Today, we’re diving into a crucial topic for anyone in the construction industry: common legal issues and how to handle them. Whether you’re a contractor or run a construction company, navigating legal challenges is part of the game. But don’t worry, we’ve got you covered with insights and strategies to help you stay on top of these issues.
When it comes to legal issues in construction, two major problems often arise: inadequate contracts and disputes over payment. Let’s explore these in detail and see how you can address them effectively.
One of the biggest issues contractors face is the lack of proper contracts. We typically find folks fall into two categories.
First, there are those who have no contract at all. They rely on whatever pops out of QuickBooks as their estimate, with no terms and conditions in place. This can lead to numerous issues down the line, as there’s nothing to fall back on when disputes arise.
For smaller contractors who don’t have contracts set up already, the solution is simple yet powerful.
Invest some time in creating a one-page terms and conditions document. This can be attached to your proposal, either as the back page or the second page. Having a lawyer prepare it won’t cost much—usually between $1,000 and $1,500.
This document should cover essential terms like the right to stop work if you’re not getting paid, access to the site, indemnity, and insurance. These terms will protect you from common pitfalls and provide a clear rulebook for resolving issues.
As contractors grow, they often encounter a different problem. Instead of using their own contracts, they are handed contracts by the other party. Many make the mistake of signing these without proper review, fearing that making changes will cost them the job. This can lead to signing off on unfavorable terms buried in the fine print.
Always review contracts thoroughly and negotiate the terms.
Everything in the contract is negotiable. If you don’t push back on the terms, you might miss out on getting the best deal possible.
Confirm the price, scope, and schedule, but don’t ignore the terms and conditions.
To assist contractors in navigating contracts, Alex Barthet, Construction Law Expert recommends a fantastic tool called the Contract Detective. This tool, primarily designed for Florida but applicable to other areas, allows you to upload a contract up to 100 pages long.
Why he recommends it:
In about 60 seconds, it highlights the most dangerous sections and provides links to videos explaining each provision and suggesting changes. This free tool can help you understand your contracts better and avoid potential pitfalls.
Legal disputes are another common issue in the construction industry. The best way to handle disputes is through thorough documentation. The party with the most comprehensive documentation usually wins the dispute.
Documenting your project well is critical. Keep detailed records of emails, meeting notes, photos, and videos. This documentation will support your position in any dispute.
For instance, if a disagreement arises about the work done, having before, during, and after photos can be incredibly persuasive.
One of our clients faced significant issues because their previous bookkeepers didn’t track expenses properly. They were wrongly invoicing clients and had poor records, leading to payment disputes.
We stepped in, audited their projects, and provided clear documentation. This preparation allowed us to negotiate a favorable settlement. Proper record-keeping and clear communication could have avoided the legal system altogether.
Change orders and compliance with building codes are areas where many contractors struggle.
Change orders can be a source of disputes if not managed properly. The biggest mistake contractors make is starting work on a change order without getting it signed. Always get a signed change order before beginning any additional work. This keeps the pressure on the client to approve the work and prevents delays on your end.
Explain to your clients that you’re ready to start the additional work as soon as the change order is signed. This puts the ball in their court and ensures that delays are due to their inaction, not yours.
Ensuring compliance with building codes and obtaining the necessary licenses is crucial. Cutting corners can lead to severe consequences, including fines and legal troubles.
Alex Barthet shares with us a story about a new client of theirs in Florida who hired someone to pull permits for him without proper qualifications. This illegal practice could have led to significant legal issues.
Talk to a professional to help you get set up correctly from the start. It’s much cheaper to do things right initially than to fix problems later.
One of the hottest topics in construction is how to address payment disputes and ensure timely payments. Here are some strategies to help you stay on top of your finances.
Start with a clear contract that defines payment schedules. Train your clients to respect these timelines by being firm about payment due dates. If payments are due on the 15th, follow up on the 16th if they haven’t been made. Consistent follow-up will train your clients to pay on time.
Understanding and securing your lien rights is critical. Each state has specific lien laws that contractors must follow. For instance, in Florida, you need to send a notice to the owner within 45 days of starting work. Missing this step means you can’t file a lien later, even if you’re owed money.
Use resources like Sunray Construction Solutions to stay informed about lien laws in different states. Their website provides detailed information about the lien rules for each state, helping you secure your right to be paid.
Navigating the legal landscape in construction can be challenging, but with the right strategies and tools, you can protect your business and ensure smooth operations. From drafting solid contracts to managing disputes and ensuring timely payments, these tips will help you stay ahead of potential issues.
If you’d like to learn more about common legal issues in construction and how to handle them, check out our YouTube episode with Alex Barthet, expert in construction law. It’s packed with valuable insights and practical advice that can help you navigate the complexities of construction law.
To learn more about how Beyond Books Solutions can help you with construction accounting or to schedule a call, get in touch here.
