Episode 46: Do I Need a Residential Contract?

Episode 46 July 11, 2022 00:19:50
Episode 46: Do I Need a Residential Contract?
The Quit Getting Screwed Construction Podcast
Episode 46: Do I Need a Residential Contract?

Show Notes

WE'RE BACK, and we're kicking off season two with an episode for our Residential construction listeners! Karalynn breaks down why residential contractors need a contract on every project, no matter how small, and how that contract functions to support and protect contractors in today's residential construction market. Your contract is your best protection against problems on the front-end, and your best defense against a lawsuit on the back-end. Find out how to use it to your advantage and tune in to this information-packed episode!

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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 00:00:11 This is Carolyn ING. Welcome to the quick getting screwed podcast, where we talk about everything related to contractors, construction and information to help you run better businesses. Speaker 2 00:00:24 Hey guys, this is Carolyn CRO means. Welcome back to the quick getting screwed podcast, where we talk about all the ways not to get screwed in the construction industry. Um, as you may or may not know I've been a construction litigator for the last 17 years and really familiar with, uh, residential construction projects from both the homeowner side and contractor side have represented both. Um, and so seeing that perspective gives me a unique position to help give you tools to not end up in that position, right? Cause that's the name of the game. Nobody wants to end up in lit litigation. It's entirely too expensive and takes too much time. You should have better things to do with your time and your money and by investing in your business. So the question I always get, especially on the residential side. So this episode's mostly is mainly for my residential contractors. Speaker 2 00:01:15 We're gonna dive into, um, why you need a contract. And then, um, the second is the two part series. The second part will be what terms you should include in your contract. So I was here, well, my job only last a day or two days, I really don't need a contract. Right? Let me tell you that there is no job too small for a contract or something in writing, explaining the terms. And let me tell you why, because, um, the most expensive arguments you can get into are the ones that don't have anything outlined as far as what work that you agreed to do, right? So, um, imagine you were hired by a client to replace the door. You said, I'm gonna come replace this door, um, at a client's house and you do, and then the client gets it and they're like, Hey, this is not the door I wanted. Speaker 2 00:02:04 I wanted, you know, exterior grade would door and you didn't provide that. And so then you get, you get in a big lawsuit and you get sued and you're putting on your evidence that, you know, I told them this and, and the other side puts on their evidence and then guess who gets to decide a judge or a jury that wasn't there that knows nothing really about construction, generally speaking. Um, but that does own a home and is a homeowner. So probably they're gonna have sympathy for the homeowner right off the bat. And, um, they don't get to decide like, based on anything in reality, but they're judging credibility. How are you as a witness? Are you believable? So this thing gets pulled way out of proportion and anybody. And she could, you know, the homeowner could say, no, they, they were hired to, um, you know, redo the whole side of my house. Speaker 2 00:02:58 And all I got was this door. So there's no limit to what can happen in a situation where you don't have something in writing. So, um, even if it's just a small purchase order or something in writing an email chain, it's better than nothing. Um, you know, getting a PO from office Depot or just something in writing and like, and even for those jobs you're doing as a favor or for charity say, Hey, this is, you know, this is what I'm doing. I don't expect to be paid, but I want you to know exactly what I'm, what I'm gonna get into. Cuz I've seen several of those projects go south too. And you're like, I was doing this work for free. Uh, but they expected way more or what you did was not what they thought and they got sued. So these, you know, these battles without anything in writing can get extremely expensive and time consuming. Speaker 2 00:03:48 And it's not even, you could walk away from your money, that's fine and say, Hey, I, you know, I'm just not gonna get paid, but then you could get sued because they expected something more and you have nothing to defend you, especially in those situations. Like I have contractors too that try to take projects that are outside their normal scope, right? So I have one, one client that is, you know, builds houses. That's what he does, HES, a residential custom builder. Um, and for this one project, he was just going to be a construction manager. He was going to help the owner, manage the trades, hire them, you know, and just watch. And he got paid like an hourly rate to do that. Uh didn't and he's like, well this is outside my scope. So I don't need, you know, I, all I have is a residential build contract. Speaker 2 00:04:32 I, I don't, I'm not gonna