Unforeseen circumstances: your contract must acknowledge unforeseen construction problems, and lay out who’s responsible for them oryou’ll end up paying the price
As any builder can attest, you never actually know the scope of a project until it’s completed.
So, many things can happen along the way. In the time it takes to hear that telltale “ting” when the backhoe hits rock, the project price can go up thousands of dollars. Discovering problem soil during the dig can jack the price up by tens of thousands of dollars if the structure requires pylons or caissons.
When those things happen, and clients find out what extraordinary measures you must take to build their pool, they always pose that tense first question: Who’s going to pay for it? That’s when a properly written contract becomes your best friend.
“You’re much better having a contract that raises a red flag and says to the owner, `If we hit rock, that expense is going to be yours,'” says Bruce Dunn, president of Mission Pools of Escondido, Calif., a Pool & Spa News 100 company. “I don’t even want to guess how many times our rock clause has been used.”
Dunn has avoided taking a catastrophic hit because he mastered the hardest part of drawing up a contract: handling the unforeseeables, those things out of the builder’s control. Underground rocks make up only one of dozens.
While builders generally have figured out how to cover the basics of a contract, such as the size and shape of the pool, less obvious circumstances can slip through the cracks. Professionals say that’s where builders can get into the most trouble.
Foreseeing the unforeseen
When it comes to unforeseen problems, builders usually face two kinds: customer-generated or site-generated.
Customer-generated problems are those that arise when the customer requests changes from the initial design.
Site-generated problems are specific to the work site, such as hidden rock.
“There are many things underground that could change the cost of putting the pool in. You should be aware of those things and list them as exclusions in your contract,” says Ron Frushon, general manager at Grimes Aquatech Pools & Spas in Bloomington, Ind.
“For instance, when I was in Nashville, there was an enormous amount of rock. When you sell a pool, you don’t know that rock’s there because it could look like a normal backyard. Then 10 inches into the ground, you could hit solid rock and it could cost $20,000 to dynamite and get the hole dug. If you don’t have exclusions like that in your contract, you could end up with quite a problem.”
To protect yourself against the unforeseen, you must make it clear to the customer through your contract that the price holds only as long as everything goes according to plan. If either customer-generated changes or site-generated changes happen, the price may change accordingly.
For example, the contract should state when construction is expected to begin. If the customer leaves town or takes a long time to get a loan (a customer-related problem), your costs can go up. Dunn’s contract states that if construction begins more than 30 days after signing of the contract, the price can go up.
Lessons from the past
While no one can predict the future, looking to the past can help guard against both types of unforeseen construction problems.
“Most contractors are smart enough to know where all the problems are. They’ve had them all happen,” says George Hedley, a contractor, speaker and writer. “They should make a list of these things and make sure that every one of these is addressed,” says the owner of Hard Hat Presentations in Costa Mesa, Calif.
The contract should make clear who’s responsible for any changes or additional work, and how it will affect the price and schedule.
“Pricing is the No. 1 biggest complaint; scheduling is No. 2,” Hedley says.
Start by including the following unforeseens in your contract, then add to them as your experience dictates.
* Events beyond the control of the client or builder. All kinds of things can happen that are out of your control or the client’s. Dunn makes sure his contract states that the project will finish by the specified date, as long as these things don’t occur: “Inclement weather, war, riots, acts of God, unavailability of materials acceptable to [the contractor] or buyer, fires, strikes, concurrent construction at the same location, government prohibitions, non-issuance of all required permits affecting pool construction, reasons beyond the contractor’s control or acts of omissions of other persons.”
Frushon takes a different approach. His contract releases his company from damage to the pool caused by unforeseen events.
* You hit underground obstacles. Perhaps the homeowner didn’t know the exact location of a septic tank or utility line or an underground well. To protect his company, Frushon’s contract clearly states where the pool will be placed on the yard, that the customer agrees to that placement and that the area is clear of these objects. The contract further states that removing these obstacles will cost extra.
* Necessary add-ons. You may find that you don’t have everything you expected on the site. If the project includes a heater, the contract should make it clear where the customer says the gas line is located, notes Hedley.
The contract may call for a gas line that runs from the home’s line to the heater. But what happens if you find there’s no gas on the property and you have to run a line from the street? “Now you’ve got a big mistake,” Hedley says. “You’ve got to put in an extra 30 feet of gas line and dig up the front yard to get it out to the street, instead of just hooking into the side of the house.”
Contracts should state that if the necessary add-ons aren’t available, the price may go up.
