Smart business practices can go a long way toward reducing, even eliminating, the chance of legal trouble. With that in mind, here are three Do's and three Don’ts that should keep you from being sued by unhappy customers or vendors.
DO get it in writing--always. Even a small job needs a formal written agreement. It should include scope, price, payment terms, and schedule. It should reference a complete set of plans and specs. It should include language on insurance, indemnification, warranty, termination, dispute resolution, and recovery of legal fees and costs. After you have a signed contract, continue to get everything in writing, especially changes. Have customers and vendors acknowledge each agreement, promise, or direction in an email or a written document of some sort. Memories fade in time.
DO review the plans, the specifications and the site. Plans and specs are the roadmap for getting the job done with as few hiccups as possible. But plans and specs can be incomplete or unclear, leaving out key details–ingress or egress problems, for example–that you need in order to properly price and build the project.
DO manage expectations. Projects start off with the best of intentions but with different expectations. Review the scope of work and payment terms with your customer and vendors so they know what you plan to do, when you plan to do it, and how you expect to be paid. Surprises on remodeling projects are seldom pleasant. This will help minimize them.
DON'T start work without a deposit or assurance of adequate funding. In most cases you will want some money upfront, even if it's just 5% or 10% of the project sum. If it's not customary to obtain such a deposit, you should get documentation verifying the customer's ability to fund the entire project. An example would be a letter from the lender showing the value of the unused portion of the construction loan.
DON'T work without insurance. Things can go wrong fast on a remodel, and a $50,000 job can easily turn into a million-dollar liability. Proceeding without insurance coverage–be it for personal injuries, damage or loss to property, or mistakes–is simply not worth the risk. You also need to make sure your subcontractors are insured. They should provide you with a valid certificate of insurance, and should provide an endorsement that names you and the homeowner as additional insureds. (This is separate from the certificate.) And don't forget to get new certificates and endorsements from subs when their policies renew.
DON'T walk off a job. Relationships with customers and vendors can sour. When that happens, it may be tempting to abandon the work, especially if the customer isn’t paying you or a vendor isn't fulfilling its orders. But don’t, at least not before you review your contract in detail, ideally with your legal counsel. Courts have historically not looked kindly at contractors who walk off jobs, especially without notice. Once you finish your work, you can put in the necessary effort to collect the money you earned.
Steering clear of legal trouble is both dollar-wise
and business savvy. Underscoring each of these do's and don’ts in your
communication and documentation will keep your customers and vendors well
informed, and should keep you out of court.