Don't make the same mistakes we did. Here are some definitions and words about contracts that you should be aware of before you get involved with any builder. All of this information has been downloaded from the Internet. Unfortunately, I can not remember the actual sites. Nonetheless, this is the information that we will use before we sign another contract with a builder. Time-and-Materials Contract - If your project is open to change and inspiration as the work unfolds, and if you welcome input from and a dialogue with your contractor(s), you may be better served by a time-and-materials contract. It can save you time, stress and money - from implementing cost-saving opportunities as they arise and from reducing the amount of time your contractor has to spend on paperwork. You still need to start the process by describing your ultimate goal or goals in a sentence or two and specifying, in writing, how you want the work done. The basic form of a time-and-materials contract is "We, ABC Home Renovators, certify that we will replace the roof on the Doe residence as specified. Mr. and Mrs. Doe agree to pay for the time and materials required to complete the work. The estimated total cost is $N,NNN.nn, with 20% of the total not due until completion." The great advantage of a time-and-materials contract is that the details of the job can be worked out as work progresses. Unforeseen changes are just a part of the process. Every Friday - or when you and your contractor have agreed - you meet and discuss job progress and any changes that will affect either the cost or the completion date. You then pay the contractor a "draw" amount that covers expenses since the last draw, less the 20% or so you are holding until completion. The disadvantage of a time-and-materials contract is that the final cost and completion date are estimates. In renovating an older home, this may be the case anyway. Just be sure to check out your contractor's references with an eye to whether he or she has done satisfactory work under this type of contract before. "Fixed Price" vs. "Time and Materials" Contract - These are two different ways in which the contractor can bill you. "Fixed price" bids are considered to be standard in the industry. A fixed price means that the contractor has investigated all of the items related to the project. The contractor agrees that a certain price will cover all of the time and materials. A more uncertain agreement is called a "time and materials" contract. This is an agreement in which the contractor charges you as the job goes along. The contractor will charge you for his/her time and materials plus an added amount for profit. If it is a time and materials contract, make sure that the contract includes a maximum cost or "cap" on the price for the job. An open-ended "time and materials" contract can be an invitation to an unscrupulous contractor to run up the costs of the job. "Allowances" - These are amounts that a contractor will include to estimate for certain items that are not detailed in the bid, such as light fixtures. If the actual costs are higher than the "allowance" estimate, you must pay the difference. This will increase the overall cost of the contract. One way to avoid this problem is to pick out the items you want in time for the bid. Another way to avoid losing control of the costs is for you to shop for the general prices of the things that you are not yet ready to select. Write down the general cost of the items, such as light fixtures, that are like the ones you want. If you get more than one bid, keep in mind that each bid will be based on different assumptions about the allowances. This means that it will be harder to compare bids. "Progress Payments" Approximately every two weeks during the time that the Contractor is performing the work, the Contractor shall deliver to the Owner a statement which shows all the costs the Contractor has incurred to perform the work for the preceding two-week period together with the additional percentage of these costs (as stated on the attached sample Time and Materials Rates sheet) to cover the Contractor's overhead and profit. Within ten (10) days of the Owner's receipt of the statement, the Owner shall pay to the Contractor the total amount set forth in the statement. Click here to see a transparent owner-builder process leading to a good sample Time and Materials Contract. Carefully note the blue highlighted sections.