by Mark A. Cobb
If you are a Georgia contractor or subcontractor who uses written contracts (and if you are not using written contracts, you should!), then this blog might save you some legal costs and or headaches. To improve your contracts, just follow the eight simple tips below!
What this blog article is not: Previously, we have written about the best contract terms and the vital contract terms that every construction contract should include. This is not a repeat of that material. This article is not full of legal jargon and nuanced technicalities rather, we are providing your with eight simple–but sound–contract improvements which you are able to apply to your contracts today!
Why we are writing this blog article (in other words, The Problem With Your Contracts)? Regardless whether you are a general contractor or a specialty trade subcontractor, you want to have a successful, problem-free project. A properly written contract can provide great strides to clarifying the project scope and the parties expectations. The construction contract lawyers at the Cobb Law Group regularly review, draft, and negotiate various types of Georgia construction contracts on behalf of their clients. Needless to say, our clients have varying personalities and goals, but we have noticed that a significant number use a “boilerplate” contract that they highjacked several years ago from another contractor or subcontractor. To this template, from time-to-time, they have added other terms which they thought useful and borrowed from other contracts they ran across. Through time, an original boilerplate which may have had some practical use has been cobbled into a hodgepodge of redundancies and contradictions, and these problems can make your contract unenforceable. Thus, we are giving you some very basic tips which you can put into use today and improve, at least a little, your contracts without hiring a lawyer.
Disclaimer About the Use of Any Forms: Although there are some very good and very useful form banks created expressly for the construction industry (such as the AIA Contracts, the EJCDC contracts, the DBIA contracts, and ConsensusDOCS), there really isn’t any “form” that can provide for all of the unique complexities of any specific construction project without substantial modification; thus, we strongly recommend that forms should be viewed only as a starting point, and they must be carefully reviewed and amended to meet the unique needs of the project and the parties. In other words, there is no such thing as a “boilerplate” contract which will work in every situation.
A Word on Readability: Your contracts should be easy to read and easy to understand; if they are not, then you probably need to start-over from scratch. You will see that many of the tips covered in this article suggest making your contract easy to read. Something which is easier to read is more likely to be read and understood which encourages better performance. So, make it a goal to make your contracts more readable.
1. Read Your Contract and Check for Redundancies. Redundancies are repetitions; let me repeat that: redundancies are repetitions. A quality contract should not have redundancies as they take up space and time; and, needless to say, they are unprofessional. More importantly, however, redundancies may open the door for ambiguity or even inconsistencies. Saying more than once that “The Subcontractor acknowledges that he has read the General Contract, all plans and specification, and is familiar therewith” more than once does not make the covenant any truer. If you contract also says “The Subcontractor acknowledges that he has has access to review a copy of the General Contract”), then it may cause some confusion which could be detrimental to your goal of passing the risk to the subcontractor.
2. Read Your Contract for Inconsistencies. Inconsistencies in a construction document also show an unprofessionalism, and they, too, can make your contract meaningless. Consider the following example: Parties to a contract may consent to a a method of resolution in the event of a dispute. If one section of the contract refers to “mediation” whereas another section refers to “arbitration”, then if a dispute occurs, it may be unclear in which forum the resolution should be handled–this might land you in court for resolution!
3. Group Similar Provisions Together. Nobody wants to read a contract (much less interpret a contract) where provisions on the same topic are spread throughout the document. For example, do not have provisions regarding “Payment” at the beginning of the contract, the deadlines regarding the due date for payment applications in the middle of the contract, and a paid-when-paid provision at the end of the contract. Move these provisions closer to each other then, it will be easier to read the contract, in general, and it will be easier to spot redundancies or inconsistencies as well.
4. Use Effective Headings for Each Contract Provision. Headings are a terrific and easy way to make your contract easier to read and, perhaps, increase its enforceability:
First, good heading it makes it easier to locate pertinent provisions (deadlines for giving notice, for example) and it make the contract easier to read as headings are usually either bold or underlined which breaks up the monotony of a standard type.
