Plan to Prevent Legal Problems

At least once a week I have a client come to my office and tell me, “I’ve never had a legal problem in all the years I’ve been in business.” They are shocked that they are now facing potential litigation. Just because you’ve never had a problem doesn’t mean you won’t have a problem. Construction is an industry that begs for litigation. Take action now to minimize problems later.

Make sure your contracts are in order

If you could pick perfect clients every time, you wouldn’t need a contract; a handshake would suffice. Unfortunately, perfect clients are few and far between. A contract exists to resolve problems. If you don’t have a contract, it is harder to resolve a problem. Don’t just use a form you find on the Internet. Hire a construction attorney to draft a contract that will protect your interests and meet all your state requirements.

Obtain the right insurance and keep it current

You can bet that if you let your insurance lapse, a claim will be filed against you. Make sure you have the right insurance and keep it current. You need general-liability insurance to cover personal injury and property damage resulting from your work (see QR, January 2006); workers’ compensation to cover employee injuries on the job; automobile insurance to cover accidents on the road by you and your employees; and business insurance to cover the slips and falls in your office, claims for improper advertising, destruction of records, and similar disputes. Contact a knowledgeable insurance agent (one that specializes in representing contractors) and make sure your coverage is adequate.

Tighten up office and jobsite procedures

When a new project comes into your office, how is it handled? Do you have procedures in place for getting the contract signed as well as obtaining paperwork, such as bids, proof of insurance and supply orders, from subcontractors? As the project progresses, do procedures exist for invoicing clients, documenting communications, scheduling work and signing change orders?

Finally, as the project nears completion, are there procedures for final permit sign-off, completion of the punchlist, final invoicing and issuing of warranties? Have your employees write down what they believe the procedures are for each item. You will be surprised at all the different answers you get. If procedures aren’t established, explained and followed, things fall through the cracks. When they do, problems arise. If you have strong and clear procedures in place, problems are less likely.

Establish employment policies and procedures

Don’t just hire any warm body that walks in the door. Write down minimum employee requirements for each job category and make sure that everyone you hire meets the requirements. Also develop an employment manual that sets forth your policies and procedures and delineates the rules and regulations for the office and jobsite. Your employees will know what is expected of them and what behavior will not be tolerated. This will avoid problems when it comes to terminating an employee.

Establish office policies and stick to them

Policies are what guide a business through good and bad times. Following are policies that you should have in place:

  • Set maximum client receivable levels. Don’t let a client get so far behind in payments that you are digging into your savings to finance their project. (See QR, October 2006.)
  • Review subcontractor information on a regular basis. Just because your sub had insurance and a license three years ago, doesn’t mean he currently has them. Schedule a time every year to get the documentation updated.
  • Schedule regular meetings with your employees to discuss job progress as well as potential problems with clients, subcontractors and vendors. Spotting a problem early allows you to deal with it before it becomes a catastrophe.