Episode 7: What Makes a Contract?

Episode 7 April 26, 2021 00:17:24
Episode 7: What Makes a Contract?
The Quit Getting Screwed Construction Podcast
Episode 7: What Makes a Contract?

Apr 26 2021 | 00:17:24


Show Notes

The contract is both the most integral part of securing work in the construction industry and is also frequently the most stressful part to wrangle with. 

In this Episode, Karalynn breaks down when you need a contract, what a contract should consist of, and how you can get a contract made or make your own. Do you always need one? Should you accept one as it is? When making your own, what pieces are most essential?

Listen in for this immeasurably helpful advice on contract construction and comprehension, and if you like what you hear, considering rating our podcast and following for more awesome industry insight!


Have Karalynn build you a contract: https://thecromeenslawfirm.com/karalynn-cromeens/

Buy Quit Getting Screwed: Understanding & Negotiating the Subcontract and do it yourself: https://www.amazon.com/Quit-Getting-Screwed-Understanding-Negotiating/dp/1544517734/ref=sr_1_1?crid=38GSIU8QWL3Y1&dchild=1&keywords=quit+getting+screwed+karalynn+cromeens&qid=1619454185&sprefix=quit+getting+s%2Caps%2C226&sr=8-1 

Check out our Website, www.subcontractorinstitute.com , to learn more about what we do.

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Quit Getting Screwed was recorded on Riverside.fm and is distributed by Castos.