have him sign anything. Um, and so towards the end of the project, the homeowner says, oh, Hey, I got it from here. Um, and then the owner deals with the roofer and things go south between the owner and the roofer. And actually what comes to find out is that my client, as a construction manager hired the roofing company, the owner didn't didn't have the actual contract. And so my client gets sued for nonpayment because the owner never paid them cause they weren't happy with the roof. And oh, there is a signed contract with my client as a construction manager. And I got no agreement to show that I was only the construction manager. So now it looks like I signed this contract. These guys didn't get paid and now I'm on the hook to pay it. And um, it's gonna be a really expensive fight because I don't have an agreement that just says, Hey look, I was, I was the construction manager. Speaker 2 00:05:25 What it looks like on paper is that I hired the roofer. The owner hired me and I should pay the roofer because the roofer doesn't have a contract with the owner. They have a contract with me. Um, so not to say that they're gonna win at the end of the day, but the fight to get to prove, you know, that we were only a construction managers going to be expensive one, right? The owner's not stepping up and saying, Hey, you're right. You were only the construction manager. Let me go ahead and take care of that. No, um, they, they didn't step in at all and they wouldn't step in, but we had to counter Sue them. Um, so just beware, you should always have an agreement, no job too small. And especially when you're going outside, something you don't normally do. Um, and then all of these situation guys, what I always tell my clients too, is that trust your gut. Speaker 2 00:06:16 If you know, on the front end, there's something's wrong. Or so there's something that just doesn't feel right. This is not the job for you. Trust that, let somebody else deal with the problem because it doesn't ever get any better than when, when you first start the project or when you first meet to do the estimate. So, uh, trust your gut, trust your intuition's a huge part of this dealing with people. So even if you have to have something in writing, if you are a repair guide and in and out in one or two days, you probably don't need a full seven or eight page contract, but you still need terms and conditions, right? These are, you know, probably one or two pages, uh, double columns that you can attach to the back of, you know, your work order or put in your platform. If you're using some kind of platform, uh, cloud based system to keep track of your stuff that the client just signs off on. Speaker 2 00:07:03 Um, just, you know, the residential language that required by your state, you know, and we'll get into some of the other things that need to be in there, but just terms and conditions, nothing too, too, too detailed, or, you know, too in depth that would, that would, you know, freak out the, an overly cautious homeowner. Cause I know that's always the big, well, my homeowner's not gonna hire me if they gotta sign this huge paper that they don't understand. Right. Well, we'll get into that in a second, but you know, having something in writing is essential to the success of your business. So just keep that in mind. All right. So besides one or two day under, you know, under three or $4,000 terms and conditions, we can get away with just putting it on the back of your, per of your work order. Now, anything over that would require a contract, uh, in my opinion, and what is the purpose of contract? Speaker 2 00:07:57 I think this gets lost in, in, in just, you know, I know I need a contract, but I really, you know, I just pulled one from offline. I really, I really just, you know, I know I need to have one, but I think there's not a lot, lot of thought given to what is the purpose of a contract? The actual purpose of a contract is to manage the party's expectations. So what does that mean? That means you go and give a homeowner an estimate. You're gonna do the remodel of their kitchen. They have a set of expectations in their minds about how this project is going to go. Don't be wrong. It's not based on anything that's real and live or going on in the construction industry. It's someone told them this, their, you know, their father-in-law said, if it should be done in two days and it should go like this. Speaker 2 00:08:44 Um, and those are the expectations that your work is going to be judged against unless you clear that up. Right? So the whole purpose of the contract is to say, Hey, um, this is, you know, this is the work that you're hiring me to do. This is how it's going to go. This is how we're going to interact with each other. This is when I'm gonna expect payment. Um, just being very upfront about the relationship between the parties and, you know, you know, just being upfront about how we're gonna work together, what, what you expect, what they can expect. Um, you know, as far as, you know, especially putting in punch items and we'll get into specific terms of what you should have in your contract in the next episode, but the purpose of a contract is to manage expectations. And so what does that mean? Speaker 2 00:09:31 That means legally is not required, right? Um, legalese is not required from a legal standpoint and