How To Write A Construction Proposal
Construction Proposal -Learn How to Write One
Regardless of the cost of a project a written construction proposal protects all parties involved.
A written construction proposal that clearly details and “paints a picture” of what you are promising to do. Details in this proposal include specific materials, payment schedule and costs. A professional and well-written proposal not only portrays you in a professional light but protects you and your client from misunderstandings and conflict
Detailed Scope of Work
A construction proposal should always be specific with regard to the scope of work. This protects you from having to do work, you had no original intention of doing. You know what I mean, that dreaded “I assumed you were also going to do X, Y and Z?” or even worse “ I thought that was included.” Those comments usually accompany a client holding back the last payment until you agree to do something for them that you never agreed to but they “assumed” it was covered.
How do you protect from that? By providing the client a well written and detailed scope of work proposal! Not only does a detailed proposal protect you from having to do extra work, it ensures that you can charge for any extra work not originally agreed on. Extra things like add on items, changes mid-project and the dreaded hidden conditions.
What A Construction Proposal Should Include:
I want to stress that if you are researching how to make your own contract you should first check with your local state and licensing authority for input and advice. Many state websites give you sample contracts to use as a boiler plate template. This is the first step when learning how to write a construction proposal.
In Massachusetts any project over $1000 requires a written contract [proposal] as well as additional points that need to be included in the proposal. [MGL c. 142A] My states mandatory requirements are:
- The complete agreement between the contractor and the owner and a clear description of any other documents, which are part of the agreement.
- The full names, federal I.D. number (if applicable), addresses, of the parties, the contractors registration number, the name(s) of the salesperson(s) involved, if any and the date the contract was executed by the parties.
- The date on which the work is scheduled to begin and the date the work is scheduled to be substantially completed.
- A detailed description of the work to be done and the materials to be used.
- The total amount agreed to be paid for the work to be performed under the contract.
- A time schedule of payments to be made under the contract and the amount of each payment stated in dollars, including any finance charges.
- Any deposit required to be paid in advance of the start of the work SHALL NOT exceed one-third of the total contract price or the actual cost of any material or equipment of a special order or custom made nature, which must be ordered in advance of the start of the work to assure that the project will proceed on schedule.
- No final payment shall be demanded until the contract is completed to the satisfaction of all parties.
- All parties must sign the contract.
- A clear and conspicuous notice stating that all home improvement contractors and subcontractors shall be registered and that any inquiries about a contractor or subcontractor relating to a registration should be directed to:
- Office of Consumer Affairs and Business Regulation [list address]
- The contractor’s registration number must be on the first page of the contract.
- The homeowner’s three day cancellation rights under MGL c 93 s 48; MGL c 140D s 10 or MGL c 255D s 14 as may be applicable.
- All warranties on the owner’s rights under the provisions of and MGL c. 142A.
- In ten point bold type or larger, directly above the space provided for the signature, the following statement:
- DO NOT SIGN THIS CONTRACT IF THERE ARE ANY BLANK SPACES. [Has to be in capital letters]
- Whether any lien or security interest is on the residence as a consequence of the contract.
- An enumeration of such other matters upon which the owner and contractor may lawfully agree.
- Any other provisions otherwise required by the applicable laws of the Commonwealth.
- Permit Notice: Every contract shall contain a clause informing the owner of the following: any and all necessary construction-related permits; that it shall be the obligation of the contractor to obtain such permits. That owners who secure their own construction-related permits or deal with unregistered contractors shall be excluded from access to the Guarantee Fund.
- Acceleration of payment: No contract shall contain an acceleration clause under which any part or all of the balance not yet due may be declared due and payable because the holder deems himself to be insecure.
- However, where the contractor deems himself to be insecure he may require as a prerequisite to continuing said work that the balance of funds due under the contract, which are in possession of the owner, shall be placed in a joint escrow account requiring the signatures of the home improvement contractor and the owner for withdrawal.
- No work shall begin prior to the signing of the contract and transmittal to the owner of a copy of such contract.
- Arbitration: If the contractor determines that in the event of a dispute, the contractor wishes the dispute to be settled by arbitration, this fact must be signified on the contract and both the contractor and owner shall sign this clause separately. The following format is acceptable (in 10 point type or larger);
- “The contractor and the homeowner hereby mutually agree in advance that in the event that the contractor has a dispute concerning this contract, the contractor may submit such dispute to a private arbitration service which has been approved by the Office of Consumer Affairs and Business Regulation and the consumer shall be required to submit to such arbitration as provided in MGL c 142A
- Owner and contractor signatures and date as well as a this NOTICE: The signatures of the parties above apply only to the agreement of the parties to alternate dispute resolution initiated by the contractor. The owner may initiate alternative dispute resolution even where this section is not signed separately by the parties.”
