Construction Contracts: Why a Handshake Is Not Enough

One might think that the “handshake deal” is a thing of the past but it continues to thrive in the construction industry.  After representing many contractors in various lawsuits with owners and other contractors, I have concluded that almost everything comes down to the quality of the contract between parties.  Surprisingly, as often as not, there is no contract at all.

While many construction professionals still adhere to the honorable adage “my word is my bond,” they nevertheless find themselves calling an attorney when they discover that not everyone in the industry has the same motto.  In my experience, the issue is not only that some will use your trust against you, but also that there is a lot of room for misunderstanding and miscommunication whether you are dealing with renovations or brand-new builds.  No matter how simple a given project may seem, it is critical that every party (owner, contractor, sub-contractor, and materialmen) are on the same page.

Though a contractor may operate for a decade without ever running into a serious disagreement over the terms of a project, when the day comes that a disagreement arises, the consequences can be disastrous.  In most cases, a clearly written and comprehensive contract can save all parties a lot of time, headaches, and money. 

Depending on the size and complexity of the project, a 75-page behemoth contract is probably not necessary.  But every construction contract should at least address some key issues: 

• The scope of the work:  Clarity in what exactly a contractor or subcontractor is expected to do will pay dividends if a dispute ever arises over what was done or not done.
• The timing of the work: Construction delays are as common as sunburns in the Sahara, and inevitably they lead to finger pointing. A contract that lays out all the deadlines, any exceptions to those deadlines, and the costs associated with said deadlines, can be exactly the balm needed in these painful situations.
• Termination/breach: What happens if a subcontractor cannot finish the job? What happens if a contractor doesn’t make a progress payment? These are questions that can and should be addressed to avoid ambiguity when a party fails to perform.
• Payment: How and when will payment be made?  No one wants to work for free, and the last thing a construction professional needs is a dispute over how much and when they are going to be paid. This includes having a good understanding of any retainage on the project; a subject which regularly causes confusion and disagreement.
• Dispute Resolution: If a dispute over some aspect of the project arises, how do the parties handle that?  Without a contract to delineate exactly how to handle them, disputes will often lead to a stalemate and stoppage of work, which benefits no one at all.

This is not an exhaustive list of the necessary provisions that will go into most construction contracts, but it provides an illustration of the main things which so often do go wrong.  A thoughtful and clearly written contract will protect both parties if a disagreement arises.  It does not mean that the parties cannot be trusted.  It means the parties acknowledge the many things that can go wrong, and that good communication and a mutual understanding of expectations will create an even better working relationship.

To learn more about construction contracts, please contact Beresford Booth at info@beresfordlaw.com or by phone at (425) 776-4100.