Second, headings may help the enforceability of a provision. In a recent blog post, we wrote about a subcontract which contained a Signature Provision which attempted to make the signatory to the contract personally liable for its performance. The Georgia Court of Appeals, when rationalizing the terms enforceability stated that the contract included the heading “Signing Individual” in boldface type which further enhanced the term’s clarity and the parties’ intention. Thus, the court continued, that the President of the company “must be charged with knowledge of the Signature Provision, even if he did not read it, and he is therefore bound, individually, to the terms of the Agreement.”
Third, in the event that a contract terms because an issue in a trial, your attorney may consider enlarging the term on a large board as a trial exhibit for the judge or jury to read. Without a heading, this exhibit may be nothing more than a large poster with long sentences filled with legal-ease. A pertinent heading (e.g., “Individual Indemnification”) might resonate more easily with the judge or jury and they may be more easily persuaded to interpret the contract as you intended.
5. Spaces! Just like this article, we tend to suggest that contracts use double-spaces between paragraphs. The other day we were asked to review a contract which did not separate the paragraphs. Page-after-page of unending contract terms quickly became very difficult to read much less make sense of. Thus, it took much-longer to read (time is money), and it required greater concentration. If your contracts look like that one, change them today and save yourself some headaches!
6. Check Your References. When someone cobbles together a contract from different sources, it is important to pay close attendtion that you don’t lose your references. Thus, if your contract says, “then parties shall agree to be bound by arbitration as provided in Article 10. . .” please make certain that Article 10 of your hodged-podged contract is the section dealing with arbitration. Otherwise, it may to used against you if the need arises to interpret the provision.
7. Eliminate Useless Provisions. Longer is not always better–don’t have extraneous provisions. If your contract includes a terms which doesn’t make sense to you; then, it probably doesn’t make sense to the other party and it will likely not make sense to a jury or a judge. You may want to ask your construction contracting lawyer to explain it, but if no one understands it, then it should probably be omitted.
8. Grammar and Spelling Count. You run a success business, and you know proper grammar and how to spell. When a contract is created over time, sentences get cut-and-pasted and letters get cuts off or added accidentally. Unfortunately, a substantive mistake can invalidate the terms of your contract so read it carefully often and correct as necessary. One example we see particularly often is a paragraph that is supposed to end with list of items but fails to include the list. Thus, the paragraph ends, “All subcontractors will adhere to the following policy on all jobsites:” and the policy is not expressed (and, at a minimum) not a part of the contract. Those missing policies are certainly not enforceable and may limit your rights including a right to terminate.
As we stated above, using the same template or form for your Georgia construction project is dangerous; instead, use them as a starting point for negotiations. Having a qualified construction attorney help you draft your “master” documents and assist you with specific provisions as each contract is negotiated may be vital to having a clear, understandable contract. In fact, we encourage our clients to review their master contract at least once a year. Laws changes, courts write decisions, and policies need amendment. If you are looking for a construction contracting attorney to help you review and improve your contracts, please feel free to contact us today!
It’s not too late! Although over 325 construction professionals have already signed up to attend, the AGC Georgia (the Associated General Contractors of Georgia) still has space for you to participate in its inaugural Construction Professionals Conference & Marketplace.
With over forty learning sessions, the event is divided into four-tracks catering to the construction industry:
- Executive Operations (including contracts, liens, payment bonds, leadership and best practices for industry executives, owners and leaders)
- Human Resources (including employee management and legal compliance for your HR department)
- Safety (including jobsite leaders and company-wide safety issues for every part of your business), and
- Technology (including BIM, construction apps, deployment, managements and Bluebeam)
Mark’s lecture is part of the Executive Operations track which focuses on current lien and bond laws, best practices, and proven leadership strategies from an owner’s/executive’s point of view.