Spend Time On The Scope Of Work:
Most of my construction proposal is a template and I fill in the blanks for the following:
- Owner information
- Scope of work for that project
- Payment schedule
- Start and finish dates
The scope of work section is where I spend most of my time and is where you should pay the MOST attention to. This is by far the MOST IMPORTANT section of the contract and you need to be as detailed as possible.
Don’t Get Lazy Here
This is the spot where I mention the steps in the process, materials used, model and spec numbers, colors, etc. It also has a very important closing statement that reads:
“Only those materials, goods, labor and services SPECIFICALLY STATED in the preceding paragraphs of this contract are bound under the terms of this contract.”
Many a contractor has told me that they specifically stay generic in the description of scope of work section in order not to give the client research information – especially when it comes to model numbers and measurements. They make the argument that many potential clients will research items on line and the tell the contractor that they can get a better price online. They also are concerned that the client will share this information with other contractors to get better pricing.
I disagree. You CAN’T afford not to be detailed and specific in your scope of work! If a client wants to purchase their own fixtures or materials I say let them but tell them that you will not honor any warranty work on homeowner supplied materials or fixtures.
Payment Schedule: Cash Flow
This is the section where you list the job total cost and break down for payments. A payment schedule is essential to keep a positive cash flow as well as ensure that you are not waiting for a huge payment 30 days after the project is complete.
My state allows for 1/3 of the project cost as a deposit or the cost of any materials ordered, which ever costs more. I try to figure out what each stage costs me and ask for project payments.
The deposit is typically 1/3 the cost of project and covers all materials, dumpster cost and labor into the job. Each payment ensures that I have a constant cash flow to fully pay the sub-contractor or labor costs needed for the next payment. This way I stay ahead of my costs, avoid a large back end payment.
For any custom order like doors, window and fireplace mantles I always require 100% of the item cost up front prior to ordering the item.
Sample Payment Schedule
For example on a $ 25,000 bathroom remodel I will schedule payments as follows:
- $ 8,000 33 ½% Deposit, upon the execution of this agreement. work scheduled upon receipt of deposit
- $ 2,000 After demo complete
- $ 4,000 After rough plumbing complete
- $ 2,000 After electrical rough complete
- $ 2,000 After plaster complete
- $ 2,000 After tile complete
- $ 2,000 After vanity and counter installed
- $ 1,500 After finish plumbing and electrical
- $ 1,500 Final Payment: Upon completion of project.
If I’ve done my job correctly the last payment is usually all company profit. If there is a dispute over the last payment at the end of the project at least I have covered all of my material, labor and sub contractor costs. There is nothing worse than not being able to pay your sub contractors.
Some items on my proposal I list as “allowance” items. This means that a certain dollar amount figure has been set as an allowance for each of these items. Generally, I use allowances for work that is commonly sub-contracted such as excavation, concrete, heating, plumbing, electrical, cabinets, appliances, flooring and painting. These allowance figures are based on current figures from my job files and are intended to represent a realistic and reasonable dollar figure for the item.
By including figures in my budget proposal, I can produce a complete budget for my client, which include all the anticipated sub-contractor items. These figures are then “fine-tuned”,” either before or after the contract signing, by getting the sub-contractor to review the work plan on site. The subs will then provide us with a fixed price for the item. The fixed price is then reconciled with the budget estimate figure.
The price shown on the proposal represents what I expect my cost of the item to be. If actual cost of the allowance items is less than the allowance price listed, the client is entitled to 100% of the difference between the allowance price listed and the actual cost of the item. If the client chooses options that total more than the allowance figure listed, the client will pay contractor’s cost for the item, plus 20%. All such adjustments will be handled as change orders to the contract.
Hidden Defects And Unforeseeable Conditions:
I have a special section in my proposal that deals with unseen conditions. The price agreed upon does not include possible expenses entailed in coping with hidden, unknown or incidental items not included in pricing (for example, unsafe wiring, illegal plumbing conditions, rot, structural issues, inspector or engineer requirements made subsequent to my agreement and / or overlooked or unknown conditions found after the I have commenced work.
In my proposal I state that the homeowner agrees to pay all costs upon completion of such work. I state that I will inform the homeowner of any such condition in the form of a “Change Order” or if agreed the homeowner shall pay the me a time and materials rate [stated in proposal] to complete the extra work.
I also state that the homeowner agrees to pay all costs incurred in the identifying, testing for, handling, containment, and disposal of all hazardous material found at the job-site, including lead, lead paints, solvents, and asbestos.
It is important to the client and required by law to provide an estimated start date and date that the work will be substantially completed. People plan around renovations and also may need make arrangements for pets or furniture. Some folks plan vacations so they will be out of the house during the demo work.
