CONSTRUCTION LAW
Contract Clean-up
As we head from 2020 into 2021 and as the weather
changes along with the seasons, often comes downtime
in the construction industry. When deciding
how to use the relative quiet time of the winter months, contractors
should include a thorough review of business practices geared
toward improving efficiency, productivity and performance.
Ensuring that you are running your business with as much protection
and efficiency as possible will lead to better bottom line results
at the end of the day, i.e., more leads, more work and more revenue.
While it should come as no surprise that having a written contract
in place before undertaking any work on a project can avoid
many problems down the road, many contractors do not pay
enough attention to annual contract reviews and updates – winter
is the perfect time to do this. Many contractors are forced to hire
legal counsel to help resolve problems, rather than remembering
that much of an attorney’s worth is in helping to avoid problems in
the first place. Preventing problems upfront can have a significant
financial impact on a business by avoiding costly disputes and letting
you spend more time on what you do best – creating for your
customers. Having a solid and reliable contract can make your
business more efficient, reduce potential future costs and generally
make conducting business easier.
Spelling out the terms of an agreement in writing before any
work commences provides the contractor and customer (or subcontractor)
with clear expectations and sets the tone for the entire
business relationship. The more issues that can be addressed in
advance the better, and while that can be hard to anticipate, even
some very basic language touching on standard contract principles
may be enough to avoid future conflict with a customer
or colleague.
Regardless of the complexity of the contract, there are a few key
areas that should be addressed in any form of written contract:
• Pre-lien notice: One of the most important reasons to have a
written contract, aside from the legal requirement to do so, is to
preserve mechanic’s lien rights or some statutory right to place
a lien on a property for future recovery. Each state likely has different
legal requirements, but in Minnesota, for instance, every
contract should include the statutorily required language set
forth in Minnesota Statutes Section 514.011 in order to ensure
that a contractor has the right to pursue a mechanic’s lien
should the need arise. The language cited in that statute must
be accurately stated in the contract, and in a very specific format.
Failure to properly provide that exact language eliminates
any right that a contractor would otherwise have to claim a
mechanic’s lien for work done. Losing your lien rights puts you at
a significant disadvantage if the project ultimately turns bad. If
your state has laws in place to preserve your right to place a lien
on non-paying customers’ property (whether general contractor
or subcontractor) you should take advantage of it.
• Payment terms: As most disputes that arise during or after a
job relate to the amount or timing of payments, a payment timeline
should be included in a contract. Payment dates are often
based upon specific dates or completion of a certain portion of
the work, reaching a certain stage. Payment amounts and timelines
for payment should be clearly specified in every contract.
• Estimated time of completion: Many construction contract
disputes arise because of a misunderstanding as to expectations
of when a project will be completed. Every attempt should
be made in the body of the contract to set a reasonable estimated
date of completion on the project. This date should be
set according to the contractor’s best judgment to the extent
possible, as the contractor is in the best position to determine
how long the project should take to complete. Within that provision,
obviously, exceptions should be set forth – including but
not limited to weather delays, change orders, labor availability,
materials problems or other circumstances outside of the contractor’s
control. If it looks like a delay in completion will occur,
the change in the completion date should be documented and
agreed via change order. Whether stated in terms of weeks/
months to completion or by utilizing a specific date, setting the
expectation for completion, and adjusting it if needed, can avoid
a small problem turning into a larger issue.
• Scope of work: Disputes also arise from differing expectations
as to what the contractor has actually been hired to do. The type,
form and amount of work should be listed in the contract (or
in an addendum of some type) as detailed as possible to avoid
any dispute arising from whether a contractor completed all of
the necessary work for final payment. If appropriate, the scope
should indicate the materials to be used and specifications as
to construction. The greater clarity regarding what is to be constructed
– and how – can decrease the potential for a later dispute.
If the project will allow it, separate, detailed specifications
gajus/123RF
Pay attention to these basic
contract provisions
By Christopher R. Jones, Esq., Hellmuth & Johnson
If additional work is requested, or
original work plans are altered or revised,
the changes should be documented
by specific, written change orders.
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