In the construction business, one invaluable item stands out to both the contractor and the client: the contract. Not only does the contract protect the client, it clearly defines what you’ll be paid and the parameters of the work you are there to perform. All of the terms of the agreement should be there in black and white. This is important for all parties involved, and one of the best ways to avoid ending up in court or having complaints made against your license.

The key to an effective contract is covering everything clearly. With all of the details you’ll need to remember, it is very common to overlook something.

Here are a few tips offered by Builder News Magazine:

• The Price Escalation Clause (PEC). In a world where the lowest estimate normally wins, most remodeling contractors quote a fixed price. In many cases this doesn’t allow for the unforeseen price increases in materials or building permits. A way to get around this without scaring the client off is to include a price escalation clause. You can word this clause in a way that allows for you to increase the cost of the project only if materials increase by a certain percentage.
• Bankruptcy Avoidance. Desperate times call for even more precautions, such as a bankruptcy avoidance clause. This situation might come into play if you signed a contract several months ago with a fixed price quote. In the meantime, costs have gone up significantly, leaving you in the red if you even attempt the project. A PEC in the contract or some other clause can help to prevent your company from taking so large of a loss that it puts you in jeopardy.

These are just two examples of how lacking the proper language in a contract can get you into trouble. Another quick suggestion to protect your bottom line: include a statement that deals with when the client causes the project to last longer than you had projected and agreed upon. This can end up costing you an untold amount of money if it conflicts with your other projects.