Alterations To The Contract Or “Extras”
A change order is a written agreement to modify, alter, add or delete from the agreed upon scope of work.
Many unscrupulous contractors will often “low bid” a project to get the job. They do this by omitting items in their scope of work or quoting lower quality materials or appliances and then later make up their money on the “extras.”
This unscrupulous contractor strategy is predictable and I always stress to my clients and potential clients that it is important to compare apples to apples in the scope of work. Any scope of work that is not detailed should be updated or discarded from consideration. I try to do my research up front and get all of the information from the client so that I am proposing a realistic cost with minimal chances of change orders / extras later on.
For information on how to accomplish this read: How to plan a bathroom remodel
Change Orders [Extras]
Back to change orders: “any Homeowner-initiated alterations or modifications to the work outlined in Section One and the price therefore must be agreed upon by the parties in a written “Change Order,” before work on such alteration or modification shall commence. Payment for such alteration or modification shall be made in accordance with the terms of the “Change Order.”
This is where contractors get lazy and procrastinate to the end of the job to ask for extra payments. The time to get paid for an extra payment is when it occurs. People’s memories are fresh and they are motivated to keep the job moving and write a check. You never want to “hit the client over the head” with a huge back end extra payment. With all the details and progress payments, they typically tend to forget why your charging them the extra and this can cause resentment.
I know it sucks, but take the time to write up a change order / estimate and request payment at the time of the change or extra work. At a minimum get a verbal immediately and then follow up that night with an email asking the client to agree to the extra work and cost.
Use Email / Save Emails
Emails are the preferred method for many of my clients. Use email and save them to a file or folder. The beautiful thing about emails is that they are date and time stamped. Be careful with emails, they lack tone and can be confusing. Make sure your emails says what you mean – proof read them. For more information on sending emails to clients read my article Rules for Writing Professional Emails.
Clarification emails works great, for example: “Marc this morning you asked me to install an additional window in your bedroom, East wall – centered inside the room. This window is to be identical to the one we are currently installing on the West wall. the additional cost for this work is $950.00. Please confirm that I have this correct and that you approve the work.”
Creating a paper trail will always be your friend in the end!
This section makes you look professional, educates your client, set expectations, eliminates unrealistic expectations, as well as puts the client on notice of things he or she may be required to do. It may also make them aware of specific or special needs on the job-site such as toilet facilities, pets or furniture storage issues. I have copied and pasted my exact wording below for your review:
- All excess material supplied to the job site and not incorporated in the work are the sole property of the Contractor.
- It is understood by the parties that it is sometimes impossible to match the color and texture of existing materials such as stucco, plaster, siding, molding, trim and roof materials, etc. The contractor will attempt to match existing conditions as best as possible where applicable.
- The contractor is not responsible for stress cracking of plaster and / or interior finished of the existing structure caused by additional structural load imposed by the work which is contracted. Contractor shall not be responsible for loosening, creeks or nail popping when working against finished walls or ceilings. In the event of any repairs done by the Contractor, the contractor shall not be liable for any repairing or refinishing. Contractor is not responsible for accidental damage to landscaping, concrete walks, and / or asphalt that resulted from contractor’s activities during the process of construction.
- The Homeowner shall provide safe and sanitary facilities for the contractor’s workmen during the process of construction.
- The homeowner shall remove or protect personal possessions such as, but not limited to, removing pictures, antiques, valuables and other wall hanging objects from the opposite side of the walls being worked or, that may be affected by vibration that may be created.
- The Homeowner shall permit the free use of electrical power for lighting and energy required for power tools to accomplish the work as well as access to the electrical service panel in the event a circuit / fuse is blown.
- The Homeowner shall remove all items[s] in and around the work area[s] and keep all persons and pets out of the work areas or any storage areas used by the contractor during work. Any delays caused by non-compliance with this provision will be billed at the rate of [hourly rate here] per man-hour.
- The Homeowner shall advise the Contractor of any condition on the property that may affect the contractor’s performance of work.
- The Homeowner shall allow access to the premises by the contractor and / or its subcontractors during normal working hours.
- The Homeowner shall allow the Contractor to park a 6’ x 10’ utility trailer on the property for the duration of the construction.
- The Homeowner shall not throw any debris that is unrelated to the construction, into the dumpster or debris pile [s] without contractor’s permission.
- The Homeowner shall notify its insurance agent of the execution of this Agreement and obtain any necessary riders to its current coverage.
- One week before, during and two weeks after the construction period, Contractor may place a sign on the property, which advertises Contractor’s name, telephone number, ad abilities.
- The contractor shall keep all exterior areas within the general work area free of debris on a daily basis. Upon the completion of the project, the Contractor will leave the grounds as clean as they were prior to the start of the project.
