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Pre Construction Agreement

The Importance of a Pre Construction Agreement

The pre-construction phase is easily one of the most important phases of any construction project — whether you’re building a new custom home or working on a home remodel.

A key component of the pre-construction phase is a pre-construction agreement.

Have you ever heard of this? Are you unsure of what it is or why it matters?

The importance of a pre-construction agreement before a remodel or rebuild is explained below. You’ll also find some tips on how to create an effective pre-construction agreement.

What Is Pre-Construction?

Pre-construction is the planning phase of a construction project. It involves developing detailed drawings of the project, outlining schedules, clarifying budgets, and figuring out the best and most efficient way to use funds and resources.

What Is a Pre-Construction Agreement?

A pre-construction agreement is a formal contract between you and the contractors assisting with your home construction project. This agreement breaks down the specific services the contractors will perform and how much these services will cost.

A pre-construction agreement typically includes the following:

  • Deliverables: A checklist of services that will be provided
  • Timeframe: When the client should expect to receive the deliverables
  • Compensation: The client’s investment in the contractors’ services
  • Qualifications and Exclusions: Details regarding the scope of the project

The agreement also includes some basic legal guidelines about how you’ll resolve potential disputes, grounds for termination, etc.

Why Get a Pre-Construction Agreement?

There are lots of reasons to get a pre-construction agreement before actually beginning your next construction project. Here are some of the greatest benefits a detailed pre-construction agreement can offer:

Define the Scope of the Project

A pre-construction agreement allows you to define the scope of your project and get on the same page with your contractor — and others who will be working alongside them.

When defining the scope of the project, you’ll answer key questions, including the following:

  • What do you want to accomplish?
  • Where will the project take place?
  • What kind of project is it — a custom home, a home renovation, etc.?
  • When do you hope to complete the project?
  • What resources do you need to achieve your objectives?

The pre-construction agreement puts the answers to these questions in writing to prevent confusion later.

Understand Timelines and Permits

The pre-construction agreement also clarifies the timeline of the project, as well as the permits you might need to legally be allowed to get started and complete it.

During the pre-construction phase, your contractor will evaluate the construction site and take note of any permits you (or they) need to obtain. They’ll include information about these permits in the agreement, along with information about inspections that will need to be conducted along the way.

This is an important part of the pre-construction agreement and phase because it prevents confusion and saves you from getting hit with surprise fees or penalties later.

Clarify the Budget

One of the most important aspects of any construction project is the budget. After all, everybody wants to know how big of a dent the project is going to make in their bank account before they get started.

The pre-construction agreement provides a detailed breakdown of what various aspects of the project will cost.

This allows for more transparency between you and your construction team. It also helps you avoid unpleasant surprises and unplanned expenses after the project begins.

Troubleshoot Anticipated Issues

A pre-construction agreement helps you to become aware of potential issues you — and the construction team — might run into throughout the project.

It also gives you and your team a chance to troubleshoot these issues and come up with solutions if they do arise. That way, if something bad happens, it will be less likely to derail the entire project because you and your team will have already planned for it.

Reduce Error Risk

Detailed pre-construction agreements also reduce the likelihood of your construction team making errors while working on the project.

Because they’ll have a clear understanding of the scope of the project, the timeline, and the potential issues that could arise, they’ll be less likely to make mistakes — especially those that add to the total cost of the project or that add to the timeline.

Make Smarter Selections for Your Home

You might have had a vision for a long time about completing this project with specific materials or renovating your house in a specific style. However, your vision might not be realistic for your location or the state of the construction industry.

Perhaps there’s a shortage of the materials you want, for example, which will cause the project to go over budget.

When you go through a robust pre-construction phase and have a detailed pre-construction agreement in place, you can work with your contractor to make smart selections for your home. They will work with you to understand your goals while also being honest about how likely you are to achieve them.

Assess the Project’s Existing Condition

Not every construction project starts from zero. Perhaps you’re working on a home renovation, for example.

If this is the case, the contractor will need to gain a clear understanding of the existing condition of your home before they can get started — or even give you a clear estimate or idea of when the project will be completed.

During the pre-construction phase, the contractor will evaluate the project’s existing condition so they know what to expect once they start working. This will allow them to give you more accurate information and set clearer expectations about what the project will cost, the materials needed, etc.

Communicate Openly with Your Contractor

No matter how large or small your construction project might seem, you’re probably going to be working with your contractor for a while.

If you have a good rapport with them and feel comfortable asking questions or expressing concerns, it’ll be easier to maintain a good attitude throughout the project. Good communication between all parties involved also increases the likelihood that the project will be completed accurately the first time around.

Meet the Whole Team

Any construction project involves a lot more than just your contractor. From finding an architect to hiring plumbers and electricians, it takes a village to build a house — or renovate one.

During the pre-construction process, as well as the drafting of the pre-construction agreement, you’ll get a chance to meet the entire team and get to know everyone who will be working on your home.

This helps you establish stronger lines of communication, express your needs and goals, and reduce the chances of misinterpretation or mistakes later on.

Enjoy a Smoother Construction Process

Some people might assume that the pre-construction phase — including the pre-construction agreement — is unnecessary or too drawn-out.

Understandably, you’ll likely be eager to get the ball rolling on your project. However, taking the time to go through the pre-construction phase and draft and sign an agreement can make the entire construction process smoother and more efficient.

You’ll have a chance to set clear expectations, identify potential issues early, and create contingency plans in case something goes wrong. All of this adds up to a better building process for everyone involved. 

Increase Return on Investment

If your project gets done on time and on budget, you’re more likely to see a better return on your investment. The same goes for projects that are completed to your exact specifications and don’t have errors that need to be fixed.

Whether you have plans to sell your house in the future or just want to maximize the enjoyment you get out of it after construction is complete, investing in a pre-construction agreement and services will help you get the most out of the project. 

How Much Does a Pre-Construction Agreement Cost?

The cost of a pre-construction agreement — and the entire pre-construction process — depends on a lot of factors, including the following:

  • Scope of the project
  • Project’s location
  • Types of materials used
  • The initial state of the project
  • Required permits

The cost of your agreement will vary based on all these factors, but it typically lands somewhere between 1 and 3 percent of the total project cost.

The idea of spending more money on an agreement might be off-putting to you at first. Remember, though, that pre-construction can save you a lot of money and increase the ROI of your project.

How Long Does it Take to Draft a Pre-Construction Agreement?

The entire pre-construction phase — including the drafting and signing of the pre-construction agreement — also depends on the factors mentioned above (scope of the project, initial state of the project, etc.).

In most cases, pre-construction typically lasts between 2 and 12 weeks. The bigger and more complex the project is, the longer pre-construction will take, and vice versa.

Final Thoughts

It doesn’t matter if you’re building a custom home or working on a home remodel. A pre-construction agreement offers a lot of benefits to you and your construction team.

Are you ready to experience all the advantages discussed above? If so, be sure to request a pre-construction agreement before getting started on your next project.