© THE CONTRACTOR’S LEGAL KIT, LLC, 2022. All rights reserved
Although billions of dollars are spent every year in the United States on residential building and remodeling, many residential contractors may face a common problem: finding contracts and other legal documents well suited to their businesses. Over the past 25 years since the first edition of The Contractor’s Legal Kit was first published, the need for good contracts related to residential construction has only increased as has the volume of construction work being performed in this country. The cost and in many cases complexity of the average project has soared. Many residential builders who use contracts use inadequate “boilerplate” agreements. This is understandable, since it’s hard for smaller builders to find the time and money to have an attorney familiar with construction draft good, comprehensive construction agreements. The Contractor’s Legal Kit template forms on this site are the latest version of the forms and several new forms that we hope will be useful have also been added.
As in years past, don’t wait until you are faced with a major lawsuit or collection problem to pay attention to and update your legal documents. With litigation and arbitration costs on the rise, a legal dispute on a large remodel or new home can easily cost you $50,000 to well over $100,000 in legal fees, expert witness fees, and related costs. In a worst case scenario, you could also end up having to pay a judgment to the owner as well as part or all of the owner’s legal fees. Some lawsuits drag on literally for years and years and not only suck up huge amounts of the builder’s cash reserves, but also — just as importantly — drain away the builder’s time and enthusiasm for continuing to work in the construction business. After paying all those costs in the form of lost time, lost dollars, and wasted mental energy and anguish, many smaller contractors can kiss their businesses goodbye and start checking out the Help Wanted ads.
Spending a little time educating yourself about how to better control the construction process can’t help but pay big dividends regardless of what size construction business you currently operate or what type of construction work you do. The latest updated version of The Contractor’s Legal Kit forms on this site are an attempt to get you off to a good start in that direction. They seek to bridge the gap between the fully developed sets of construction agreements that are readily available for use on larger commercial projects (such as AIA or AGC documents) and the basic boilerplate agreements, or “one-page wonders,” sometimes used by smaller builders and remodelers.
Most importantly, the Contractor’s Legal Kit template forms offer specific contract language that takes into account many of the unique risks and challenges that residential builders face. Some of this you will not find in other most other “standard” agreements. It is distilled from my experiences — both good and bad — throughout many years as both a building contractor and practicing attorney focused on the field of construction law.
By understanding these template agreements and adapting them for use in your own business with the aid of your own local attorney, or incorporating relevant sections of them into your existing agreements, you’ll be taking an important step toward taking charge of your business relationships, hopefully improving your bottom line and improving your most important initial communications with the owner.
An Expectations Game
The complex relationship between contractor and client can be fertile ground for many kinds of misunderstandings and disputes. Typical problems include disputed change orders, what is and is not part of the scope of work, what work is excluded, what are reasonable and unreasonable completion dates, when payments are due, amounts of payments, disputed punch list items, and whether final payment (minus an offset for punch list work) is due upon “substantial completion” or “final completion.”
These kinds of problems and so many others can cost the builder money and time, and result in loss of reputation and future business. Perhaps more importantly, these and other types of largely avoidable problems weaken whatever trust there is between the owner and builder and can lead to future disputes, lost sleep, and costly lawsuits.
One major reason why job tensions and disagreements develop during a project is because the owner and the builder often start out with very different expectations about how specific important aspects of the project will be handled. Often, this stems from a vague written communication system (i.e., a poor contract and follow up documents) furnished by the builder. These differing expectations show up in the form of numerous minor problems and disagreements, and often escalate from there, sometimes into larger disputes.
Unfortunately, in the legal world, few types of lawsuits are taken more personally by an owner than litigation with a contractor. This may be due to the old adage that a person’s home is his “castle,” the owner is like the king, and the king ordinarily can do no wrong. This only underscores the need for clarifying the owner’s expectations in your written agreements. A related problem is that, until things go wrong, most residential owners understandably have little or no idea of what to expect throughout the many phases of the construction process, whether it be the building phases or the paperwork phases that control the disbursement of the owner’s money.
Furthermore, residential owners are ordinarily investing more money in the building of their home than they will ever spend on any other single item in their lifetime. For this reason alone, they have a right to be a little apprehensive and to expect the builder to be professional in his relationship with them. Unfortunately, some builders fuel the fires of potential disaster by not communicating very well with the owner, before, during, or after the project. But builders often can’t afford to take this approach without suffering the inevitable consequences. The good news is that there is an easy alternative to this powder-keg scenario.
One Solution: The Construction Agreement
The solution to many of these problems is to establish a system for clarifying and documenting everyone’s responsibilities and duties, and thereby avoid many disputes and the loss of time, money, and peace of mind. The contract between the owner and builder is a valuable tool the builder possesses for this purpose. That is why the focus of this The Contractor’s Legal Kit forms is on various different types of different construction agreements.
