As a contractor or a subcontractor, your performance may be judged not against your final product, but on the terms of your contract. Even if your work looks excellent, if you deviated from your contractual obligations by omitting something or doing something incorrectly, the owner or general contractor may look first to your contract for a remedy. For that reason, it is crucial that your contractual terms are clear and that you understand them.

Consider these ideas when drafting your contract:

• If you are using a form, even one that you created, read it over and make sure there are no unique parts of this particular job that require more explanation. If so, add one or more exhibits that describe the quirks with more clarity. When contracts are clearly drafted and understood, there are fewer problems, and it will be easier (and less expensive) to resolve questions.

• Make sure you understand the terms in your contract. It is always a good idea to avoid convoluted language but certain terms have specific meanings. For example, “Time is of the Essence” means that the timelines and deadlines in the contract are important and missing them will have consequences – usually consequences spelled out in the contract.

• Understand your indemnity obligations. Most contracts for jobs of any substantial size have specific indemnity obligations, which often pertain to injuries caused by you or your crew, injuries to your own workers and/or damage to property. Typically, as a subcontractor, your indemnity obligation (i.e. your obligation to pay) will be limited to damage (personal injury or property damage) caused by your own negligence.

• Understand your insurance obligations. Most general contractors require their subcontractors to obtain insurance covering liability, workers’ compensation and property. General contractors often require not only a certificate of insurance showing that you have such insurance but that you add them as an “additional insured” so that they have much of the same protection as you for incidents that arise out of the project. It is crucial that you comply with those requirements. If you fail to procure property insurance, your business could be “personally” liable for damages and for paying an attorney to defend the general contractor. Remember, even frivolous or “nuisance” lawsuits are very expensive to defend. When you purchase insurance, your insurer has the obligation to provide your company with a defense. When you properly add a general contractor as an “additional insured,” the insurer must also provide a defense for the general. It is very important to establish a good relationship with an experienced insurance agent who thoroughly understands this area.

• Consider an Arbitration Clause – but do not make it your “default” option. Litigation is expensive – whether you are defending a claim or you are forced to initiate a lawsuit to collect your fee. Arbitration can be less expensive, but that is not certain. Also, arbitration can move faster than a typical court case but again, not always. Finally, arbitration cannot be used for some matters such as foreclosing a mechanics’ lien. If you are able, it is best to include an arbitration provision but at your sole discretion. Once a problem arises, you can speak to an attorney to determine the best course of action.

It is true that hiring an attorney to draft your contract has an upfront cost. In many situations, however, paying a little more up front can save you a great deal down the road. Please contact us to discuss your particular situation and we can develop a contract that can help you avoid problems.

This entry contains general information and is not intended to substitute as legal advice nor to create an attorney client relationship. An attorney client relationship requires a Legal Services Agreement and a full discussion of your issue.