TEN NEW YEAR’S
RESOLUTIONS FOR CONTRACTORS-2022
Can you say COVID
fatigue? As I sit here to write this
year’s resolutions, I can’t believe that coronavirus is still very much with
us. In fact, you can just read my newsletter
from last year, and all of them are still relevant. The difference this year is
how divided we have become. Some are
living life as it is more or less normal, and others are still playing it
safe. One thing is certain. The virus has disrupted construction and the
way you do business. On the positive
front, I keep hearing that business has never been better. On the negative side, there are still issues
with increases in the cost of materials, shipping delays and unavailability of
subcontractors. Last year I wrote a
number of blog posts with clauses to add to your contracts and refined them as
new developments occurred. See, http://buildingconfidence-llc.blogspot.com/2020/04/coronavirus-and-construction-clauses.html Those clauses still hold. That said, here are the takeaways and goals
for 2022:
1.
Include the Right to Delay or Cancel Jobs in
Your Contracts Before They Start.
Your contract should allow you to delay or cancel jobs before they
start depending upon unforeseen circumstances.
Construction jobs are taking longer than expected and new projects may
be delayed. Owners need to be flexible
about start dates right now. You don’t
want to have to lose a large job if you’ve run out of time to complete a
smaller one. So, you need a provision in
your contracts to protect you if any of those events occur.
2.
Include the Right to Delay or Cancel Jobs in
Your Contracts Once They Are Under Way.
Workers might be exposed or become ill with coronavirus. The same can happen with owners. All sides should have the right to cancel or
delay jobs at any time. Although many
contracts have had “force majeure” or “acts of God” clauses, these may not be
enough to protect you if you have to press pause on a project. Review the language in your contracts and add
more if necessary.
3. Allow for
Increased Material Costs.
The supply chain has been disrupted. As a result, the costs of materials have been
increasing. Insert a clause in your
contract that allows for a change order if costs increase by more than x%. You should educate owners in advance about
this possibility and discuss options for substitutions so there are no
surprises. In addition, if the cost of
the job increases too much, you might want to allow for a reduction in scope.
4.
Termination for Convenience.
Traditionally
residential contracts have not included terminations for convenience, but if
you decide that both sides have the right to exercise this option, you will
want to put in how much notice you require (seven days?). Add the remaining payment that would be due,
such as payment for all work completed to date plus the cost of demobilization
and any work required to protect and preserve the site.
5. Form Strong Relationships with
Your Subcontractors.
I
have received numerous reports this year about subcontractors delaying or
abandoning jobs. You need to develop
strong, consistent relationships with your subs so they are loyal to you. Pay them fairly and set reasonable
expectations. In subcontractor contracts
you can include bonuses for early completion or penalties for delay. I prefer the former. It is an excellent selling point with
customers to be able to state that you have a reliable pool of
subcontractors. Treat them well.
6.
Make Sure You Have Current, Complete Insurance Coverage
I have seen a few nightmare scenarios this year where clients have
gotten sued and they either haven’t had liability insurance or their policy didn’t
cover the claim. One of the most
important parts of being insured is that your insurance company will provide
you with a defense (pay for your lawyer) if you are sued. They may do so with a “reservation of
rights,” which means they may not ultimately cover your claim, but attorney’s
fees are incredibly expensive and having them covered is much less stressful
than paying out of pocket. You also need
to check your policies with your agent.
A client was sued and discovered his policy didn’t cover construction
work on condominiums. That exclusion
made no sense for his business!
7.
Review Payment Schedules
Every year I remind
people to review their payment schedules.
Given the volatility of the world these days, it seems as though I have
recorded more mechanic’s liens than usual.
Cash flow is incredibly important.
In residential home improvement work you have the right to ask for a
deposit as long as it is no more than one-third of the contract price or the
cost of special-order materials, whichever is greater. Since you can’t expect final payment until
the owner is satisfied with the work, make the final payment really small!
8.
Don’t Miss the Window to Record a Mechanic’s
Lien
Mechanic’s liens are an incredible tool for getting paid. They give the contractor or subcontractor
leverage in negotiating with owners or GC’s.
People hate having liens on their property and they interfere with the
ability to sell, refinance, disburse or secure loans. If you are a GC, you have no more than 90
days from the last day you worked at the property to record a lien. If you are a subcontractor, the deadline is
usually longer-90 days from the last day anyone working through the GC at the
project could record a lien. Don’t
wait. Liens are very inexpensive (I do
them for a flat fee) and if you miss the deadline, you lose the opportunity to
record.
9.
Consider a “Hold a Spot” Deposit
Contractors have
customers lined up to secure their services.
If you are going to set aside a date for an owner, consider asking for a
deposit to hold that spot for them. You
have the right to make some or all of it non-refundable; especially if you are
providing design or pre-construction services.
People place value on services they pay for. A deposit is a way of showing that they are
serious about proceeding with their project.
10.
Include Arbitration and/or Mediation Clauses in
Your Contracts
The
courts just suspended jury trials until the end of the month. Litigation is still delayed and lawyers have
no control over court schedules.
Lawsuits should always be avoided, but now, more than ever, it’s time to
seek out alternative forms of dispute resolution. As someone who has been doing this for over
thirty years, I can tell you that most cases eventually settle rather than
going through trial (which is ridiculously expensive), so why waste so much
time and money on going through the court system? Mediation is a voluntary process where the
parties work with a third-party neutral to try to resolve their dispute. It can be very effective in resolving
disputes and gives you a say in the outcome.
Arbitration is a private process where an arbitrator acts as the judge
and rules on your dispute. It is usually
a binding process and the arbitration decision or award is enforceable by the
courts. The downside of arbitration is
that it is almost never appealable. That
said, most parties do not appeal court decisions because the cost of appeals is
quite high.
We are all hoping that
2022 will allow us to go back to our lives.
That said, we all need to continue to adjust to the new normal and adapt
our businesses as the work environment changes.
I wish you all a happy and healthy new year!
* Andrea Goldman has
launched Beyond Dispute Arbitration and Mediation Services. Contact Andrea if
you are looking for an arbitrator or mediator for your construction dispute. Email me your contracts and I will review
them for free! I will then quote you a
price for updating them or drafting new ones.
agoldman@goldmanlg.com