Specifically, Mark’ program, entitled Best Practices for Contractor Survival, will include a combination of current issues, practical tips, and lessons learned in several areas of construction law including contract negotiation and drafting, Georgia’s lien waiver laws, preparing and filing mechanics and materialmen’s liens in Georgia, construction project insurance tips, registration of foreign subcontractors, and project management. Learn practical tips and on-the-ground knowledge to streamline and protect your interests. But, to learn more, you’ll have to register for the symposium.
See below for registration information:
Construction Seminar: AGC Georgia’s Construction Professionals Conference and Marketplace
Date: Wednesday, April 23, 2014
Place: Georgia International Convention Center, College Park
- Over 40 learning sessions on Safety, Executive Operations, Technology and HR
- Marketplace with 50 exhibitors
- Over 300 attendees
- Presentation of Ron Amerson Supervisor Safety Awards
- Keynote presentation – Social Media Overload
Click here to learn more and to register! We look forward to seeing you.
So many people contact us regarding nonpayment issues on Georgia construction projects, and I thought you might appreciate reading a summary of options we usually discuss during our first conference with our clients:
First, we assess some fundamental issues by asking the following questions:
• What type of services, labor or supplies did you provide?
• What was the last day you actually provided services, labor or supplies to the project?
• Have you been given any notices regarding failure to perform, defects, or other notices?
• Were you providing services, labor or supplies on a privately-owned project, a project owned by a governmental entity (local, State of Georgia or federal project)?
• Are they payment bonds covering the project?
• Was your contract written or oral?
• With whom was your contract (what tier are you)?
• Did you have a personal guaranty from someone guaranteeing payment of the amounts you are owed?
Assuming that you were a general contractor, subcontractor or supplier who provided quality services, materials and labor in a timely fashion, then whomever you contracted with probably owes you the money you are due. And, that is great. However, Georgia construction laws, when correctly applied, may allow you to seek recovery of the debt from a third party. Thus, our next assessment is whether there is any viable third-party who may also be liable for the debt. This can get very technical and complex, but here are some of the common areas we explore:
• Can a materialmen or mechanic’s lien be filed (which may make the real estate where your services, materials or labor was provided liable for the debt)? Click here for more information on this topic!
• Can you make a payment bond claim (which may make a third-party insurer liable for the debt)?
• Can a Constructive Trust be claimed (which may make retainage or other monies owed to a higher tier) which may make provide a source of recovery for your debt?
• Are there circumstances which allow a quantum meruit claim (which may make a third party liable for the debt based upon “fairness” issues)?
• Is there a guarantor which can be pursued?
Needless to say, the more opportunities there are for recovery, then (i) the more likely the recovery will be made, (ii) the higher the recovery is likely to be, (iii) the more quickly the recovery will occur, and (iv) the lower your costs of collection will be.
Ultimately, then, how do you and your Georgia construction lawyer work to improve your recovery?
• Periodically, review your contracts to make sure they comply with current regulations and statutes;
• Obtain a personal guarantee and other useful information (click here for details!);
• Learn all the various deadlines in Georgia for filing Lien Claims and for making payment bond claims (click here for some important Georgia Lien & Bond deadlines);
• Learn the statute of limitations for filing suits to perfect your Georgia Mechanic’s Lien Claims, your private project payment bond claims, your local municipality, State or Georgia and federal government payment bond claims;
If you are looking for a Georgia Construction Law Firm who can handle your files anywhere in the State of Georgia and who understand Georgia’s Construction Lien Laws, Subcontractor Laws, Miller Act and Miller Act Claims, please contact the Cobb Law Group to see how we can improve your collection rate!
There is a fact about commercial collections that we think only credit managers and commercial collection lawyers truly understand: collection of account begin before any materials, product or labor are supplied!
What does that really mean? When a customer wants to purchase your product on credit, that customer is probably the friendliest and most forthcoming that he will ever be. So, here’s your chance to ask for information that will help you in the collection process in the event the customer’s bill is not paid.
Complete Application: In consultation with your commercial collection attorney, prepare a comprehensive application for credit. Then, when a prospective customer asks to purchase your materials, your first step should be to require the prospective customer to completely fill-out an application.
