Contracts are critical to any construction project, particularly in Michigan, where builders are subject to strict licensing requirements and regulations. A well-written contract is a binding legal document that protects both builders and clients, ensuring that the project proceeds smoothly and minimizes the risk of disputes. We outline why contracts are crucial for builders and provide a guide on what should be included in every construction contract.
Why Are Contracts Important?
- Legal Protection A contract provides legal protection for both parties by clearly outlining the obligations and responsibilities of everyone involved. In Michigan, where regulations for licensed builders are specific, having a contract ensures that both builder and client meet state requirements.
- Clear Expectations A comprehensive contract ensures both the builder and the client are on the same page regarding the scope of the project, deadlines, and the materials to be used. This eliminates ambiguity and reduces the potential for misunderstandings.
- Dispute Resolution Construction projects can face unexpected challenges or delays, which can sometimes lead to disagreements. With a contract in place, the terms for handling disputes, delays, or changes to the scope of work are clearly defined, reducing the risk of legal conflicts.
- Payment Terms and Financial Security The contract will outline the payment terms, ensuring that the builder gets paid for work completed. This also helps clients understand when and how much they will need to pay, preventing future financial misunderstandings.
- Regulatory Compliance In Michigan, builders must follow specific rules and standards as part of their licensure. A detailed contract helps ensure these rules are met, from using the correct materials to meeting local building codes.
Essential Elements to Include in Every Michigan Builders Contract
- Project Scope The contract must detail the project scope—what work will be done, what materials will be used, and the overall design. Michigan builders should be specific here to avoid future disputes about the quality or extent of the work.
- Timeline Clearly outline the start date, estimated completion date, and any important milestones. It's also essential to include contingencies for potential delays, such as weather-related issues, and how these will affect the overall timeline.
- Payment Schedule Michigan law may require builders to outline specific payment terms. Typically, a construction contract will include a schedule for payments—whether this is a fixed price for the entire project or a payment plan based on milestones or completed phases.
- Permits and Inspections Specify which party is responsible for obtaining necessary permits and coordinating inspections. In Michigan, licensed builders must ensure that the project complies with local building codes and regulations.
- Warranty and Guarantees Every contract should include details on warranties provided for the materials used, quality, and any guarantees regarding the quality of the completed work. Michigan law may also provide guidance on minimum warranty periods for licensed contractors.
- Insurance and Liability Both builders and clients should ensure that the appropriate insurance coverage is in place. The contract should specify who is responsible for what, including general liability insurance, workers' compensation, and builder's risk insurance.
- Change Orders It's common for clients to request changes mid-project, but these changes can affect timelines and costs. Every contract should include provisions for handling change orders, ensuring that any adjustments to the scope or price are agreed upon in writing.
- Dispute Resolution Process In case of disputes, the contract should outline the method of resolution—whether it's through arbitration, mediation, or litigation. This is essential to avoid lengthy and costly legal battles.
- Termination Clauses Include provisions that specify under what conditions either party can terminate the contract. This could be due to non-performance, project abandonment, or unforeseen circumstances.
For Michigan builders, contracts are not just a formality—they're essential for legal compliance, financial protection, and clear communication between builders and clients. By including detailed information about the project scope, timelines, payment terms, and more, builders can protect themselves from disputes and ensure smooth project execution.
For more information on drafting construction contracts or ensuring regulatory compliance in Michigan, consult a construction law expert or contact local licensing boards for guidance.
Master Instructor for Michigan Builders License, Sid Woryn, has some additional information and wants to bring something to your attention that may help to reduce future liability. Remember this: whatever is in the contract is the legal scope of the work. If it's not in the contract, then you don't do it. Click here to learn more.
References
- Michigan Department of Licensing and Regulatory Affairs (LARA): https://www.michigan.gov/lara
- Michigan Construction Code: https://www.michigan.gov/lara/bureau-list/bcc
- Michigan Lien Law: https://www.legislature.mi.gov/documents/mcl/pdf/mcl-act-497-of-1980.pdf
