If you are going to run a contracting business, you are going eventually run across owners who refuse to pay for work because it is (allegedly) defective. Or, the client may pay another contractor to "fix" your work and try to collect that money from you. One way to discourage this practice is by inserting a "right to repair" clause in your contract. Before an owner can go hire someone else to "repair" your work, they are required under the contract to give you the opportunity to review any supposedly defective work and repair it.This greatly reduces your exposure to defect claims.
2. Include a Right to Stop the Work for Nonpayment
A contractor does not automatically have the right to stop working if a customer fails to pay. There are always going to be clients who try to come up with excuses for not paying. If payment isn't made within a certain amount of time, you should include wording in your contract that allows you to stop work after written notice to the owner.
3. Consider a "Termination for Convenience" clause
Sometimes the project just isn't a good fit. Perhaps a better opportunity comes along. For whatever reason, a failsafe for getting out of a contract can be a good idea. Make sure it includes the right to get paid for all work done to date, including reasonable profit and overhead.
4. Have Agreements with Subcontractors
You may have been working with your subcontractors for years, but you need to have a written agreement with them. This should include terms of payment, clearly delineated scopes of work and indemnification clauses. An indemnification clause states that if you are liable for your sub's work, the sub must pay for your legal fees and pay you back for any damages assessed. You should also be able to back-charge a sub for incomplete or defective construction work.
5. Pay Employees as Employees and not as Independent Contractors
Massachusetts is very clear. If someone is working for you and doing the same work that you do, they are your employees. If you control the means and methods of their work, they are your employees. If you pay employees as independent contractors, you could be liable for triple damages, attorney's fees, interest and costs. It is not worth it.
6. Know When NOT to Take a Client
We've all experienced those red flags when meeting with potential clients. Listen to them! Life is too short to be spending time with someone you don't like who micromanages your work. If your gut is telling you to reject a client, move on.
7. Respect Your Clients' Home
For you, the builder, this is just one of many projects. For the homeowner, this may be the dream of a lifetime. You need to be sensitive to the fact that homeowners are emotional about their projects. Husbands and wives may not be on the same page. Your job is to educate them about the process and be sensitive to the fact that the project means much, much more to them.
8. Make Sure You Have The Right To Recoup Attorney's Fees If You Have To Go After Clients For Nonpayment
As a contractor, if you don't have the right to attorney's fees in your contract, you are not entitled to recover them. Frequently it is not worth it to pursue payment from a client if you have to pay an attorney as well.
9. Draft Separate Design and New Construction Contracts
Renovation contracts are subject to the Home Improvement Contractor Statute which can entitle a consumer to double or triple damages, attorney's fees, interest and costs if the law is violated. Design and new construction contracts do not fall under this law. For that reason alone, you need separate contracts. Clients also ascribe value to what they pay for. Design provides value, and builders need to get paid for it.
10. Document, Document, Document
All change orders should be in writing, signed by the parties and reflect any change in the contract price and date of substantial completion. Take pictures of your work in progress. Keep good records of signoffs on inspections and customer approvals. I'm not suggesting that every job should be treated as though it's going to end in a dispute, but unfortunately, in this day and age, you do need to protect yourself, be able to back up decisions that have been made and the quality of your work.
If you follow these resolutions, I guarantee you that you will end 2017 on a much better note than when it started.
*Email me your contracts and I will review them for free! I will then quote you a price for updating or drafting your contracts.