it's definitely not required from the purpose of the contract is to manage expectations. Because if you don't understand what you're assigning, it is not going to be successful at managing, managing anything, right? So really your contract needs to be as plain English and as possible. So what I've done when I created my, you know, standard outline for a residential contract is I drafted it, put the general terms and conditions in there. And then I gave it to my marketing department who knows nothing about anything legal, but, um, and I said, let, let me work on this draft until you can understand it, right? Let's bring it down to somebody. You know's gonna sign this contract that they're gonna understand what they're signing. Your contract should be something that you can understand and your customer can understand if they have questions, you can, you can explain to them what this means and why it's in there, right? Speaker 2 00:10:32 Um, because if nobody understands what they're signing, you just sign it to be protected legally. Then it's not doing its job. If we're at the point of, um, we're looking to see what the contract says to see if you know, we're screwed legally or not, then the contract has failed, right? We should never get to that point. And I can tell you some of the, the biggest thing that I see that goes wrong on projects is the lack of communication and understanding the homeowner didn't understand that the project was gonna go this way. Um, and they got mad when it did go that way. And that's when they sent demand letters and they didn't understand that, you know, there's a punch process at the end of the, at the end of the job. So, you know, small things along the way will be corrected at the end, just letting 'em know how everything goes. Speaker 2 00:11:18 If you can do up that on the front end, that will stop 90% of the reasons why people get sued. I promise you, um, so spend the time to have an in plain English contract. Uh, and then another thing too, a, a contract is a living and breathing thing, as things happen, update your contract, right? Um, there are things that are trade specific that I'll, I'll, I'll recommend that you include like landscapers, you know, that a maintenance is required or there's no warranty. I mean, stuff like that. Another thing that I always try to put in my contracts is that if you wanna put a sign in front of somebody's house, while you're working on it, we include that in the contract. Um, then you're not responsible for pets that get out. That's another great thing to put in the contract because you don't wanna be, you're gonna do your best efforts to make sure that doesn't happen, but you don't wanna be responsible for when that happens. Speaker 2 00:12:09 So, um, it's called skin needs. Like if you learn something, um, something goes south and you don't want to experience that again. So we will make sure and write that in that your contract, if you need language. But honestly guys, the Mo the more plain English, it can be the better because number one, customer understands it. And two legally the judge or the person that could end up interpreting your contract is a, is maybe a lawyer or maybe a judge, but they understand planning this just as well. And there's nothing, nothing that can't be said in a way that's understandable. There is no magic language that's required to protect you or to protect the homeowners. The best thing you can just do is be up front in plain English. Here's, here's how this is gonna work. I promise you, um, you'll be in a lot better position if your contract does the job it's supposed to do and manage expectations, not just protect you, if shit hits the fan, right. Speaker 2 00:13:13 We're trying to prevent shit from hitting the fan. Um, and that can only be done if, if expectations are properly managed. And then two, I can tell you that all 50 states require something different when it comes to residential contracts. Now, commercial contractors, they really don't care about, you know, it's, you know, survival of the fittest out there, but there's always some level of protections put in place for homeowners because they're not commercially savvy. And so the state step in and say, Hey, all right, if you're gonna contract with, with a homeowner, these just some requirements like California, pretty much writes the contract for you. I mean, every state has something that's required. So we make sure that we put that that's in every contract that we write. Um, and just knowing that that's out there, right. Especially as far as, you know, preserving lean rights, most states have something that you have to have in your contract to do that. And the other thing I'll tell you too, um, in this episode, I'll do another episode more in depth is construction defect, claims UN residential, right? Speaker 2 00:14:17 Almost in, I mean, in all 50 states are some kind of process that the homeowner has to file before they follow before they Sue you, which includes giving you a letter, a detailed letter of everything that is, that is wrong and giving you a chance to correct it before they Sue you. So just know that, and most states require that that process be explained in the contract. Um, so that the homeowner knows that that's the way that it goes, because, uh, you know, if you've been involved in any kind of, uh, construction