At the end of the year I think about the disputes I’ve
handled, and how they might have been prevented. I also consider better practices for
contractors and how they can improve their businesses. These are my top ten resolutions for 2017.
1. Insert a
Right to Repair Clause in Your Contracts
If you are going to run a contracting business, you
are eventually going to run across owners who refuse to pay for work because it is
(allegedly) defective. Or, the client
may pay another contractor to “fix” your work and try to collect that money
from you. One way to discourage this
practice is by inserting a “right to repair” clause in your contract. Before an owner can go hire someone else to
“repair” your work, they are required under the contract to give you the
opportunity to review any supposedly defective work and repair it. This greatly reduces your exposure to defect
claims.
2. Include a
Right to Stop the Work for Nonpayment
A
contractor does not automatically have the right to stop working if a customer
fails to pay. There are always going to
be clients who try to come up with excuses for not paying. If payment isn’t made within a certain amount
of time, you should include wording in your contract that allows you to stop
work after written notice to the owner.
3. Consider a
“Termination for Convenience” clause
Sometimes the project just isn’t a good fit. Perhaps a better opportunity comes
along. For whatever reason, a failsafe
for getting out of a contract can be a good idea. Make sure it includes the right to get paid
for all work done to date, including reasonable profit and overhead.
4. Have Agreements
with Subcontractors
You may have been working with your subcontractors for
years, but you need to have a written agreement with them. This should include terms of payment, clearly
delineated scopes of work and indemnification clauses. An indemnification clause states that if you
are liable for your sub’s work, the sub must pay for your legal fees and pay
you back for any damages assessed. You
should also be able to back-charge a sub for incomplete or defective
construction work.
5. Pay Employees
as Employees and not as Independent Contractors
Massachusetts is very clear. If someone is working for you and doing the
same work that you do, they are your employees.
If you control the means and methods of their work, they are your
employees. If you pay employees as
independent contractors, you could be liable for triple damages, attorney’s
fees, interest and costs. It is not
worth it.
6. Know When NOT
to Take a Client
We’ve all experienced those red flags when meeting
with potential clients. Listen to
them! Life is too short to be spending
time with someone you don’t like who micromanages your work. If your gut is telling you to reject a
client, move on.
7. Respect Your
Clients’ Home
For you, the builder, this is just one of many
projects. For the homeowner, this may be
the dream of a lifetime. You need to be
sensitive to the fact that homeowners are emotional about their projects. Husbands and wives may not be on the same
page. Your job is to educate them about
the process and be aware that the project means much, much more to them.
8. Make Sure
You Have The Right To Recoup Attorney’s Fees If You Have To Go After Clients
For Nonpayment
As a contractor, if you don’t have the right to
attorney’s fees in your contract, you are not entitled to recover them. Frequently it is not worth it to pursue payment
from a client if you have to pay an attorney as well.
9. Draft Separate Design
and New Construction Contracts
Renovation contracts are subject to the Home
Improvement Contractor Statute which can entitle a consumer to double or triple
damages, attorney’s fees, interest and costs if the law is violated. Design and new construction contracts do not
fall under this law. For that reason
alone, you need separate contracts.
Clients also ascribe value to what they pay for. Design provides value, and builders need to
get paid for it.
10. Document,
Document, Document
All change orders should be in writing, signed by the
parties and reflect any change in the contract price and date of substantial
completion. Take pictures of your work
in progress. Keep good records of
signoffs on inspections and customer approvals.
I’m not suggesting that every job should be treated as though it’s going
to end in a dispute, but unfortunately, in this day and age, you do need to protect
yourself, be able to back up decisions that have been made and the quality of
your work.
If you follow these resolutions, I guarantee you that
you will end 2017 on a much better note than when it started.
*Email me your contracts and I will review them for
free! I will then quote you a price for
updating or drafting your contracts.
agoldman@goldmanlg.com
