Contracts are important as they help align expectations from the get-go. If you work with commercial clients, chances are they’ll require you to sign their own contracts.
These documents can have broad language that can land your company in hot water if you are not taking the time to have your legal counsel review them. Check out some of the red flags to be mindful of before signing your next client contract.
Red Flags in Client Contracts
One of the main red flags to watch for when reviewing customer contracts includes broad indemnification language as far as what the contractor will cover.
“When you’re faced with indemnification language, you want to be sure that your general liability insurance can back up what you’re doing,” says Richard Lehr, Esq., of Lehr, Middlebrooks and Vreeland and NALP HR and legal advisor. “You don’t want to go bare, so to speak. You don’t want to agree to something that you can’t insure unless it’s a reasonable risk.”
Josh Ferguson, a partner at Freeman, Mathis & Gary, LLP, says landscape professionals should also be wary of signing contracts with broad monitoring and inspection provisions.
“That allows a property or property manager to drag all the contractors into a lawsuit for any time something goes wrong in the site,” Ferguson says.
For example, if you sign a contract with this type of provision, you would be responsible for monitoring and inspecting the property and reporting back to the client on any defective or concerning site conditions, even if it’s outside your scope of service.
“We’ve seen it dozens and dozens of times in lawsuits where contractors are stuck in cases that have nothing to do with the services they were hired to provide, and that’s really troublesome,” Ferguson says.
Patrick Murray, co-founder of Local Roots Landscaping, based in Pittsburgh, Pennsylvania, notes for those who want to get into commercial work, they need to pay close attention to the payment terms and if it’s something your business can handle.
“This year, we have a vendor that we signed on,” Murray says. “It was net 60 on their on their payment terms, and that’s really hard whenever you’re paying your vendors on a net 30, and you’re being floated on that net 60, but they’re not going to budge.”
Addressing Red Flags
The good news is that not only can a lawyer review client contracts for concerning clauses, but you can also negotiate with the customer to remove or tailor these risky portions of the contract.
“Contractors should know that they’ve got an opportunity to make things more favorable by engaging with the other side and not just signing whatever is put in front of them,” Ferguson says. “Again, you may listen to this, and then the first time you try it, it doesn’t work. But you definitely shouldn’t give up. Having reviewed tens of thousands of contracts, I think it’s a very low percentage where we get nothing done. I think if you do it consistently and across all your clients, you’d be surprised how often you can make some headway, especially if you can give some explanation as to why you’re doing it.”
Ferguson says that even if nothing in the contract is changed, you are now aware of the risks and can make an accurate cost-benefit analysis of whether the property is worth pursuing.
“What’s your profit margin on the site?” Ferguson says. “Because all you need is one or two significant claims where even if you have insurance, and your insurance company pays, if they pay out heavy on a case, it’s going to raise your deductible, or they might even drop coverage, which we’ve seen more and more these days.”
Ferguson says too often contractors believe they must sign client contracts and can’t add their own language to the contract to make sure the terms are clear and fair.
While a customer contract tends to be viewed as the primary contract, this doesn’t mean you can’t have them sign a contract of your own.
“There’s always an opportunity to try to do that,” Ferguson says. “The explanation we usually give from a negotiation tactic is, ‘Okay, customer, you have your contract, you’re retaining us as the expert, and your contract is the same one you use for all these vendors. Allow us to add an addendum that just better identifies our scope of services.’”
Murray recommends having a lawyer you trust review your clients’ contracts and identify any concerns.
“It’s being super aware of what you’re signing,” Murray says. “Every time we have a question, we send it to our lawyer, and we ask him to pick out any red flags where we are at risk and what we should be concerned with. He’s really good at saying this contract is valid, but here’s where you could be leveraged, or here’s where I could see it going to court.”
