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Construction Contracts

I often hear from contractors in conflict with a client. Almost always that conflict would have been avoided or quickly resolved if there was a clear, detailed construction contract between the parties.

Many contractors use a standard one- or two-page construction contract on their jobs. A short contract, no matter how well-written, can’t possibly contain all the language needed to protect you today. It leaves too many things unsaid, and those holes and gaps in the contract let the owner interpret it in ways that you never anticipated.

For instance, during the sales call the building owner brings up a particular item they want included. You discuss it, and they change their mind for whatever reason. As sure as the sun comes up, after the contract is signed, while the job is being built, the building owner remembers that item and wants to know why it wasn’t done.

You remind them of the conversation, but they remember it differently. They were certain it was included in the project and they won’t pay you any more money until . . . well, you know how it goes.

There’s an old saying that the dullest pencil is better than the sharpest mind at remembering things. Don’t count on your memory or your client’s memory. You need to write a contract that covers the job and specifies everything you will or won’t do. If you don’t spell it out, it can cost you.

That’s an example of the job details that should be in writing, but there is more. A well-written construction contract has three sections. It defines the parties to the contract, it clearly covers the job details (like the example above), then it covers the legal details.

The legal details aren’t just what’s required by law. You should also address construction-specific issues. These are the real-life issues contractors face, such as asbestos, material cost increases, change work orders, building access, reinstalling used materials, hidden conditions, building codes, standards to match existing construction, punch lists, the payment schedule and it’s related “what if’s”, and much more.

We have a software program that covers much of this legalese; you can use the program to write your contracts or copy the language and place it in your own Word document. Craftsman Book Company also has a software program, written by an attorney, that is state-specific, meeting the legal requirements for each state. In my opinion, the best contract includes language from both programs.

Whatever you use, have your attorney check your contract language before you use it. They will know any local requirements that should be added. It is far cheaper to pay for a few hours of your attorney’s time upfront than to make a deposit of $1,500 or more to defend you from an unhappy or unscrupulous customer. They don’t need to review every contract. Bring them all language you might possibly use; once that language is reviewed and blessed, it can be used for most of your future contracts, all you need to add are the job details.

A detailed remodeling contract for a job of $100,000 should be around 35 pages. A smaller job might be 15-20 pages in length. The more detail, the better; it protects both you and your client.

All contracts need to be reviewed with your potential client in person before they are signed. Don’t send it by email; sit down with them and go over the details, in their entirety. Not everyone will read your contract, let alone understand or agree with it. It’s your job to communicate what the contract says and means. This will reduce misunderstandings or unfounded expectations about the contract, and it will also help you get the contract signed so you can go forward with the job.

Someday, I’m hopeful people will read this article and say, “Why did they write this, everyone signs a clear contract before making a commitment worth a thousand dollars or more?” Unfortunately, that’s not what’s happening today.

I am not a fan of lots of rules and regulations, but so many more construction-related businesses would survive if every contractor was required to pass a test about contracts and additional work orders before they can hire themselves out to the public. They don’t need to know the laws. They need to know what a solid contract should include, when to write a change work order, and understand the importance of a solid contract before money changes hands and work the begins.

When you do something in your business that puts you at risk, like writing a skimpy contract, you not only put your company at risk, but your family, your home, your marriage and your health as well. That is a reality of life. If you aren’t writing solid contracts, start now.

More on contracts here.

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