Working without a contract? The reasons why Owner’s should never allow it.

In Today’s HGTV world where entire room renovations happen “While you were out” and “Restaurant Impossible” re-brands failing eateries in a weekend, the notion that construction can happen quickly is all too prevalent.  These shows don’t reveal the pre-work that goes into performing these miraculous transformations and they don’t account for the incredible amount of man-power that goes into these feats.  The most critical component of all of this work is the written agreements that must be in place for any of these projects to happen.

Aside from the magical transformations that we are treated to on TV, it is all too common in the construction industry for Architects or Contractors to jump right into the work without taking the time to negotiate an agreement.  There are various reasons why these pros are so eager to get started.

For starters, the Owner may have expressed a desire for a very aggressive project schedule. Contractors are happy to demonstrate how responsive they can be by jumping right in. Maybe the scope of the work is exciting and your Architect can’t wait to get started.  Maybe they are short on work or coming off another project and they need to keep their crews billable.  Whatever a vendor’s reason for wanting to jump right into your project without sorting out the contracts, an Owner’s reasons for not allowing this are stronger.

Number 1 Lost leverage.

When you allow a vendor to start work without a negotiated agreement, you give up all of your leverage.  Leverage is most important for negotiating pricing and favorable legal terms.  Without this leverage the Vendor has almost complete control.  This means you could be pushed into unfavorable agreements that limit your recourse when things don’t go well.

Number 2: Written agreements prevail.

In the event of a dispute, written agreements are the prevailing document between two parties.  If you allow a vendor to perform any work without a contract you may be relying on verbal communications between yourself and the vendor.  Verbal agreements are not only subject to interpretation, they are also prone to selective recollections.  Problems can arise at any stage of a project even early on.  Don’t allow any work to happen until you have things in writing.

Number 3: Interpretation of scope.

Another reason Owner’s should not allow work without a contract is that the scope of work needs to be carefully written and agreed to by both parties.  Without a well-written scope of work, you and your Vendor may have different interpretations of the scope.  Not only does this cause tension between the parties, but it also opens the window for the Vendor to claim additional fees.

These three critical concepts illustrate the reasons why you should never allow anyone to perform any work without an executed written agreement.  It is too easy to get caught up in the urgency of a project.  Owner’s need to take disciplined measures to ensure that they have all the protections possible before any work begins.

Expediting or skipping the contracting process puts Owner’s at great risk.  Projects that are allowed to go on without written agreements tend to be more contentious, they cost more to complete, and can actually take longer than projects that take the time to be fully contracted.

Take the time up front to agree on the scope, schedule, cost, and legal terms and your project will run more smoothly.

Tell me about your experience.  Have you done work without a contract?  Was it successful?

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