There are several reasons for consulting with an attorney for your construction company. One key reason is to help you create contracts that will hold up in court – and to review contracts before you sign them. A good attorney (along with your accountant) can help you structure your business based on your specific tax and legal situation. An attorney can also provide advice to reduce the risk of being sued. In this article we discuss the many ways you can utilize attorneys and contracts for your construction business.
The Right Attorney
You want to select the right attorney for your construction business. That’s why you want to work with a lawyer who has a wealth of experience in construction contracts. It’s tempting to select your cousin Vinny or your divorce lawyer. Not a good idea. Hiring an attorney who has proven competency in construction law and contracts is the difference between having a company – or losing it. Why? Because a bad contract can sink your ship.
What is a Construction Contract?
A construction contract is a legal agreement between you and those you do business with. That can be a client, subcontractor, equipment lessor, etc. Whenever goods or services are exchanged between two or more parties, you want to have a legal contract. It has nothing to do with trust – you should have a legal agreement with anyone you are doing business with – including your own mother. It’s about clearly communicating the details of an exchange in writing.
Anatomy of a Construction Contract
All contracts have some basic aspects in common. But the law surrounding construction projects is specialized. In some instances you may need an attorney who specializes in particular types of construction contracts. For example, if you win a bid for a project with an IPD (Integrated Project Delivery) method. This type of contract is complex and requires an attorney with excellent negotiation skills. That’s why you don’t just have any attorney create and review your construction contracts.
Typical elements of a construction contract include:
- Full legal name, address, and contact details for all parties.
- Details of project scope including specific work to be completed, types and grades of materials, timeline, etc.
- Change order process. This includes the types of changes that can be made, how they are to be made, timeline for presenting cost and schedule impact, etc.
- Payment terms to include a cost estimate, initial deposit, and payment schedule.
- Warranty including the type of work that is covered and the warranty period.
The critical part of any construction contract is that it is signed and dated by all parties named within it. If not, it is not a “fully executed contract” and will not be legally binding.
Laws that Impact Construction Contracts
Here’s where construction contracts can get tricky. Where you are doing business and with whom can impact the legality of a contract. What’s legal in one state may not be legal in another. Working with a residential client is very different from working with a government agency. A construction contract with a state or local government may have different legal requirements compared to working with the federal government.
Cookie Cutter Contracts
For those who mainly do the same type of work for residential customers, a standard agreement may be sufficient for most construction projects. You can have an attorney create this “cookie cutter” agreement that can likely be used in 99% of the work you do. Small deviations can be added to the contract. For example, let’s say your client wants you to provide an extended warranty. You can just change “30” days to “90” days in that section of the contract. Just remember that anything that you cross out by hand and change in the contract should be initialed by all parties – in addition to signing and dating at the bottom of the contract.
When to Hire an Attorney
There are many occasions where it is best to at least consult with an attorney. Here are just some examples:
- To ensure that you are following all building regulations on a new construction project.
- You are considering filing a lawsuit against a client or subcontractor.
- You are not sure if certain regulations – such as environmental regulations – apply to your project.
- You want to ensure that you are following any federal employee hiring practices.
- A client brings a lawsuit against you.
- You want to ensure that local ordinances – such as noise restrictions – are followed.
Construction Business Formation
When you create a business plan for your startup you need to start thinking about how to structure your company. Your attorney can help you determine what’s right for you. You may decide to start out as a sole proprietorship with the intent to form a limited liability company (LLC) down the road. Or perhaps you’ve decided to go into business with a partner. Your attorney can create an LLC and create a partnership agreement.
The best way to utilize an attorney for your construction business is to talk to them before something bad happens. Think of your attorney as part of your risk mitigation plan for your business and projects. Many attorneys will provide a free consultation so you can determine if their services are needed in a particular situation. Or to evaluate if they are the right attorney for your needs at that moment. Work with an attorney who is experienced and, when needed, specializes in a specific type of construction contract or area of law. Whatever you do, it is best to not take construction contracts law into your own hands.