Guaranty: Collection of accounts can be difficult–customers with assets tend to pay their bills, but those without assets are typically sent to collections. While you may be able to obtain a court judgment against this customer, the judgment will be meaningless unless you are able to find some asset of the customer against which to collect. One way to increase the odds of recovery is to obtain a personal guaranty of one or more individual(s) who is willing to guaranty the customer’s debt. A business may be collapsed or put in bankruptcy with ease, but individuals are less likely to do so. Practical Tip: Look beyond the company’s owner for a guaranty: try to get a personal guaranty from the owner’s spouse, parent or child (where assets may be hidden).
Gather Information: Both the application and the guaranty form should be used as an opportunity gather information about the debtor. Be creative, but at a minimum get such information as:
- the customer’s legal name, type of entity, and jurisdiction where formed;
- the customers, EIN, physical addresses (not just post office box), and banking information;
- the guarantor’s full legal name and any aliases; and
- the guarantor’s physical address (not post office box), and social security number, and date of birth.
Make it Legible: None of the foregoing ideas will help you at all unless it can be read. It is amazing how many times a credit application is faxed, scanned and photocopied before it makes its way onto the collection lawyer’s desk. If a social security number is not legible or a name is not clear, then that information is useless. Before processing the customer’s application, please make sure it can be clearly and easily read.
Liens: There are all types of liens available to creditors in Georgia including UCC-1′s, security agreements, collateral pledges, mechanics liens, materialmen’s liens, etc. Contact your Georgia commercial collection lawyer to understand which liens may be appropriate for your type of business.
There are a lot of other things that can be done to help in the collection process prior to extending credit. We plan to discuss more of these in future posts. In the meantime, please share with us your ideas and success (or failure) stories!
The success of filing valid materialmen’s liens never cease to amaze me.
Although there are no guarantees, it has been proven many times that filing a valid mechanic’s lien will increase your recovery of bad debt. About three weeks ago, for example, a new client contacted us and stated that they had performed work in the common areas of a large development near Atlanta, GA. We confirmed that they had performed pursuant to their contract, that there were no defects, and double checked their invoices and demands. We confirmed the project location and confirm that our client had performed work on the site in the last ninety days.
Then, we filed a materialmen’s lien on their behalf and sent the obligatory copies of the liens to the homeowners’ association and the management company. Within days of their receipt of our letter, we received a telephone call from the management company stating that they intended to pay the debt in full. Five days later, we received a certified check payable to our client in exchange for releasing the materialmen’s lien. Needless to say, our client was very happy.
These results may not be typical. You may or may not have similar results if you file materialmen’s liens for your bad debt, but unless you (i) preserve your lien rights if you are a supplier or subcontractor and (ii) timely file a valid construction lien, then you may not get any payment of the money you are owed.
In the current economy, commercial collections of accounts is increasingly more difficult. Debtors own fewer and fewer assets which may be attached by creditors; thus, it is imperative that suppliers, subcontractors and contractors in Georgia who are not seeing payments file valid liens. Please contact the Cobb Law Group to see if you are able to file a mechanics lien and increase your recovery rates!
We receive a lot of telephone calls from subcontractors and suppliers who are seeking to file mechanics or materialmen liens. And, we are frequently asked why they should use a law firm to file their construction liens when the internet offers lien filing services who promises to do the same work for less money. That’s a good question. Here are some of the things we usually tell people:
We are good at what we do, and, simply stated, I do not know any lien services that provide the same quality of work. Lien laws change and each individual matter may fall into a category or an exception. Let us help.
Lien filing services may be less expensive in the beginning, but the costs to enforce their liens may be higher. In most cases, for example, we file a legal description of the real estate to be liened which is one thing they do not do; without a legal description it is very difficult to know if the lien properly “attaches” to the property. Without proper attachment, your lien may not be valid, it may not show up in the real estate records, it may not meet all of Georgia’s lien requirements, and you will probably not get paid.
