Contracting with Association Contractors: An Ounce of Prevention
As legal counsel for community associations, we assist our clients with the various types of conflict that arise in the course of association business activities. We understand that conflict can sometimes escalate to a level that requires court intervention. We also know that certain preventative steps can help to alleviate the time, expense, and emotional drain that come with litigation. In particular, good contract drafting can help to minimize the impact of disputes between associations and their contractors. We encourage our clients to seek legal advice when entering into contracts for management services, landscape maintenance, capital improvements, and any other project or service that involves a relationship with an independent contractor. The following reminders come directly from our experience advising community associations:
A bid or proposal form, while legally binding, is not a good contract. While signing a bid or proposal form may bind the association to pay for services performed by the contractor, the association does not receive any protections as part of the bargain. We recommend contracts that contain specific provisions which, at the very least, address the scope of work, insurance coverage, payment terms, remedies for default or breach, and attorney fees for the prevailing party in any dispute that may arise under the contract terms. Bid forms do not typically include these recommended contract terms.
Low bid amounts may contain hidden costs. Associations should consider the reputation of contractors, and request and contact references, prior to accepting a bid solely because it states the lowest bottom line cost. A contractor who performs poorly or fails to perform may cost the association much more to repair or finish the job than another contractor that originally bid a higher amount for the project. If the association fails to enter into a contract or require certain terms in the contract, the association may bear the additional project costs.
Negotiate amendments to contracts prepared by the other party. Industry-specific contract forms likely favor the industry represented by the contract drafters. Through negotiation, associations can modify form contracts to better protect their interests and to encompass the actual work agreed upon by the parties. We recommend that associations submit form contracts to legal counsel for review, comments and possible revisions, prior to signing the agreements.
If a breach occurs, document the damages. A breach of contract by the contractor may permit the association to compel performance and/or demand damages. Damages include the cost to repair or complete the work in accordance with the contract documents. Contract terms sometimes provide for liquidated damages, or a set dollar amount, for breaches that cause damages that are difficult to ascertain or calculate. Associations can help identify damages by retaining all original bids, acquiring new bids for incomplete projects, and documenting deficiencies in the breaching contractor’s performance, which may include work delays subject to liquidated damages.
An agreement to part ways may save time and money. Not all contract breaches should result in litigation. Minimal damages and lack of a contract provision that provides for attorney fees to the prevailing party may mean that the association should get the job finished by another contractor and move on to other issues. Sometimes the time and expense of enforcing a contract, especially if coupled with a possible breach by the association, may support rescission of the contract. Rescission cancels the contract by mutual agreement and does not allow for breach of contract claims against either party.
Please contact our office if you have any questions regarding contracts.