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The dangers of compact contracts

May 16, 2016

All businesses in all industries enter into contracts at some point, and construction companies in Fort Lauderdale and Hollywood are no exception. While many business contracts are simple, like an agreement to deliver a product on a specific day, construction contracts usually are far more tricky, and need an attorney’s review.

WHAT IS A CONTRACTUAL AGREEMENT?

A contract is a legally binding document that lays out specific terms for a service to be performed. For a contract to be legal, all parties must receive something that is beneficial to each party’s business. For example, a construction company agrees to renovate a building. One party will benefit from the renovation while the construction company will benefit from being paid for its services.

WHAT IS A COMPOUND CONTRACT?

While not an official legal term, “compound contract” is a common term used in reference to contracts used in the construction industry. These contracts are designed to “simplify” contracts that often are used when a bidding process is in place for a construction project. Often designed to be a single-side bid form, compound contracts are much more complicated than they seem.

BEWARE OF THE TERMS AND CONDITIONS

While a compound contract appears to be simplistic, the problem often lies in the “terms and conditions.” Most simplified contracts have very casual references to their terms and conditions. These often are a mishmash of phrases taken from similar contracts or referencing different government terms and conditions. If the contractor does not have all related addendums attached to the contract, expensive legal issues are likely down the road.

A compound contract can be very confusing once you start deciphering the small print. In fact, it is not uncommon to find major contradictions in the terms and conditions of a single contract. The best way to manage risk for this type of contract is to let a commercial litigation attorney review it before you sign.

UNDERSTAND ALL TERMS BEFORE BIDDING

When bidding on any type of project, make sure that you are familiar with all aspects of the contract, including how legal issues will be handled in the future. Many contractors find themselves in shock when they are sued for “poor performance” a decade after a contract is finished, only to find themselves in mediation instead of in a courtroom. Sadly, the fine print in their compound contract gave the purchaser of their services these rights.

Make sure that you carefully review any warranties or guarantees that you are expected to offer as a contractor, and for what period of time. You will need to verify whether you are required to place a bond on the job prior to starting, and establishing payment protocol is a must. You also will need to check if there are employee status requirements for your workers, paperwork requirements in addition to your standard billing method, or requirements to prove that employment taxes have been filed. Each of these conditions may be found (or referenced) in the small print.

A contract – compound or regular – is a legally binding document that can be enforceable in court. A judge will never accept an allegation that you were not aware of the terms of the contract prior to signing the agreement. Always know what is contained in any contract that you are signing, and let a Fort Lauderdale contract dispute lawyer from David S. Tupler, P.A. handle your commercial disputes, giving you the best chance of a favorable outcome.