by Harold Hammerman
Harold Hammerman is author of the book “Running Your
Remodeling Business” (Craftsman Books, 800-829-8123). He is
a pioneer in the remodeling industry and one of the founders of
the American Building Contractors Association (ABCA). He is also
the namesake of the Harold Hammerman Award presented by the
National Association of the Remodeling Industry (NARI) annually
for excellence in training and education.
If you haven’t taken a look at your remodeling contract
lately, maybe you should.
What with the American public penchant to sue whenever something
seemingly goes wrong, or even worse when things don’t seem
to go the way they want them, the remodeling contractor is more
vulnerable than ever. Another thing is the cost of remodeling.
Today, the average cost is more than $20,000, with many going
much higher. The financial stakes are the biggest they have ever
been.
Add to that the increasing number of homeowners experiencing
financial difficulties which could affect a contractor’s
being paid. Contracting is normally a risky business. Without a
good contract, it can be downright hazardous.
Historically, the language of construction contracts has
generally been weighted against the contractor – whether
it’s remodeling, new construction, government or private
work.
Consequently, if the contractor went to court (which he
frequently did) the scales of justice were tipped against him.
More often than not, when the decision was handed down, the
winner was the owner and not the contractor. Unfair? To say that
such an arrangement was simply unfair was a gross understatement.
In rare cases, it was disastrous, putting the contractor out of
business. But more commonly, such decisions created financial
hardships which could burden a contractor for months and even
years.
Although there have been many improvements in the wording of
construction contracts, providing contractors more protection,
many contractors have failed to keep abreast of the changes. Why?
Perhaps because “the old contract has worked so far, why
change it?”
The answer to that lies with the individual contractor. How many
disputes have you had with your customers over the past several
years? What was the nature of these disputes?
How many times have your clients’ lawyers firmly requested
that you right some grievance or face suit? Worse, how many times
did you find yourself in court?
If the answer is “more times than I want to talk
about”, you should probably take a good hard look at your
contract. Better still, have a lawyer look at it. Better still,
have a lawyer knowledgeable about contracting and construction
look at it.
The point is, if your contract was properly written, you probably
could have eliminated 90 percent of those confrontations. Not all
of them, but it least the majority.
Before going on, let it be understood that no construction
contract exists today that will eliminate all disputes which may
arise between a property owner and a contractor. There are just
too many unknowns, variables and acts of God over which a
contractor has no control.
But by using the proper contract form and the proper language,
the number of disputes you have should drop while the number of
satisfied property owners should escalate.
What’s is wrong with today’s contracts?
Unfortunately, a great deal. All it takes is a sharp lawyer
knowledgeable in construction and construction law to hold a
contract up to the light and find more holes in it then if it
were hit at close range with 12- gauge shotgun.
Ask any contractor who has faced legal action the two phrases a
lawyer utters which makes their blood run cold. Chances are, they
will answer “it’s not in the contract” and
“that’s not what the contract says”.
So, whether you were right or wrong, what it comes down to it is
– was it in the contract, or did the legal terms in the
contract mean something other than what you interpreted them to
mean? If either is the case, rest assured you are the
loser.
Those two phrases point-up the two most common problems in
construction contract preparation. Before we analyze them,
let’s take a look at a modern home improvement
contract.
For purposes of simplification, it is divided into three sections
which can be entitled Documentation, Substantiation, and Terms
and Conditions. Loosely defined, the three encompass the
following:
Documentation: This consists of who, what, where, when and
how much. This is data you supply which goes on the contract or
agreement.
Substantiation: In describing what you are going to do,
you prepare specifications, floor plans, and in relevant cases,
make elevation drawings. This is data you also supply which is
attached to and included as part of the contract.
Terms and Conditions: These statements, which have been
developed through years of construction experience, represent the
terms and conditions under which you carry out the work described
in the contract. They represent most of the contingencies which
could have an adverse effect on materials, labor, completion
dates and cost. They too are included as part of the
contract.
Now let’s get back to the two phrases, “it’s
not in the contract”, and “that’s not what the
contract says”.
The problem in writing contracts for many contractors and those
with years of experience is one of two things. Either they write
what they are going to do in broad general terms, or so detailed
that it requires pages of specifications. Neither is
desirable.
In the case of the former, the homeowner could construe that
something was going to be installed which isn’t, while in
the case of the latter, if the contractor runs into a problem it
could affect everything that the contractor is going to do from
that point on.
At this point, you are probably saying to yourself, “damned
if I do and damned if I don’t!”
Not necessarily. The proper method of writing a contract is to
spell out what you are going to do in such a way that the
homeowner has a clear written picture of what has been agreed
upon but not so detailed that if you run into a problem it will
alter plans and complicate the job. Contracts written in broad
general terms create misunderstanding, while being too specific
can add to the cost of the job or result in something being done
the homeowner did not want.
Either way, the contractor is the loser.
This brings up another area to which contractors fail to give
sufficient attention: Listing what they are not going to do. This
applies to big jobs as well as small. In particular, it applies
to remodeling because of the unique circumstances in which the
contractor operates.
Remodeling requires you to disrupt a household for days and weeks
on end. If the occupants aren’t off balance soon after you
start, they will be by the time you finish. By then they are
ready to attack at the least provocation. Minor grievances can
become full-blown confrontations.
Given those conditions, remodeling contractors need all the
protection a contract will give them. So, it is important to
write into the contract all of the things you are not going to do
(but not in such detail that you are boxed in should a problem
occur).
A good way to do this is to picture in your mind as you prepare
the contract that the job as contracted is “fully”
completed from your point of view…ready to move in, so to
speak.
Now visualize and write in every item not included which would
have resulted in a “truly” finished job from the
customer’s point of view. Another way is to check off those
items in your sales presentation that the customer said they did
not want. All the items checked are included in the contract has
“exclusions”.
The reason? The mind plays tricks. Under the pressure of a
problem with the job, even the most understanding client could
misinterpret something you said as being the opposite.
Further, if you don’t specifically say what you are not
going to do, some people will assume you will simply because you
did not say you would not. To protect yourself, list anything you
feel could be misinterpreted or assumed, or if those things the
customer declined. If you don’t, you could end up doing
them at your own expense.
Not only is a good contract important, it is also important you
use the right one. For example, if you have been using a contract
which does not fully cover the terms and conditions for the type
of work you do, you could be vulnerable in a dispute. Also, the
form or contract a prime contractor uses will differ from the one
a subcontractor uses.
If you are writing your own, it is mandatory that you have it
reviewed by a lawyer knowledgeable in construction law. It must
use the terminology unique to construction.
You should know your contract thoroughly. You must know not only
what it says but what it means as well.
The contract commonly used in California (and now modified for
use nationwide) is the Property Improvement Agreement, provided
by ABCAForms. This particular contract has gone through years of
trial and error, revisions, lawsuits, and court decisions in
order to make it fair and right for both the property owner and
the contractor.
As emphasized in the beginning, regardless of how it is written,
there is no construction contract which will protect a contractor
from every problem which can arise. However, by learning how to
write a good contract --- what to say and how to say it ---
contractors will be in a much better position to weather the
legal challenges and economic uncertainties which can affect
their business.
You can purchase any of our forms or agreements at the Catalog page.
