The building industry has been booming in recent years, and lots of contractors have found themselves busier than they’ve been in recent memory. While this is a great thing for business, it can lead to a “jam-packed” mentality that boosts the likelihood of mistakes.
While there are many ways to approach this reality, one of the best approaches contractors can take is to have their contracts reviewed by an attorney.
A simple yet effective approach, having contracts reviewed by a lawyer is one of the best things contractors can do to protect themselves from unnecessary complications or liabilities.
The Benefits of an Iron-Clad Contract
Building projects are high-dollar undertakings. When you consider that many building contracts range well into the six figures, it’s incredible that so few contractors have an attorney review their contracts. While virtually every contractor uses contracts, the strength of these contracts is up for debate.
The reason for this is simple: most contractors use a standard-issue contract or a contract they’ve pulled off of the internet. These contracts may serve simple, straightforward projects well, but are generally too simple and limited to apply to large, complex building projects.
Other times contractors do not even use a written contract, a handshake is good enough. A handshake is never good enough.
If such a contract is used for a large project, it opens the contractor up to liabilities and legal loopholes that could affect everything from payment schedule to scope of work agreements.
An iron-clad contract is a legal document that serves as a “meeting of the minds,” so to speak. In addition to establishing expectations on behalf of both parties, it protects contractors from losing profits, conducting more work than agreed to, or getting into a sticky spot with clients.
What Every Contract Should Cover
While each building contract is different and every trade has specific needs that should be addressed, each contract should cover a few consistent things. These are as follows:
- Scope of Work. What have you and the client agreed upon in terms of the scope of work? What materials will you use? What are the makes and models of the materials to be used? What is and is not included in the agreed-upon scope of work?
- The Start and End Dates of Work. When does work begin on the job? If permits are required, who will pull them? What happens if the job goes over the agreed-upon deadline? Are there penalties for delays caused by weather, materials, or logistics?
- Payment Schedules. Is this job a fixed-price or time and materials contract? Does it depend on a bank loan? Is there an upfront deposit or materials cost? Are you as the contractor entitled to stop work as a result of nonpayment? Ideally, the contract will be sure that payments do not get ahead of the work, and vice-versa.
- Termination Agreements. What happens if one party needs to terminate the contract? What issues can reasonably form a basis for termination? How is termination supposed to take place? What happens to payment and deposits in the event of a termination?
- Dispute Resolution. If there is a dispute regarding the work, the contract, or the materials used, the contract should lay out a process for parties attempting to mediate disputes before going to arbitration or filing a lawsuit. This is one of the most important aspects of the contract.
- Change Orders. This is a huge consideration for contractors. If a client needs change orders, the contract should state that they need to be in writing. The change orders should also reflect any change in contract price or the date of completion as a result of the change order.
- Permits. Most jobs require some form of permit. The contract for each job should include a description of which permits are required, and who will obtain them. In some states (Massachusetts is a good example), the contractor is required to obtain the permits. If he or she does not, the homeowner will be denied access to the State Guaranty Fund. Contracts should lay out permit responsibility, because of this.
Contracts: Smart Protection for Both Parties
Building is a booming industry, and even the simplest projects are far too important to go contract-less. While most contractors use contracts in some form or another, more GCs could benefit from having attorneys evaluate those contracts on a job-by-job basis. Every contract should be negotiated before it is signed. Period.
Even if you have a standard contract that you issue to clients, it’s easy to inadvertently create loopholes or uncovered places that your contracts don’t cover. This, in turn, puts you at risk of liability and may create problems, down the road, with the payment schedule and similar considerations.
While many contractors don’t want to spend the additional money required to have an attorney review building contracts, it’s important to remember that the cost of paying an attorney is nominal when compared to the costs of a contract or job gone wrong. Reviewing building contracts is generally a simple process, as well, and the cost can easily save you thousands, should something go wrong on your job site down the road.
If you’ve never had an attorney review your building contracts, now is the time to start. A good way to keep you and your clients safe and secure, enlisting the help of an attorney is an ideal way to keep your contracts on the up and up, both now and in the future.