Preventing Problems & Minimizing Contractors’ Risks

Strategies to Help Contractors be Proactive, Prevent Legal Problems and Minimize Risks

According to Albert Einstein, “intellectuals solve problems, geniuses prevent them.”  Sure, we all know it’s better not to have a problem in the first place, but the question is, how do we prevent it?  Of course it’s impossible to ensure that disputes will not arise; it’s a given that those in the construction business will encounter some bumps in the road.  There are, however, some simple strategies contractors can employ to minimize their risks.

Hindsight is 20/20

Why is it so easy to be a Monday Morning Quarterback?  Because we know how everything played out and therefore can see with great clarity what should have been done differently and how.  It would be nice to get a do-over sometimes, but that’s generally not an option in the construction business — or in any business for that matter.  The next best thing is to take affirmative steps to help prevent problems from arising, and to protect your interests in the event of a dispute.

Tips for Contractors

  1. Paper-trail everything; email is a great tool for this.  If you have an important conversation with someone, send that person an email summarizing the discussion and confirming anything that was decided.
  2. Keep your own personal record of dates and facts about each job so that if a problem arises, you won’t have to recreate the factual history and timeline.
  3. Cross your “T”s and dot your “I”s.  Make sure that all documents requiring signatures are signed by all parties, and that you have a signed copy.  Make it your regular business practice to obtain signatures on all change orders before you do the work.  It’s too easy for an owner or General Contractor to refuse to pay for a change order on the basis that it wasn’t signed; and most likely, your contract requires a signed authorization for payment.
  4. Keep good records; they should be thorough, accurate and organized.  Keep copies of all documents pertaining to each job.  Keep your records in order so that you can easily access anything you may need.  Seek help from a financial professional in order to maintain complete, accurate financial records.
  5. Make sure you and your subcontractors have all required certifications and registrations.  Pay attention to any special requirements under your contract for any subcontractors you hire, and verify that they have the required documentation.  Failure to do so can cause major problems, such as losing a bid on a job.
  6. Keep your insurance policies, including worker’s compensation insurance, up to date.  Even a one-day lapse in your worker’s compensation insurance policy can cause problems, such as the issuance of a Stop Work Order and hearing before the Department of Industrial Accidents.
  7. Stay up to date on changes, developments, and trends in your industry.  This is especially important with regard to highly regulated and changeable areas, such as the environment.   Staying on top of trends, such as trends toward using sustainable building materials and practices, can help commercial builders plan accordingly.  For holders of professional licenses, it’s important to be aware of the current regulations and requirements that pertain to your work.  If it’s been a while since you first got your license, it’s a good idea to make sure you’re up to date with industry standards.
  8. Submit your invoices promptly to avoid claims that you waited too long.  Don’t give anyone an excuse not to pay you.  Again, be sure to consult your contract for deadlines for submitting payment requests.
  9. Follow up your unpaid invoices with demand letters.  Demands can help to clear up any misunderstandings between you and the other party as to the amount due.  Demand letters will likely be taken more seriously than a duplicate invoice, especially if you threaten (legitimately) legal action.  They will also preempt any argument that you never asked for payment.  You can draft your own demand, but if you get no response or an unsatisfactory one, a demand letter from a lawyer will carry more weight.
  10. Enable yourself to recoup attorney’s fees by including in your proposals and contract documents a provision that if the other party defaults on the payment obligation to you, and you have to take action to enforce it, then the other party is responsible for all costs of collection including reasonable attorney’s fees.  In other words, if you have to chase them to get paid, they should pay for the cost of the chase.
  11. Remember that “a stumble may prevent a fall.”  We all make mistakes.  Learn from them so that you don’t make the same mistake again, or one that’s even worse.  Did you once forget to include an attorney’s fee provision in a contract?  Make sure to add it to your list of must-haves for the next contract.  Have you ever continued to work for someone who promised progress payments but never followed through, leaving you with a large, unpaid bill at the end?  Next time, be sure to insist on timely payment as the job progresses, and don’t let the balance get too large.  If you encounter trouble, this is one of those times to consult a construction lawyer early on.
  12. Contact us as soon as you realize there is a potential for a dispute to arise.  We can inform you of your rights and obligations, and advise you how to proceed.  At your request, we can become involved in discussions and negotiations at an early stage to try to prevent problems from arising, or from escalating into something more complicated and costly.  In cases where a mechanic’s lien may be useful, it’s important to talk to a construction lawyer early on to ensure you don’t miss the strict filing deadlines.

Be Consistent

While these suggestions may sound obvious – and many of them are – the key to successfully implementing them is consistency.  One small, seemingly insignificant error or omission can blossom into something costly and unwieldy. Contact us for more information.  We regularly help our construction law clients with contract negotiations and drafting, and resolution of construction disputes.