ConstructioNext is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

4 Provisions Customer Contracts Should Cover—and Why

Olena Hromova/Alamy Stock Photo Close-up of woman proposes to sign contract against background of new building with swimming pool. Front used with Open Font License
With ongoing supply chain issues and price volatility, it’s more important than ever for builders to protect themselves—and their margins—with a written legal document.

Over the past several years, as supply chain snarls and price volatility have made it more difficult to build pools and spas, a much-neglected aspect of construction has become even more important—the contract.

But too many pool and spa builders rely on the equivalent of a handshake without an adequate contract in place.

“Our contracts are very boilerplate,” said John Versfelt, owner and president of Southernwind Pools. “Contracts help manage a good customer relationship.”

Weak contracts, or no contracts at all, which is too often the case, don’t just expose pros to losses, but also lawsuits.

“Your contract is always the first line of defense after customer service fails,” said attorney Trent Cotney, partner and construction team leader for Adams and Reese LLP, which represents a number of pool and spa contractors.

Here are four general provisions customer contracts should cover—and why.

1. Price, contingencies and payment schedule. The cost of the job is one of the most basic aspects to cover in a contract—and also one of the most contentious. That’s why it’s imperative to make clear in writing what it will cost.

Cotney said the two most well-known vehicles for construction pricing are fixed price and cost plus. “Most pool contracts are fixed price, meaning a lump sum is provided, which includes all the labor, materials, services and job costs a contractor may have on the job. Generally speaking, the only way to increase or decrease the fixed price is via a change order,” he explained.

Cost plus (and its cousin, time and materials) involves the cost of the labor and materials plus a reasonable amount for profit and overhead, he said.

In general, Cotney said it’s important here to clarify “what they’re paying for and what the extras will cost.”

This is also where to include price increase contingencies that protect builders if prices rise more than a certain percentage. These contingencies allow the builder to pass those costs on to customers—and are more vital than ever.

“We experienced a lot of cost increases that resulted in us losing margins because we didn’t have contingencies in our contracts to increase prices when they went up,” Versfelt said.

Setting the price is one thing, but being clear about when customers pay is quite another. Versfelt said not having a payment schedule is one of the biggest mistakes builders make when it comes to contracts. Instead, these pros often rely on “payment upon satisfaction.” But what does satisfaction mean?

“People think if you just take care of the customer, the money will follow, but that’s not always the case,” he warned.

2. Scope of work and duration. Contracts should clearly lay out exactly what the job entails and how long it will take.

Scope of work means specifying the type of pool/spa, finishes, dimensions, equipment and what is included in the finished product. For example, Versfelt said many homeowners assume landscaping will be included in the project—until they’re reminded that’s not the case.

For good measure, Versfelt also goes over the contract to review the plans and the contract so that everyone is on the same page. “It’s all about managing that customer relationship,” he said.

The length of the job, or duration, is one of the most contentious issues when it comes to pool and spa construction, Cotney said. So, it’s imperative that the contract clearly stipulates how long the job will take as well as the aforementioned contingencies should something be delayed.

Builders also need to be honest and upfront about the true timeline for projects, rather than “best case scenario.”

“Where we see a lot of pool contractors getting into trouble is jumping out ahead and saying, ‘I can get the job done right away.’ Then, eight months later, we have a lawsuit on our hands,” Cotney said.

3. Contract notice provisions. These aspects of the contract govern claims from either the contractor or the customer regarding changes to the project cost, timeline, order and others.

Cotney explained that a notice provision is designed to put the burden on the customer to provide the pool contractor with notice of any potential defect, claim or occurrence within a certain number of days. Such provisions are usually in writing and often result in waiver of those claims in the event the customer fails to provide timely notice.

Cotney said there are two important parts about notice provisions. The first is that they are in writing. The second is that they help head off problems before they become liabilities.

“This way, you can mitigate the damage quickly, rather than six months down the line, when the customer is suing you,” Cotney said.

4. Warranties. Builders standing behind their work is important. The contract is the place to not only make clear what’s covered, but also protect pros from having to fix everything that might go wrong.

There are two main types of warranties, according to Levelset, which sells systems that help contractors and suppliers get paid:

“An explicit warranty is clearly written in a contract or proposal. Since many contractors use their proposals as the basis of their contracts, proposal warranties are just as important as those in a contract. Explicit warranties are legally viable and will be upheld in court.

“A well-drafted warranty should be fully comprehensive. It should describe the specific problems and remedies that the (contractor) may be responsible for, the way the issue will be dealt with, and the length of time the warranty will be in effect.

“Implied warranties are provided by the law, whether they are written in the contract or not. These types of warranties occur in every construction project, whether there’s a written contract or not.”

Unfortunately, many builders don’t specify warranties in their contracts, Cotney said. “You’ve got to carve out certain things in a warranty,” he said. “But in my experience, nobody has any of that.”

Remember, as with all legal matters, builders should consult a legal expert before attempting to write a contract on their own.

 
Hide comments
account-default-image

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish