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Top 3 Legal Mistakes Companies Make in the Construction Industry

In an industry that is already as convoluted and potentially dangerous as the wild west, there are a lot of ways business owners can mistakenly screw over their companies. Most mistakes are due to forgetting, thinking certain things aren't important, or simply not knowing. Regardless of why they are issues, the simple fact remains- three issues arise more often than any others I see in the construction industry. Please don't open your company up to even more risk by making these mistakes; be preventative and get informed, so you don't fall victim to them, too. 


Not Reading a Contract before Signing

The biggest mistake I see companies making is not understanding the documents they sign and agree to be responsible for, especially within the construction contract. Sometimes, they don't even read them; they just sign. That is every attorney's nightmare; their client signs something without having it reviewed by them or, even worse, not reading it at all. And I am not just talking about subcontracts, though we will get to those in a minute. Any agreement a business owner signs should be reviewed by someone who can explain the risk and ramifications of the document. In the construction industry, all sorts of provisions and clauses that could genuinely endanger your business are included in many agreements and contracts. Without being aware of what they are, what they mean, and how they could affect your business, you risk massive financial losses, having to perform extra work, or even having to close your company due to signing them!

I once had a client that signed an agreement with a staffing agency that stated that if they were sent a potential applicant's information via email, they had 24 hours to let the agency know they had received the applicant's information from another source. If they didn't send this information, they would still owe the fee if they hired the applicant, regardless of how the applicant's information was obtained. The email sending the applicant's information went to a spam folder, and the applicant ended up applying directly on my client's website and being hired, but the agency wanted their cut and sent a demand letter anyway.

We ended up settling for half of what they wanted, but the whole deal could have been avoided if I could have reviewed the agreement on the front end, told the client the risk, and put some safety nets in place to ensure nothing was missed. Every business must sign contracts to do business, and there are elements like this in every contract. It is worth spending a little money upfront to CYA and saving your company the loss of thousands of dollars by agreeing to something you don't understand or were not even aware of. A commercial subcontract has so many risks and complications you could write a whole book about them- And I did! It’s called Quit Getting Screwed: Understanding and Negotiating the Subcontract.    


Can't Go Without a Contract!

The second biggest mistake that companies in the construction industry are making is not having a contract when they are hired to do work. This is mostly for residential contractors. The thought is that if the project is too small or they are just working with the homeowner, nothing can go wrong. However, that notion could not be further from the truth. Homeowners have expectations, but they're not based on anything concrete when it comes to the construction industry. Disputes arise when these expectations are not properly managed, and the contractor does not perform to the homeowner's expectations because there is no documented standard for them.

Having a simple, in-plain-English contract that clearly describes the scope of work, the payment terms, what happens when payments are not received, and other key essential information will prevent so many disputes from ever happening. The initial small investment to get a well-written contract is well worth the money. And if you're a contractor that is in and out in a day or only has a minor amount of work, maybe it's not a full contract. You may only need to sign a Terms and Conditions agreement. Terms and conditions are a great way to protect a residential contractor that has smaller contracts and is in and out in a day or two. It is important to note that, like your contract, your terms and conditions agreements should cover the essentials and some extra imperatives. For example, you would likely want it to describe warranty terms, explain what items would not be covered under warranty, and other key essential terms that would protect you in a dispute. Cover your bases, and always be sure you have a documented agreement signed by all parties before beginning a project, no matter the size. 


Learn Your Lien Laws

The third mistake that most businesses in the construction industry are making is failing to collect payment and not having a consistent collection strategy that ensures payment. You work so hard day in and day out, spending time away from your family. You deserve to be paid for your work. Take the time to develop a consistent collection strategy before collection issues even rise. That way, when you don't get paid, you have a plan and can rest assured that you know what happens next; the letter is going to be sent, the lien process is going to be followed, and you'll end up getting paid at the end of the day. 

I've studied the lien laws in all 50 states, and I can tell you that they all have different deadlines for when notices must be sent. As a lien claimant, it is imperative to follow the timeline for your liens, but nothing says you can't file for them early. For example, if you finish a project, it's been ten days, and you haven't been paid, send a notice saying you're going to file a lien sooner rather than later. Whatever you decide, you need to have a strategy in place. Not dealing with it means you won't get paid, and you deserve to be properly compensated for your work. You can check out the lien laws for all 50 states on my site, The Subcontractor Institute.


In Conclusion

Protecting your business does not always need to be a challenge. Sometimes, it just takes a little intention and preparation on the front end. Don't let neglect be the reason your business gets screwed over. Ensure you are fully covered; Read your agreements and know the risks before you sign them, always have a signed agreement before beginning a project, and never forgo your lien rights. Protecting your livelihood begins with preparation, and who better to help you prepare than a skilled construction law pro?

About the Author:

A published author, award-winning lawyer, devoted wife and mother to three girls, Owner and seasoned Managing Partner of The Cromeens Law Firm (TCLF), Karalynn Cromeens is a true jack of all trades.  She has firsthand knowledge of the construction industry and understands the different obstacles that contractors face on a daily basis. Karalynn is passionate about protecting the businesses her clients have built and being a lifelong partner in their company’s success.  Karalynn is the Co-Founder of Morrell Masonry Supply and Owner of The Subcontractor Institute, an easy-access online educational platform for contractors. In addition to TCLF, and The Subcontractor Institute, she is also the host of the rapidly growing educational construction podcast, Quit Getting Screwed - making cost-free industry insight available to contractors across the country. In 2021, Karalynn published two Amazon Best-Selling books - Quit Getting Screwed: Understanding and Negotiating the Subcontract and Quit Getting Stiffed: A Texas Contractor’s Guide to Liens & Collections

In the seventeen years she has practiced construction, real estate, and business law, Karalynn has reviewed and explained thousands of subcontracts. For years, she has tried saving companies that have signed problematic subcontracts and lost out on being paid for their work. Unfortunately, it was too late by the time they came to her; she could do nothing to help. She hated seeing clients lose money—sometimes their entire business—over language they did not understand and laws they did not know about. Watching these situations play out day after day was the driving force behind her two books, The Subcontractor Institute, and the firm’s accessibility efforts. To understand Karalynn’s foundation, as well as the basis of the firm, we first must understand where she came from- a community she refers to as the “Get Shit Done Tribe”. This community made Karalynn who she is today, and now is who she works to protect. She deeply values the GSD tribe and is inspired by their drive. Providing education to contractors on a national level has become Karalynn’s personal mission, and she is always doing what she can to help make it a reality.