Getting stuck in a messy collection scenario can be a stressful, time-consuming and expensive experience. Save yourself some time and money by preparing and signing a comprehensive construction contract. With a more proactive approach to collections, you may find yourself with more cash (and piece of mind) to spare.

Here are some ways a good contract today can help you avoid collection later:

Scope of Work

Clarifying the scope of work and its costs can help you avoid future disputes. It is easier to define and limit expectations now than to argue about them later. Having a clear scope of work provision can help clarify ambiguities and keep parties accountable.

Stipulations

Stipulating that one party can recover attorneys’ fees from the other in the case of nonpayment can give your company some leverage against the non-paying party. The general rule in the U.S. is that attorneys’ fees are not collectible. Meaning, each party in a legal dispute is generally required to bear the burden of its own attorneys’ fees. An attorneys’ fees provision should stipulate that attorneys’ fees are recoverable in the event of a dispute and also allow recovery of attorneys’ fees regardless of whether your dispute matures into a lawsuit. This provision should make it clear that the parties intend to pay the other party’s attorneys’ fees regardless of whether or not the matter escalates to any particular level.

Penalties

Providing for monetary penalties in the case of non-payment can give non-paying parties an incentive to pay on time. This provision should only apply to the party who has the duty of making payments to the other party. These types of provisions can work wonders for your collection practices if employed correctly. Many construction companies will include them in their contracts but also offer non-paying customers a “last chance” opportunity to pay the bill without the penalties to entice prompt payment.

Recovery of Interest

Providing for the recovery of interest on overdue accounts can help you avoid losing interest on money owed to you and offer non-paying parties an incentive to pay on time. Keep in mind that the court will strike this sort of provision if they find the interest to be “unjust” or above a certain legal threshold.

Alternative Dispute Resolution

Providing for Alternative Dispute Resolution can help ensure that disputes over payment are resolved as quickly and inexpensively as possible. Construction projects both big and small are very prone to dispute, and they are usually complex in nature. The traditional litigation of these sorts of claims can be lengthy and costly. A contractually stipulated option for Alternative Dispute Resolution can result in an outcome that is both faster and less expensive.

Contact the attorneys at Smiley Law to help you incorporate these and other tactics into your next contract.

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Seth Smiley
Seth is an attorney licensed to practice in Louisiana and California. He is the owner and lead attorney at Smiley Law Firm. To speak with Seth fill out the form on this page.
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