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Episode Transcript

Speaker 1 00:00:12 Welcome to the podcast. We'll talk about everything related to contractors, construction and information to help you run better businesses. Speaker 1 00:00:24 Hey guys, this is Carolyn Crummins and welcome to the getting screwed podcast is today. I just wanted to take a minute and talk about the importance of having a contract. And even if you're signing somebody else's contract the importance of understanding it and having it reviewed and, and knowing what it says. So, uh, I always get this question is what amount justifies a contract? Like what dollar amount of work would justify the contractor? And there's this mindset that the smaller, the dollar amount, the less likely you need something in writing. Uh, but I think the opposite is true. The smaller, the doubt, the dollar amount, the more clear you need to be about what work is being done and the price, right? And so even if it's just a small purchase order or, you know, your bid form and somebody signs off on it, the smaller the project, I think the more important something in writing is, and here's why, because no matter we are all different people and we all have different perceptions and our perceptions are based on the things that happen to, to us in our life. Speaker 1 00:01:32 So as well as you think, you try to explain something to someone verbally, they're always going to have a different perception of what's expected. And the best way to clear that up is by having something in writing. So even I find that the smaller projects are more important to have something in writing, do something that clearly says what's expected. I had a client come in, not that long ago. And he had a guy that wanted to redo his roof for cheap price. And my client said, I'll provide the labor and I can get this great deal on these shingles, but they're all going to be different colors. Um, you know, they're, they're going to be a good quality, but they're not going to match. And the, and the guy's like, oh, that's fine. You know, I can get a roofer, you know, 2000 bucks I'll do that. Speaker 1 00:02:19 And so my client, you know, gets the mismatched shingles, takes the time and goes and puts a new roof on. And it is like six different colors, you know, quite shocking when you see it, right? Like, um, I don't think the owner understood what my client meant by mismatched shingles. And so of course, when it's all done, you know, my client did it for cheap. He didn't make any money. Who's just trying to, you know, help the guy out. My client gets sued because this roof of mismatch singles does not look like a quality product or something that anybody would do on purpose. And my client had to redo the roof for free because he didn't have anything in writing saying, Hey, this was our agreement. You agreed to have these mismatched shingles. So the smaller, the, the thing, especially if you're doing something outside of what you normally do, definitely have it in writing and signed off on. Speaker 1 00:03:09 You know, like I said, it could be a PO written from home Depot, like a purchase order form. Uh, but guys, it's not that expensive to get a contract written for your specific business. I mean, at the chromium's law firm, our flat rates for contracts start at $1,500. And we're going to ask you questions about the work that you do. What's important to you, um, you know, and fill it in specifically for your company. And then we'll have, you know, all the legal ease. But what I try to do with our contracts is make it in plain English. So yes, you're going to have everything you need legally to be required, but you're also going to be able to understand what is in your contract. And so will the person signing it. So, you know, if they ask you, what does this mean? You'll be able to tell them, I think it's so important that we be clear on the expectations. Speaker 1 00:03:59 You know, Bernay brown has a saying clearest kind, right? And that goes for all transactions and all situations I'm being clear with. What's expected, you know, the work that's going to be done, how much I'm going to be paid. What I'm going to be paid is the best thing you can do. Um, you know, having something, your client signs that they don't understand, or that you don't understand, isn't going to turn out well for any party at the end of the day. So really take the time. If you're going to be in the construction business and you're going to need a contract, you're not signing other people's contracts to take the time and spend a little bit of money that it takes to get a good set of contracts. There's nothing better. I can go through case study after case study of people that didn't have good contracts, or weren't clear on their scope of work, getting sued time and time again. Speaker 1 00:04:44 And they're all like, well, I told him, and let me tell you something. If you have to say, I told them, I told them as part of the story, that's not a good story to have, you know, you want to be able to show them. Here's where I told them it's in writing, it's in our contract because if their dispute comes, guess what? Yeah. I told them, and they're going to say, no, you didn't. Or you told me this. And it's he said, she said, so spend the time, get everything in writing, get a good set of contracts. Now, the second thing that happens in the construction industry is you have to sign somebody else's contract. And I know as a subcontractor or somebody who's working for a general, there's not a lot of negotiating power. I get it. But even if you can't negotiate, understanding what you signed is so important. Speaker 1 00:05:31 So here at the chromium's law firm, we do it for a flat fee and affordable price. The starting rate for contract review is from one to 15 pages, and it's a flat $550. And for that price, what do you get? You're going to send the contract to over to us. We're going to go through and we're going to highlight, Hey, both, Hey, here's the things that you need to do that you might not know. And here's the things to watch out for and try to negotiate if you can. And we're going to give that to you and we're walk you through it and we'll answer all your questions and explain it. So at least, you know what you're signing up for, because you need to know where your company has risk and what you might be exposed to with signing a contract. Especially if you're signing somebody else's contract, it's usually for a larger dollar amount. Speaker 1 00:06:16 And the risk is high. The risk to your company is high because at the end of the day, if you breach that contract or you can't perform under the terms of the contract, it's not like you can just walk away. You don't get just to leave and not do the work because here's what happens. If you breach a contract, you've walk away. You don't finish your work for the price that you said, whoever hired you is going to hire a replacement contractor, right? And if it costs them more than what they would have paid you a little bit, a lot, they'll come after you for the difference. So when you sign a contract is a promise is a promise. You're going to do that work for that price. It's a very serious thing, because if you don't and whoever hired you suffers damages because you didn't fulfill your promise. Speaker 1 00:07:04 Now you have to pay them back those damages. So let's be clear and let's understand what we're signing. A lot of subcontractors thinks that there's some set of rules out there that protects them when they're signing subcontract. There's not whatever you sign in. A subcontract will be used against you. So make sure you understand what you're signing. And at the end of the day, it is not enough just to do a good job, right? You find somebody else to subcontract doing good job. Isn't enough. You have to know what that contract says, and you have to perform all of those things under that contract. Like, are there daily reports required? Um, do you have to do submittals? You know, what is required throughout the project ongoing that you need to do? Because guess what? Failing to follow any one of those means you're in default under the contract. Speaker 1 00:07:53 And if you're in default there, they don't have to pay you. Um, there's a whole plethora of things. So knowing all the little details in there that you agree to sign up for, like, you know, most contracts say you have a safety plan, say you have an employee manual. Those things can be requested on demand because you've signed that contract that says you have it. And what are you going to do when that happens? And you don't have that, you know, here, the Chrome is law firm. We can help you get all of that ready for one for a flat fee and have everything set up the way you need to Sophie, if that's requested from you, oh, no big deal. Here it is. You know, I have it. I'm ready to go because I read my contract. I know what I need to do. Speaker 1 00:08:30 I know what's required. So, and then some of the other provisions that you're going to want to watch out for, or try to negotiate, which I, you know, I have the book quick getting screwed. That goes in-depth and all these are the subcontractor Institute. If you want to learn more about it on your own and get the forms, um, there's a whole set of