We understand and educate you regarding the exceptions. Our expertise brings value to the table. If you lien cannot be filed for some reason–e.g., you did not send a Notice to Owner and a Notice to Contractor–we are able to review the facts to see if you fall into an exception to this requirement which, if allowed, may validate your lien and improve your chances of recovery.
In this economy, we all watch every dime that is spent; however, sometimes you have to invest in your collection to help you increase the likelihood of recovery. Simply stated, lawyers are more likely to get a response from your debtor than a commercial service.
We can handle your entire case. You don’t hire us just to file a materialmen’s lien, we can see your debt through completion. We do file lien, but we engage the debtor’s when they contact us to get you paid. We offer payment plans, Consent Judgments, and other ideas that increase your recovery.
It can be the difference between a tricycle and a jet.
Recently, we were interviewed for another Lowe’s for Pros article (click here to read the interview), and it made me think about a topic for this blog entry. It’s a new year, and that brings new goals for those in the consruction industry. Thus, we thought we’d help you work on some resolutions to help you with some business goals and practices to help your credit managers to improve recovery on your accounts!
As you know, the Cobb Law Group concentrates in small business law and construction law throughout the States of Georgia and Alabama. Until the economic collapse, we performed a lot of “positive” legal work for our clients such as entity formation, AIA contract review, mergers and acquisitions, etc. along with our traditional materialmen lien work and our payment bond claim practice. Since the recession/depression, however, we have had to learn much about commercial collections, garnishment, post-judgment collections, etc. in order to collect the money owed to our clients. In order to increase our collection rate, we learned very quickly to use every opportunity to collect information which might improve our chance of recovery.
For example, if we have contact with a commercial debtor, we try to gather information such as social security numbers, bank account information, or current construction projects which–if we obtain a judgment–gives us useful information to begin collection of the judgment sooner. Let’s say during a deposition we learn that a general contractor has several construction projects going, then we will try to get as much information on those projects; later, when we obtain a judgment, we may be able to garnish the general contractor’s draws on one or more of the current projects!
Similarly, you are able to help yourself and help us to improve the collectibility of a judgment. Usually, when you first encounter a new client or a new customer, they are very willing to share information about themselves in order to encourage you to supply them materials. Any information you gather could be helpful.
Thus, as the new year begins, you have the ability to improve your work habits by instituting a few of the following ideas:
1. Account Applications: If you already require customers to complete account applications, then you should review your current form. Consider adding additional information to include such things as (i) a corporate officer’s social security number, (ii) corporate officers’ home addresses, (iii) company website, (iv) names and address of those authorized to use the account, (v) email and mobile numbers, (vi) bank account information, (vii) for small businesses list the names of the shareholders. If you do not require a written account application, please consider using one!
2. Legibility: For all written communications (including account applications), make sure that everything is legible! I cannot tell you how many times we’ve seen a file with a faxed copy of a pencil message from someone with sloppy handwriting.
3. Guarantees: For new customers, particularly small, unestablished businesses, require the personal guarantee of an officer. This will probably greatly increase your ability to collect your debts down the road.
4. Notice to Owner: If you supply to anyone other than the prime contractor or the owner of the construction project, you probably need to send a Notice to Contractor and a Notice to Owner within 30 days of the first day in which you supply to the project.
5. Customer Comment Forms/Logs: Invest in software (or even a good notepad) which will enable you to memorialize information you receive from a customer. So, if he tells you that you that he hasn’t been paid, then get information from his as to whom owes him, the expected date of payment and write it down!
6. Contracts: Get it in writing. Include in your contract interest on past due balances and costs of collection (attorneys fees).
7. Consistency in Customer Names: Your customers may–either through sloppiness or intentional deception–give you inconsistent names. For example, they may contract with you are ABC, Inc., but their purchase orders are on ABC, LLC’s letterhead; their email domain may be ABC Company, but their checks to you are marked CBA Company. This can make identifying your customer difficult. Be vigilent and make them be consistent.
Of course, these are just a few general ideas. Each case is unique and each debt is different; however, the more information you have, it probably increases your chances of recovery. Please comment on some of your ideas below!