* Customer indecisiveness. To keep things on track, Hedley’s contract also informs customers of how much time they have to make a decision, and how everyone will proceed if they don’t agree on a price for the new or altered work. “A typical contract would say that the contractor shall present prices to the customer for upgrades. The customer shall approve or reject them within a certain period of time,” Hedley says.
“If they disagree on price, then a good contract will clearly define the remedies.” In this case, Hedley’s contract stipulates that the homeowner can ask for a cost breakdown for the new work. If they still don’t want to pay the extra cost, the owner can have somebody else do that part of the job.
* A salesperson makes promises that can’t be kept. Tension always exists between a salesperson’s enthusiasm, a job’s viability and the company’s profit margins. Sometimes, a salesperson may make a promise that can’t be kept–or, at least, not profitably. That’s why Frushon’s contract includes a signature line for the company owner as well as the salesperson who prepared the contract. “And then, in parentheses, it says, `Must be accepted by company officer or company president,'” he says. “If it isn’t, you have the right to cancel the contract.”
Frushon thinks large companies especially need such a clause. “When you deal with a lot of salespeople, they can make false promises,” he says.
* Client doesn’t like the performance of a referred, but separate, contractor. If you refer a contractor to perform a job outside your contract, such as landscaping or pouring the driveway, you don’t want to be held responsible for their performance.
That’s why Dunn’s contract includes a disclaimer stating that his sales staff is free to offer such referrals, but that the client takes responsibility for assessing that contractor’s capabilities. (To further protect yourself, he says it’s always best to refer more than one contractor and then let the homeowner make the final choice.)
* Disagreements or lawsuits. While you write your contract to minimize misunderstandings and disagreements, you never know when you and your customer will bump heads.
Specify how much time you have to respond to a complaint, says Hedley. “They may expect you to respond in 10 minutes, but maybe 24 or 48 hours is more realistic,” he says.
Some builders stipulate in their contracts that serious disagreements must go through arbitration before they go to trial.
Frushon also has a clause in his contract stating that if a conflict flares up, the laws in his state will apply, and any court hearings will take place in his county. This way, if a lawsuit occurs, it will take place in his own area. “You have some customers whose homes are being built while they live in other states, and you get caught in the trap of where to try the cases,” Frushon says.
Some clients may not take you to court, but rather, like Dunn’s client, withhold the last payment. To protect his company, Frushon’s contract gives him the right to take back part of the project. “The contract says that title and ownership of all equipment and accessories are the property of the contractor until it has been paid in full,” he says. “It also says that I have the right to enter the premises and remove such equipment if it is not paid for.
“And if all payments are not met, all warranties are void.”
RELATED ARTICLE: Anatomy of a contract.
The best contracts contain at least these four parts:
* Government-mandated information. Your local government probably dictates that you include specific information for the consumer, to protect their rights.
For instance, several states impose clearly outlined payment schedules, stating what percentage of the project can be collected at which stages by the builder. You may have to explain to clients the subcontractors’ lien rights. States such as California dictate that this information appears on the contract. Sometimes, your state or municipality will even dictate what size typeface to use and where to place the information on the contract.
Be sure to include this information on your contract, or risk the consequences, says attorney Ken Grossbart, a partner in Abdulaziz and Grossbart in North Hollywood, Calif. “In California, if the contract doesn’t contain that information, it can subject you to discipline from the Contractors State Licensing Board and … may even put you in a position of not being able to collect from your customer,” he says.
A good construction attorney or your state contractors licensing board can provide this information. If you don’t get the initial information from an attorney, it’s always a good idea to have a legal professional review the document.
To avoid any misunderstandings, some builders even include information that isn’t required. For example, Ron Frushon puts the consumer’s three-day right of rescission, or cooling-off period, in the contract, although it isn’t mandatory. “I prefer to put everything–good and bad–in front of them, so nothing’s hidden,” says the general manager of Grimes Aquatech Pools & Spas in Bloomington, Ind.
* Scope of work. This section lets people know exactly what they are purchasing and when it will be completed.
George Hedley, a contractor, speaker and writer, sees this as the most important part of the contract. If written correctly, it will create the right customer expectations and minimize, or even eliminate, friction between customer and builder, says the owner of Hard Hat Presentations in Costa Mesa, Calif.
The key here is to leave no room for interpretation, says Hedley. In other words, be specific. List everything you will do, that is, the inclusions. That means not only the things you will build, but also tasks such as removing the fence or cleaning up the backyard. When listing what the client will get, be specific. Give brand names, model numbers and specifications.
Hedley works with contractors in building commercial structures and homes. He has seen plenty of these builders just tell the client that a sidewalk is included with the project, without getting specific.
