caps and rescission rights are state law and vary; verify anything on this page against your own state’s requirements and, where the amounts justify it, with a lawyer licensed there.