You Need a Contract

 If you’re a contractor, you need to use a written contract, that much is clear. Residential homebuilders should not even think about beginning a construction project without a signed, written contract. Aside from the requirements for contracts under Minnesota law, consumer groups are continually advocating to the general public that they insist on a contract when hiring a contractor. The Minnesota Department of Labor and Industry distributes materials stating that consumers should avoid those contractors that do not use detailed, written contracts. The Minnesota Attorney General’s website goes a step further to say that failure of the contractor to give the homeowner a written contract is a sign that the homeowner may be dealing with a con-artist. The building industry, as much as any other industry, requires a great reputation and perception of professionalism. Why chance looking like a con artist; especially considering that contracts can be drafted to provide amazing protections for your business. They detail the understanding of the contractor and the homeowner out front, which considerably decreases the chances that the parties’ relationship becomes sour due to unmet expectations.

 The real question is what form of contract you should be using. Many contractors are preparing spec sheets, having them signed by the homeowner, and calling that their contract. While this documentation is important in establishing the understanding of the parties, it does not address many of the issues that may arise in the course of your business relationship. I know, I know, you don’t want to take a 50 page book of legal mumbo-jumbo to your potential customer and scare them off, but a contract which is well tailored to suit your business and operating style can be effective in both protecting your business and making the parties comfortable with the project. The size of the contract will be a balancing act between protecting yourself from potential liabilities and expenses, and feeling as though you can give your customers the document without worrying they’ll run screaming.

 Whether you choose a very basic form or a more encompassing, complete form of contract, there are certain aspects which should be contained in every contractor’s agreement. First, it must include the name of the contractor (using the business name if you are an entity), and the contractor’s license number, as well as the name of the homeowner. It is vitally important that you know who all the owners of the property are when entering into a building relationship. The contract should also list the job location (nothing more embarrassing than building on the wrong lot). The most important aspect of these contracts is the description of the work to be performed and the materials to be used. In specifying these elements of the deal, you may refer to signed plans or specs as exhibits. This will decrease the apparent length of the agreement while giving you and the homeowner a clear picture of what is expected of you. You should be as detailed and specific as possible in setting out the work and materials. The contract should also clearly indicate the amount to be paid for the work, or the method used to determine the amount to be paid. It should show the schedule for the work itself, as well as the schedule for payment by the homeowner. The one thing no contract should EVER be without is the pre-lien notice to the owner. You are also required to give the owner a formaldehyde disclosure.

If you deal in larger projects or you want to take thorough precautions in protecting your business, you should include additional provisions addressing issues like change orders, unforeseen conditions, allowances if you use them in your operation, the use of subcontractors, homeowner obligations and waivers, and changes in material costs.

 So while the length of contracts may vary from contractor to contractor based on risk tolerance, operation and volume, and perceptions as to the attitudes of their customers, the need for a detailed contract is a constant for all contractors. It is important to examine your contract to determine if you are covered as well as you could be, or consult a construction attorney to review your contract or assist you in drafting a contract specifically tailored to fit your business practices and clientele.

Stefanie L. Brown is an associate with Rinke-Noonan and practices in areas of construction law, real estate and business law.