“They figure it’s just a sidewalk. No, it isn’t. There are dozens of options just for sidewalks: score joints, bended edges, sand base, how thick, what psi, rebar or mesh, expansion joints.”
But also list the exclusions–the things you won’t do. List things that the customer may expect are included, but actually aren’t.
“For instance, we don’t include in our basic contract electrical wiring or running of gas lines,” Frushon says. “That is important because the customer could assume that if they buy a heater, it’s hooked up and running. That could cost from $400 to $2,400.”
If the company includes that service, the customer needs to pay extra.
“If you don’t do what the customer anticipates because you haven’t clearly explained every single detail, then you get into trouble,” Hedley says. “What happens is, you’re pouring your sidewalk directly on dirt and the customer goes, `Wait a minute! Isn’t that supposed to be on sand?’ Then you tell him that’s extra, and he asks, `Why didn’t you tell me?’ Now we’re in an argument.”
* Terms and conditions. This is what some builders refer to as the “legalese.” This section explains issues such as warranties and how to move forward if the homeowner wants to take the builder to court.
Bruce Dunn suggests sticking to your own specialty. You write the scope of work and let your attorney handle the terms and conditions. “The best suggestion is that attorneys don’t go build a pool, and pool builders don’t go out and build a contract. Let everybody do what they’re trained to do,” says the president of Mission Pools of Escondido, Calif.
* Drawing. While the written portion of the contract carries more weight than the drawing, the drawing plays a crucial role. It can help avoid misunderstandings that could cause problems down the line, says Dunn.
“If the drawing shows that a freeform swimming pool extends from one end of the house to the other, they think they’re getting a swimming pool that goes from one end of the house to the other,” Dunn says. Treat that drawing as if it’s part of the contract, even if it’s not attached or if the written contract makes no reference to it.
To avoid problems, be sure the drawing meshes exactly with the specifications listed on the contract. Scale drawings should show the correct pool dimensions and locations, as well as accurate equipment placement and utility or plumbing runs.
“I just honestly don’t believe you can be too detailed on a contract,” Dunn says. “At the same time, you can’t be too detailed on a plan.
“The old days of doing a drawing on a napkin and saying that works are gone.”
RELATED ARTICLE: Demystifying your contract.
With all the information that contracts must include–from the legalese to the unforeseens to the drawing–the documents can become long, technical and overwhelming. Here’s how to make sure you and your customer stay on the same page.
“Most contracts of any good builder will consist of at least a couple pages,” says Ron Frushon, general manager, Grimes Aquatech Pools & Spas, Bloomington, Ind. “On mine, I have a front page, which has the main list of items and eight parts to it, then the back page has about 20 parts to it.”
Bruce Dunn’s contract measures 17-by-17-inches and is printed on both sides. He tries to use humor when showing it to clients. “It’s a daunting document,” says the president of Mission Pools of Escondido, Calif. “When I go out and present it to a homeowner, I always pull it out and laugh about it and say, `Well, let me get my contract out. Don’t faint. We’ll need to clean everything off the table because it should just about cover the table.'”
Even with the longest contracts, though, it’s important to go over each line with the client, to ensure that there aren’t feelings of intimidation or misunderstanding.
“I believe in talking about all the goods and bads upfront, so nothing’s a big surprise,” Frushon says. Not only does this make the customer happier, he says, but it also prevents misunderstandings and delays down the road.
Frushon adds a line for clients to initial on important parts, or portions that tend to cause confusion.
“The customer could look at this big, daunting contract and then they say, `Well, I didn’t read it all,’ Frushon says. “So that’s why I put a box in those sections where they initial it.”
Finally, remember that your contract should continually evolve over time. Laws change and, as new situations spring up, you’ll learn new ways to clarify the document.
“I’d suggest keeping a book where you list all the misunderstandings that happened throughout the year and consider adding that to the contract,” Frushon says. “You learn from your mistakes.”
RELATED ARTICLE: Document as you go.
after the contract is signed and construction has begun, clients may change their minds about part of the design.
Suppose they want a bigger deck or a costlier material. When these things occur, it’s tempting to just settle the issue verbally. But change orders need to be documented as much as anything else, says Ron Frushon, general manager of Grimes Aquatech Pools & Spas in Bloomington, Ind.
“When it comes time to collect for that little change or addition, and it costs $1,712, they could say, `I didn’t think it would cost that much.’ If you don’t have it on paper, how can you collect it?”
Remember: If your state requires that you give a completion date, include the new completion date on change orders, making it very clear how much of a delay will occur.
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