- Upon completion of the project, the contractor shall leave the entire work area usable by the Homeowner; this may include polishing fixtures, vacuuming and washing floors, walls, doors, windows and woodwork. At the contractor’s discretion, a professional cleaner may be brought in to clean the home’s interior after completion of the project.
My contract has wording that states the following:
“Provided that the Homeowner pays the full amount due under the contract and any change orders and conditioned thereon to the fullest extent allowable by law, contractor guarantees that the work will be constructed in accordance with accepted home improvement practices, and it will be guaranteed against defects in workmanship and materials for a period of one (1) year from the date of its completion. This Limited warranty does not cover damages or defects that result from characteristics common to the materials used, or conditions resulting from condensation, expansion, or contraction of such materials. Warranty work will be completed within sixty (60) days from the date of receipt of a written request from Homeowner.”
You may also want to include some wording such as:
- All implied warranties including, but not limited to warranties by merchants and fitness for a particular purpose, are limited to the one year warranty period as set forth above.
- The customer is required to pay a service charge on any manufacturers’ products being serviced whether under warranties or not, unless such warranties have a labor clause providing for such labor. It the allowance is less than required, the customer must pay the difference.
- All warranties provided under this Agreement shall only become effective after contractor’s receipt of payment in full.
- This Limited Warranty is the only expressed warranty given. In the event that any of the provisions of this Limited Warranty shall be held to be invalid, the remainder of this provision of this Limited Warranty shall remain in full force and effect.
Consequential and Incidental Damages – Duration of Implied Warranty
I list the following in my proposal:
“Please note that this Limited Warranty specifically excludes consequential and incidental damages and there are limitations in duration of implied warranties. This warranty is extended to the above Homeowner and is not transferable to succeeding homeowners. Contractor hereby passes through and assigns to Homeowner any and all manufacturers’ warranties on all appliances and equipment supplied by contractor in the home.”
“Contractor specifically does not assume responsibility for any of the following items, each of which is specifically excluded from this Limited Warranty.”
Variation in Wood and Materials
I list the following in my proposal:
Natural variations in grain, texture, and / or color of the wood is a reality. Most people are aware of the “natural” characteristics of wood. Since no two trees are exactly the same, wood is a unique materials and natural variations in grain, texture and color are the ingredients that cause the “beauty of wood.” These variations can also cause noticeable differences between the sample and finished installation. These grain and tone differences are a natural and acceptable condition of quality wood finishes and will be even more pronounced in a completed project. My suppliers only use select woods to insure their quality
Consider listing the following bullets:
- Defects in appliances or pieces of equipment which are covered by manufacturers’ warranties are assigned directly to the Homeowner, and each manufacturer’s warranty claim procedure must be followed where a defect appears in any of those items.
- Damage due to ordinary wear and tear, abusive u common to materials used/ Such as, but not limited to
- Use, misuse or lack or proper maintenance or the home or its component parts or system.
- Work done or defects in items installed by Homeowner or anyone other than Contractor and its subcontractors at contractor’s order.
- Defects in items supplied by Homeowner.
- Loss or injury due to elements.
- Conditions resulting from condensation on or contractions of materials.
- Defects which are the result of a characteristic(s) Such as:
- Warping or deflection of wood
- Fading, chalking, and checking of paint or stain due to sunlight
- Cracks in concrete due to drying and curing of concrete, plaster, brick or masonry
- Drying, shrinking, and cracking of caulking and weather stripping.
Alternative Dispute Resolution:
Hopefully you’ll never need this but in my state it is required on all contracts.
“The parties acknowledge and declare that the Contractor may initiate alternative dispute resolution through any private arbitration services program approved by the secretary of the executive office of consumer affairs and business regulation under Massachusetts General Laws Chapter 142A, sub-section 4, to consider any dispute between the parties concerning or arising from this Agreement.”
Construction Proposal Conclusion:
There is much, much more included on my proposal such as agreement clauses, Lead paint warnings, etc. The point of this article was to get you thinking that you need a solid template specific to your line of work which you can reuse each and every time. Once you have that, pay a lawyer to go through it for legality issues, and to make sure you are fully following the law and protecting yourself in the process. Consider the lawyer’s cost cheap insurance.
The major points are to pay attention to producing a detailed scope of work, a well thought out payment plan and to keep up and perform change orders as then occur and NOT procrastinate.If you are disciplined in these categories you will be perceived as professional, methodical and efficient. Plus you’ll get paid and have lass hassles.
Sample Construction Proposal
Here is my boiler plate, feel free to copy this: Sample Construction Proposal.
Being more Organized
By far the most common comment I hear from guys in the construction field is that they love the work but hate the proposal,, estimates and paying of bills. I couldnt agree mote, thats why I’ve adopted some principles to make me more efficient in the office. Here are a few articles listing some of them: