What to Put In Contracts, or Keep Out For That Matter Part 1

The value of a written contract depends on the contractor’s ability to have certain phrases placed in the contract that protects the contractor’s interest.  Sometimes it may be true to go to work with just a handshake and not have a written contract if the provisions are disadvantageous to the contractor.

Sometimes working with an owner on a handshake (which would be illegal with a home improvement contract) or between a subcontractor and a prime or direct contractor could have its advantages.  If there is a dispute, a properly licensed contractor working on a handshake can be almost certain that the law will award it the reasonable value of work actually performed. This would normally result even if the other party stated that there was no contract or that more was done than required.  The reason is that a judge or jury is almost certain to be impressed by the value of the work that is completed than by the supposed oral agreement that the contractor should be paid less than the value of the work done.  Actual work speaks louder than words.

Construction litigation often comes about because the contractor demand more than the other party is willing or able to pay.  When this type of problem arises, the unpaid contractor or sub would be better off without a contract than with a written contract with customary clauses giving the owner or the prime the right to withhold payment.

More often than not taking the interests of the parties into account, it is more advisable to use a written contract.  The parties can anticipate many problems that may arise during the job and by written contract attempt to resolve them in advance.  Preparing and signing a contract will more often than not force the parties to face these issues in advance.

One of the objectives of the law is predictability.  The law wants to make sure that it is clear enough that anyone consulting a lawyer will be able to predict the results of their actions.

A contractor starting a job wants to predict as nearly as possible what its overall situation will be at the end of a job.  Written contracts help the parties predict what consequences will occur or arise from particular events.

There are also a few instances where the rules of law that are applied in the absence of a written contract are simply unreasonable from the contractor’s point of view.  For example, the rule that a contractor on a lump sum contract must rebuilt the structure free of charge if it should happen to be destroyed by fire during the progress of a job.

Most construction contracts are standardized written forms.  Often these forms have evolved over the years.  When a contractor starts in business it usually adopts a form similar to one used by other contractor’s or the owner’s former employer.  After years pass and hard lessons are learned paragraphs and clauses are added and revised.  The final outcome is a mixture of paragraphs, phrases and clauses extracted from various forms.  Often the resulting contract does not fit together in a harmonious manner.

Contracts are often thought of as method of allocating risks.  One party tries to pass the risk to the other party.  An equitable contract is one that divides the risk of construction to the party best able to bear the risk.


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© 2013 Robert L. Bachman