BOTTOM LINE
Limit your risks and liabilities Tailor key contract provisions to your company’s needs
A
s a contractor, a well-written contract is your strongest defense against potential risks and liabilities and can help avoid entering into disputes with customers. So let’s review some of the key provisions that should be built into every contract: Scope of work: It is important that your scope of work is clearly defined in your painting contract. Often, plans and specifications are referenced in the scope of work section of a contract; review those carefully before you agree to adhere to them, remembering that all painted surfaces may not be shown in plans, such as the underside of balconies, so estimate accordingly. And if a contract’s scope of work broadly references plans or structures to be painted, spell out exclusions in your scope of work that cover what you will not be prepping or painting. Payment terms: Payment terms outline both the timing and the amounts you are paid, and are key in any contract. On larger projects, you can set up payment for when you hit certain project milestones, like completing a floor or a structure. You can make payment due within a given amount of days of completion of painting or achieving a specific painting milestone. There can even be interest provisions whereby you charge the customer interest for late payments; however, check the statutory interest rate in your jurisdiction before implementing to make sure your interest charges would not be considered usuary, meaning too high of an interest rate for your jurisdiction. Change order process: If a customer asks you to do work outside of the agreed-upon scope of work, or wishes to modify your scope of work in any way, a written change order will help protect your interests and ensure that you are paid for the additional work. If the additional work will increase the amount of time to complete a project, you will want to have additional contract days included in your change order. Having a written change order process laid out in your contract will help you and your customer navigate extra work or changes in your work, including the costs, payment and extension of time associated with the change in the scope of work. Indemnification: Indemnification provisions can protect both you and your customer for the negligent acts, errors and omissions of the other. But your indemnification provisions should not require you to indemnify another party such as the owner, or another subcontractor for their own negligence or acts.
Termination: A good termination provision will allow you to terminate the contract when it is no longer practical or beneficial for you to continue the project. Most commonly, this type of provision allows you to terminate the contract for nonpayment issues, but there can be terminations for convenience as well. In terminations for convenience, you want to make sure that you are paid for the work you already performed on the project. Be on the lookout for termination for convenience provisions that convert your painting contract into a ‘cost-plus’ contract, which would convert your flat-rate deal into the costs of your work plus a fee. If you have a substantial profit built into the project, you will likely not benefit from a conversion to cost-plus. Delay damage: Look out for delay damage provisions as well. Liquidated damages usually come in the form of a per-day monetary damage figure that you will be charged for every day that project completion is delayed. Liquidated damage provisions can be very costly on certain projects. To be legal, they must be related to a reasonable estimate of what a party’s damages may be if a project is delayed. For example, if it is a restaurant project, the liquidated damages can be tied to the lost revenues for every day the restaurant is not open. If you word a delay damage provision in your favor, it can pay you your extended overhead and impact costs if a project is delayed through no fault of your painting company. In conclusion, always be aware of the terms of any contract you sign. If you are using your own contract form, address the scope of work clearly and ensure that the payment terms and all important categories mentioned here are spelled out and are tailored to your company’s needs.
RYAN MARKHAM, attorney at Cotney Construction Law, has extensive experience with delay claims, liens, defects, bid protests, contract drafting and review, and OSHA defense. CotneyCL.com
Jan/Feb 2021 | inPAINT
31
