Business Law

 

The contractor agrees to build, remodel, reshape, repair, or otherwise do a job for the customer or owner. In return, the customer or owner agrees to pay the contractor money. This agreement is called a contract.

 

Since contractors almost always work through contracts, it is important for you to understand some basics about contracts. These basics are factors like what constitutes a contract, why contracts should be in writing, and the basic rules of forming and signing contracts. Understanding these principles can save a contractor a lot of time and trouble, not to mention money.

 

A properly drafted contract will assist the contractor in the event that a dispute arises with the owner, architect, subcontractors, or suppliers before, during, or after a construction project. This is especially true if the dispute goes to court. However, the most important reason for a thorough understanding of contracts and their proper use is to prevent disputes from arising in the first place. If all of the parties to an agreement completely understand what they must do, and what they can expect the other parties in the contract to do, then disputes should not arise.

 

WHAT IS A CONTRACT?

 

A contract is basically a legally binding agreement between two or more persons. A “person” may be an individual, corporation, partnership, limited liability company (LLC), or governmental agency. A contract should include all the terms and conditions of the agreement. When each person, or “party”, agrees to all the terms, the contract is formed. At that point, each party is bound to do, or “perform”, whatever duty, or “obligation”, that the terms of the contract require of them. They must also perform their obligation in the way stated in the contract. If he or she fails to perform their obligation, or performs it in some other way, the other parties may sue them for breaking, or “breaching”, the contract. For example, if John promises to build a deck for Al, and Al promises to pay John $100 a month for six months, then Al must pay John according to those terms. He cannot simply wait and pay all $600 at once. Similarly, if John promised to finish the deck in six weeks, he cannot wait and finish it in nine weeks. Contract breaches will be discussed more, later. It is not necessary that a contract be written in any certain form. The standard AIA or other pre-printed standardized contracts are very useful, but not necessary. A contract in the form of a letter, signed by both parties, that sets forth all of the necessary terms and conditions, is just as enforceable. Similarly, it is not necessary that any changes in the contract be in any certain form. A simple letter stating, “I have agreed to perform _____________ extra work, and you have agreed to pay ___________ extra dollars”, signed by both parties, may be sufficient. When in doubt, get it in writing.