Friday, January 19, 2018

TEN NEW YEAR’S RESOLUTIONS FOR CONTRACTORS-2018



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.  Here are some old and new resolutions for 2018!

1.               All change orders must be in writing and signed by the parties!  
They must state the change in the contract price and how the date of substantial completion will be affected by the change.  This sounds so simple, but I bet I could prevent 90% of all disputes if contractors and homeowner would follow this simple rule.  Document everything.  E-mails or texts are fine.  Just make sure you confirm that they have been read.

2.               Learn how to properly estimate a job.
This may be the biggest mistake I have seen contractors make in their business.  They have cut their margins and not allowed for increases in pricing of materials or labor in bidding jobs.  As a result, they are not allowing enough latitude for the inevitable issues that arise during a construction project.  This is the way you make a living.  Learn how to properly bid a job and protect yourself.

3.               Make sure you have a good written contract.  
Good contracts establish the expectations of the parties while the relationship is good.  In law, a contract is a "meeting of the minds."  It spells out the payments, scope of the work, date of substantial completion, warranties, basis for termination, dispute resolution alternatives, etc.   Most importantly, it should enable you to recover attorney’s fees if you have to go after a customer for payment. A good contract will help resolve any dispute.  It protects everyone.  Many states also require a written contract under the law.  In addition, have an attorney review your contract!  This is well-worth the money, and will protect your business.  It's a worthwhile investment and will help you sleep at night. Seriously. I even charge flat fees so clients can call me when they have a question.

4.               Make payments contingent upon milestones reached.  
Don't let your work get ahead of your payments, and don't let the payments get ahead of the work.  This keeps both sides honest.  Require payments at the beginning of each milestone so you have cash flow for the next phase of the project.  If the payment gets ahead of the work, the owner may lose trust that you will finish the job.  If you do your work ahead of the payments, the owner may start delaying when you ask for a check.  Numerous disputes develop because the payments are not in balance. 

5.               Insert a Right to Repair Clause in Your Contracts
If you are going to run a contracting business, you are going eventually 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.

6.               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.

7.               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.

8.               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.

9.               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.

10.           Resolve Disputes and Focus on Your Reputation
It is always better to try to resolve disputes with owners rather than ending up in litigation.  I have had numerous clients receive bad reviews online, and this is more harmful to their businesses than losing money on a job.  Protect your reputation.  There are always going to be problems that arise in construction.  The important thing is how you deal with them.  There is huge value in a good referral once a project is complete.  Focus on the long term and make your clients happy.


If you follow these resolutions, I guarantee you that you will end 2018 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