New Year's Resolutions for Residential Contrators from Attorney Andrea Goldman of Goldman Law
In this guest blog post I am introducing you to a fellow Eastern Mass NARI member. Andrea Goldman works with many of my clients assisting them with contracts and construction related legal matters. You can learn more about Andrea here; http://www.goldmanlg.com/
Every year I reflect on the challenges my clients have faced and how they could have been avoided. I also think about what they can do to improve and grow their businesses. So, here are suggested resolutions for 2016.
- Learn how to estimate properly.
This past year, the #1 reason contractors and construction companies I represent have gotten into trouble is they fail to use proper job costing and markups to prepare an estimate. As a result, their profit margins are much lower than expected, or, even worse, the contractor has had to invest his own money to finish a job. This is your living. There is absolutely no point in undertaking a job if you are going to lose money. Learn how to estimate properly. Look at resolutions #2 and #3 to help solve this problem.
- Join construction associations to learn new skills, network and acquire mentors.
I am General Counsel of the Builders and Remodelers of Greater Boston (BRAGB) and a member of Eastern Massachusetts National Association of the Remodeling Industry (NARI). In addition to having formed wonderful relationships with members of the construction industry, I have learned an enormous amount about the business, legislation affecting the industry, changes in the building code, the latest materials, social media and other areas affecting construction. Members are dedicated to their trades and eager to help each other. Customers appreciate it when they see an association logo on your website. Please join me at a meeting!
- Maintain your licenses and update insurance.
Be professional. Massachusetts requires home improvement contractors to maintain their HIC registration. If you have a Construction Supervisor's License, you are required to complete 12 hours of continuing education every two years. There are numerous course offerings out there. Instead of viewing it as an annoying hurdle, use the opportunity to attend an in-person class, meet other contractors and learn from experts in the field. The information provided is useful, and can help you improve and grow your business.
Contractors require a number of kinds of insurance. General liability insurance covers damage to others' property caused by the contractor's work. It does not usually cover defective work. Worker's compensation is required if you have employees. Make sure your agent understands the field of construction and update policies to include adequate coverage.
- Use a good contract to prevent disputes.
A good contract provides some of the best protection for contractors in running their businesses. It helps to ensure that you will get paid according to a proper payment schedule and should provide for written change orders and address hidden conditions. Without a provision in your contract that allows you to collect attorney's fees for nonpayment, you can't get your attorney's fees back if you have to file a collection action. The MA Home Improvement Contractor Statute also requires written contracts for any renovations over $1000.
- Communicate with clients.
Another reason contractors get into trouble is they don't maintain proper communication with their clients. Make sure all change orders are in writing. Tell clients if a problem develops or if you've underbid a job. Do not stick your head in the sand. Treat your clients properly, and you will prevent disputes.
- Pay employees as employees and not as independent contractors.
Massachusetts is very clear. If someone is working for you and doing the same work that you do, they are your employees. If you control the means and methods of their work, they are your employees. If you pay employees as independent contractors, you could be liable for triple damages, attorney's fees, interest and costs. It is not worth it.
Protect your assets:
- File a homestead on your home.
A homestead will protect up to $500,000.00 equity in your home. It is crazy not to pay the $75.00 filing fee and record one. If you don't record a homestead, you are automatically covered for $125,000.00. Given that the Massachusetts Home Improvement Contractor Statute makes a contractor personally liable for a violation of the act, it is crazy not to protect your home.
- Hold assets in other entities' names.
Do not hold personal assets in your own name. Incorporate or form an LLC to protect your personal assets from creditors. Establish good credit and try to avoid having to personally guarantee supplies and materials.
- Establish a separate payroll account.
A client's bank account was frozen and she was almost forced out of business. Payroll accounts cannot be frozen in MA.
- Have agreements with subcontractors.
You may have been working with your subcontractors for years, but you need to have a written agreement with them. This should include terms of payment, clearly delineated scopes of work and indemnification clauses. An indemnification clause states that if you are liable for your sub's work, the subcontractor must pay for your legal fees and pay you back for any damages assessed. You should also be able to back charge a subcontractor for incomplete or defective construction work.
If you follow these resolutions, I guarantee you that you will end 2016 on a much better note than when it started.