Because about 90% of the legal disputes I see could have been avoided if the builder had furnished the owner with a good construction agreement (and then followed the agreement while the project was being built), it’s not hard to understand why I think it is critically important for contractors to improve their understanding of basic construction agreements.
Once you have a serious dispute with the owner, it’s too late to rewrite the contract and second guess how easily the dispute could have been avoided. After you begin work on a job, it’s too late to go back and add exclusions that you should have written into your agreement at the start. Often, your only choice is to pay for the items you knew were excluded, but the owner assumed were included. Once you forget to include an attorney’s-fees clause in your agreement and the owner is refusing to pay you, it’s too late to go back and rewrite your agreement. And your attorney’s fees may just equal the amount of money you are owed by the owner! The only time to include these things in your agreements is each and every time you give a construction agreement to an owner.
Establish the Rules
When you were a young kid and were allowed to make up your own rules to a game like Monopoly, Marco Polo, or Kick the Can, who usually ended up enjoying the game the most and more often than not succeeding? You! Being in the position to furnish the construction agreement is similar in many ways: it gives you bargaining power. When you furnish the agreement, you are establishing many of the rules that will legally govern the business relationship with the owner. You can draw upon your years of experience in this business and communicate to the owner how you want the business aspects of the project to be handled. It’s my experience over many years in and around the construction business that if the contractor takes this opportunity to establish reasonable rules, the owner will typically accept most if not all of them. It actually often puts the owner at ease to know that there is a structure for how the job will proceed. You are giving the owner an education about the construction process, which is often needed and welcomed.
However, if you don’t establish the rules, the owner will take charge when something goes “wrong” — often to your detriment. I routinely find some contractors giving away 5% to 10% of the job profit by not having a comprehensive agreement. If you fail to put your expectations in writing prior to starting the job, don’t assume that the owner will be understanding later on and agree with whatever you want (no matter how reasonable your request may be). Many a competitive low bidder has discovered that once his agreement is signed, the “honeymoon” period is over and the owner is suddenly no longer willing to throw in concessions he would have happily agreed to prior to signing the construction agreement. This is only human nature. Once the agreement is signed, both parties lose considerable bargaining power and often find themselves being much more close-minded.
The Contractor’s Legal Kit template forms and this site are not an attempt to turn contractors into lawyers (there were enough of those around at last count). In summary, this site and the forms are an attempt to help contractors, with the review and advice of their own local attorney, do a better job of putting together construction agreements so that they can more successfully profit from and do what they enjoy doing and do best — building!
Who May Want to Use The Contractor’s Legal Kit Template Forms?
The Contractor’s Legal Kit template forms may be helpful to the following types of contractors:
• Builders who have used The Contractor’s Legal Kit in the past and want to have updated information and agreements.
• All building contractors who have recently started their own residential construction businesses.
• Residential remodeling contractors who do not have a fully developed set of agreements, subcontracts, and change order forms, and a commonsense procedure for using these forms.
• Residential contractors who build new homes and who do not have a fully developed set of agreements, subcontracts, and change order forms, and a commonsense procedure for using these forms.
• General contractors who do light-commercial construction work where standard AIA-type construction agreements are not used by the owner, and the contractor has the opportunity to furnish the construction agreement to the owner.
• Any building contractor who wants to try to increase his ability to avoid disputes, and loss of profits through a review of his own construction agreements and procedures for using them. Any building contractor who wants to improve his ability to identify and allocate the inherent risks associated with all building projects.
How To Use This Site and The Contractor’s Legal Kit Template Forms
Review the information on this site, the Resources tabs and review the various forms included with The Contractor’s Legal Kit. Once you develop or modify a basic set of agreements, you are advised to have an attorney in your area familiar with construction review and revise your agreements to make sure they are suitable for your specific business and in compliance with your state laws.
Don’t be afraid to invest a few minutes of time with an attorney in your area if you are uncertain about how to proceed with a particular job. Better to spend a few dollars up front than to discover later that certain costly mistakes could have been avoided. Remember, the sample agreements included on this site are a good starting point only and you are advised to customize the forms to suit the needs of your business with the advice of your own local attorney and be sure to include any additional language required for residential construction or home improvement contracts in your state.
Important Notice to Contractor and Disclaimer:
Before using or relying on the template forms and information above, read the template forms with care, fill in, modify, delete, add language to, and revise portions of the template forms according to your specific needs and any state laws applicable to the type of job you are using the document for. Use of the form templates on this site does not constitute the formation of any kind of attorney/client relationship between you and us. You should seek and obtain independent legal advice from a licensed attorney in your local area familiar with construction law before using or relying on any of the forms or information on this site. The forms and information on this site are provided only as general information, not legal advice and may or may not reflect the most current legal developments, your specific needs or laws applicable to the state where you conduct business. Only the original purchaser of the forms has a limited license to modify, edit, print and use the forms.
© THE CONTRACTOR’S LEGAL KIT, LLC, 2022. All rights reserved