You have two options when it comes to creating a remodel contract. With a “time and materials” (T&M) agreement, your contractor will keep track of the hours worked and money spent on your project (including for materials and sub-contractors) and then bill you at the end. You won’t know beforehand how much your project will cost, but you’ll get a very accurate description of just what you paid for during the project.
A “fixed price” contract on the other hand, sets one price that will cover the entire project, including the hours worked and the materials purchased. In general, this fixed price doesn’t change throughout the course of the project. Given that so many projects run into unexpected complications, however, some contractors build in some “fat,” or “margin of error” to cover extra costs. Under this type of agreement, your contractor will probably ask to be paid in several installments: including a down payment at the start of the project and a final payment when the project is completed.
We generally recommend going with a T&M contract, because it gives clients more control over their project (as they can decide midway through if they want the contractor to do additional work). A T&M contract also reduces potential conflict if a job takes longer than either the client or contractor expected.
One third option: develop a fixed price for the bulk of the project. But include a T&M provision for any unexpected problems that need to be resolved. Also called a “cost plus” agreement (or “cost +”), under this agreement, if either the client or contractor decides more work needs to be done, they can agree together on how best to proceed.
Whichever option you choose, you need to be working with a contractor you trust, as well as one with whom you can communicate clearly. Without that trust and communication, conflicts can erupt over even the slightest glitches in the project.