litigation or had to hire a lawyer, you know, that, um, there are lots of lawyers out there, but very few of them are familiar with construction and the way the construction industry works. And, um, they may not know that that process has to happen before you can be sued. So I will do another episode on construction defects, where we dive more into that, but just know that that's something that would be added in your contract too, act two. Speaker 2 00:15:10 And so I say, all this guys, so you, how this is, this is information that I think is valuable, especially, um, you know, in the residential world as a purpose of contract, that legalese is not required. I do wanna mention that my firm, the K means law firm does contracts, residential repair, remodel contracts for all 50 states, or that are very much in plain English that are based on your specific needs, your specific trade and your specific state. Um, and plain, like I said, in plain English and kind of, I've built a system that, um, can, you know, accommodates for one of the biggest things that, uh, people hate hiring lawyers for is they don't, they never know how much it's gonna cost, right? So I do a residential repair remodel contractor for a flat fee. And that fee is $1,750. And how that works is you call us, I'll set up a consult will kind of go over the particular needs that you, that you need to know, you get comfortable with working with my staff, my customer service team, um, from that phone call, we'll send you a contract that explains our relationship. Speaker 2 00:16:17 Um, and then once you sign that and you pay for the services up front, uh, I'll have an attorney reach out, schedule an interview to go over our general questions. And then at that point too, you bring up any specific things you wanna make sure are added to your contract, right? And then within five business days from that initial meeting, you will have a draft of the contract. And then we have a what's called like an exit interview to go over, make sure you understand everything. If you wanna add anything at that point, we can do that. And then two, and then always in the future that we're here to help you, you know, feel free, it's yours. You can use it over and over and over again, it's your contract, but you can, and you can add things as you go along, but if you need some ideas on language or make sure you wanna make sure it says exactly what you're trying to say, uh, we're here to help with that too. Speaker 2 00:17:01 Um, my job and what I'm trying to do with this podcast, uh, the quickening screwed the book and my firm, the K means law firm is, is to elevate contractors into a better business position, right? And that starts by having a great contract that keeps you out of litigation, right? Which is counterintuitive to a lawyer, right? Because you know, the more, the more disputes you get into the more money I could potentially make, but that's not why I'm doing this. I'm doing this to level the playing field and keep you out of the courtroom. Right? Because I know I've grown up in the construction industry and started my own business in the construction industry, um, that your time is way better spent developing and growing your business and doing the thing that you're good at, as opposed to paying me and spending time in my office, that's just painful. Speaker 2 00:17:50 And, uh, not worth the best you can ever hope for in a courtroom is to break even, and most of the time, you don't even get that. And most of the time in the residential world, not because it's right, but just because on the legal side, there's a huge gap, right? The legal industry does not understand how the construction industry works. Um, you know, all of that. So you're already, if you're entering the legal, the legal world, like you're being sued, you already have that going against you. And I promise you do not realize what a big handicap that is. So, um, I'm here to help. I'm here to, you know, bounce back ideas and try to, you know, make your business run as smoothly as possible. If you guys have things that you wanna hear about on the podcast, you can email me. My, my email is Carolyn, which is K R a L Y N [email protected] Speaker 2 00:18:43 I'll have Chelsea put my email address in the show notes. If there's things that you want me to address or other ideas for podcast. Now, like I said, I'm willing to put it out there, whatever you guys want to hear. So, like I said, again, we're here to help and then reach out to me if you need help with your contracts. Like I said, the purpose is to protect you and that's what a good contract should do. So thanks again for listening to the quickening screwed podcast. If you guys would prescribe and let other people know about it, that would be great help. We work in all 50 states. And so, yep. We're here to help guys tune in for the next episode, when we dive into what specific terms, uh, to make sure include in your residential contract. Thanks. Thank you for listening to this episode of click getting screwed. I hope you found it helpful, but if you like what you hear, please like us and follow our podcast. If you want further information. So you can find [email protected] We're also on Facebook, LinkedIn, and Instagram, and the book is available on Amazon. Thank you.

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