classes there, but pay when paid clauses, right? What does that mean for your business? The question is if there's a pay one pay clause in there, which is the whoever hired you, the general contractor doesn't have an obligation to pay you until they get paid from the owner. You have no, absolutely no control over that. The owner could go bankrupt. There's tons of reasons why the owner wouldn't pay the general. So the question is, can you afford to float the entire contract amount while the project's going on? Speaker 1 00:09:17 Can you go forward to put out your guys every day to go do that job? Can you afford to pay for the materials that's going to require without getting paid? Because even with the pay, when paid clause, if you haven't been paid, you don't have the right to stop working. So you need to finish your contract and maybe not get paid at all. That's the risk that you're facing when you sign a subcontract or any contract with a penguin pay clause. So try to negotiate it. If you can't negotiate it, you know that this is a financial risk. And can I take it? Um, you can go in and formed that the reverse side of that is that you don't go informed. You don't realize it. And for some reason, the owner is delayed in paying the general contractor six months. It's not your fault, but you don't get paid for six months and you still got to keep working. Speaker 1 00:10:01 Can you float that amount of time? Can you float that, pay for your guys, pay for your material. So knowing that's in there and it's in most of them and what the terms of it are, are huge. And, and is there a way you can get around it? Um, you know, there are some ways, um, by state law that you can send a letter saying you don't want her to apply to you. And it won't. Um, but knowing that before you sign, the contract is huge. You need to know the risk. Does your contract require a bond? And how do you get one of those? And what is that? I mean, one of the biggest things is that to understand is that a bond is not insurance. A bond is basically a personal guarantee of your performance under the contract. And if you don't perform one of the contract, whoever you have a contract with is going to file on your bond. Speaker 1 00:10:51 And if the bond company pays out, you'll have to pay them back. And if you signed up an agreement with the bond company, it's not only your company assets, it's your personal assets that are up for grabs to satisfy that amount. So does your contract require bond knowing what that is before you signed? We can all explain that all to you. You know, even if you don't have a bond, some sub contracts that I've seen have a personal guarantee, don't ever sign that unless you're getting a bond. And those are normally just for federal projects. There's no reason to personal guarantee the work you do under subcontract, and they'll sneak it into the bottom. There'll be like three signature lines. One for the contractor. One for you, the subcontractor one for the guarantor that has your name on it. Don't sign that, cross it off and send it back. Speaker 1 00:11:33 There's there's need to have a negotiation that it's not industry standard. It shouldn't be required. Don't be wrong if you sign it, obviously they'll take it from you and they'll use it against you. So I'm just brushing the surface of what is in these contracts. That can be so dangerous. Like I said, I understand that you may not have a lot of negotiating power. You have some, but even if you don't have any, just knowing what you, what you've agreed to is essential. You know, there's truly an honestly, no reason that these contracts have to be in a format that the everyday person couldn't understand them. And that's what I'm on a mission to do, to make the, to make the contract in plain English, you know, uh, being clear as kinds. That's what you want. And you want to be able to understand what you're signing in a contract. Speaker 1 00:12:18 And there's no reason you shouldn't, um, it's kind of unreasonable to have to sign something you don't understand to go to work and something you don't understand that could eventually, if you don't follow all the provisions, right, puts you out of business. So I say all that to say, number one, no matter how small the project have something in writing, if you're going to be in this business, in the construction industry, and you're going to have to draft your own contracts, it is worth the money to have a good set of contracts. Like I said, we have starting rates at $1,500. You can budget that in, and we're going to get to know your business and draft a contract specifically for you. If you're not drafting your own contracts, you're signing somebody else's. We don't understand what it says. We can help you do that too, for a flat fee, but it is essential regardless. Speaker 1 00:13:07 So you understand what you're signing and understand that the risks that you're taking and understand that it's not always negotiable, but it will help you substantially learning the risks that are in those things. So at the end of the day, guys, we're here to help at the chromium's law firm. I have classes that go further in depth in all these areas and things to watch out for in the [email protected], as in align with a quick getting screwed podcast from is developed to help people in the construction industry grow better businesses. And I think it's important that I put in there that I know what that means, right? I know what, what you need to run a better business. Because growing up, I worked for my uncles that run sub contracting businesses. I worked for my uncle that ran an irrigation company. I saw the struggles that he had signing contracts. Speaker 1 00:13:59 He didn't understand and trying to get paid on time. Um, my grandfather's company was an excavation company that ended up going out of business because he didn't understand his lien rights. You know, the family, the mom, and pop businesses that these are the businesses that I'm trying to protect. What I like to call the, get shit done, tribe. That's what we are. And you deserve somebody to help you run a better business from the legal side. And here's the thing is that you should be able to understand what's going on and make informed decisions about the growth of your company from the legal side, as far as your collections, your contracts, there's nothing that I do or any attorney that does it. They shouldn't explain to you what's going on. So you're fully informed, you know, and then when I was in law school, I started a material supply company and I've never worked so hard in my life, go into the office at four in the morning and working all day, you know, out in the warehouse, doing whatever it takes to get it done until six or seven in the evening. Speaker 1 00:14:58 I know how hard that is. I understand the time away from your family, that time away from everything else, just to focus on this, to put food on the table and that deserves to be protected. And when you're working that hard, you need a partner. You need a partner say, Hey, um, should I sign this release? And I need to know now because I really need this check. So I can make payroll at the end of the week. You know, I had, I had a worker hurt on the job. What do I need to do all of these things? I needed a good employee manual. All the things that, you know, we learned, I learned the hard way about running a business. If you come to me, we can set it up on the front end. So you don't have to learn those lessons that way. Speaker 1 00:15:37 Um, you really need to know the difference and I'll have a podcast on this later on between an employee and a contractor. It doesn't really matter what you call them. It matters what the IRS calls them. And if you do it wrong, you can get sued in federal court in a class action, brought against you. And I'm not talking about a big company. I'm talking about the mom and pop shop that has three guys that, you know, um, doing electrical work. It can happen to you a certified class, and they get to go look at all of your past three years of records and, and bring in all those employees that ever worked for you, or send them notice that there, that they potentially have an overtime client because you call them subcontractors, but the law calls them employees. So these are all things that you need to know. Speaker 1 00:16:22 If you're going to go run your own business and I'm here to help. And that's what we're here to do to help protect you from those things, keep you out of the courtroom, federal court, or any kind of court, um, and may help you make an informed decisions on how to better run your company. Like I said, that starts with having a set of contracts that you understand, and if you're signing somebody, else's understanding what it means. So feel free to look us up. Chrome means law firm.com or the subcontractor Institute. And thank you guys for the time. And I look forward to seeing you on the next podcast. Thanks For listening to this episode of put, getting screwed. I hope you found it helpful if you like what you hear, please like us and follow our podcast. We want further information. So you can find [email protected] We're also on Facebook, Instagram, and the book is available on Amazon. Now for new episode,

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