Paper Protection for Contractors by Arthur H. Skola, Esq.

Every construction job is preformed pursuant to some kind of contract. Usually the contracts are in writing. It is always strongly recommended that they be in writing. Commonly, state laws require they be in writing or require they have the contractor’s license number on the contract (which can’t be done if the contract is oral). Otherwise, the contract may not be enforceable by the contractor.

Although a lack of a written agreement is most often a problem found with small, unsophisticated contractors, it is also a problem for a surprising number of large contractors involving substantial dollars. For instance, two contractors may be “joint venturing” a job but only one has a contract and the other one a verbal “OK” to do the work. Or a contractor may be working one phase of a job and be asked to do work on another phase according to orally agreed terms. If a new contract or change order is not signed, the new work will be preformed pursuant to an oral contract. Sometimes there is a contract, but it is unsigned. The most common “oral contract” is one in which adds or subcontracts are not memorialized by a change order. Aside from the problems of enforceablity, even where the owner agrees to pay, if the terms are not written out, there is a lot of room for disagreement after the job is done.

For most contractors, the paperwork part of the business is the least enjoyable and most neglected. For larger contractors, having employees whose only job is to keep the paperwork in order and procedures established to make sure all work is properly documented helps enormously. Even so, when litigation over some dispute arises, it is usually because there is no written record of the work and terms regarding the construction in dispute. The one who most often prevails in litigation is the one who can show the most complete documentation.

Contractors must discipline themselves to keep everything in writing to protect themselves. Otherwise the “handshake” deal may turn into a cause for dramatic losses along with hard feelings and lost friends.

Copyright © 1996 Chilstead Associates