When you’re on the smaller side or when your business is simply mowing lawns, you may think contracts aren’t necessary unless you’re working for a large commercial customer or general contractor.
However, failing to utilize contracts for your jobs can leave your company wide open to lawsuits and leave you with no legal recourse if a client fails to hold up their end of the agreement.
“Contracts establish certainty,” says Richard Lehr, Esq., of Lehr, Middlebrooks and Vreeland and NALP HR and legal advisor. “You reduce the risk of a misunderstanding as far as what the client’s expectations are and what the contractor will provide. It’s to avoid the risk of a misunderstanding, which creates the risk of non-payment, which also creates the risk of litigation.”
Even if you have contracts for customers to sign, if you aren’t careful about the clauses and wording included or lacking in the contract, you can still leave your business vulnerable.
Common Misconceptions and Mistakes
One major misconception is that a generic contract found online will be sufficient for your needs.
Patrick Murray, co-founder of Local Roots Landscaping, based in Pittsburgh, Pennsylvania, says when they were smaller, they were burned by using one of these generic contracts, which included the phrase that “the customer agrees to pay in full upon completion of the project and total satisfaction from the client.”
“We found this contract online and we went to court over it,” Murray says. “They weren’t satisfied and that was literally the line we lost on. I think it was $10,000 at the time because they weren’t satisfied.”
Lehr adds that run-of-the-mill contracts found on Google typically aren’t enforceable in a contractor’s state.
“Seek legal advice,” says Niwar Nasim, president of Nasim Landscape, based in Puyallup, Washington. “It will cost some money, but it will be well worth it in the event that you ever run into an issue where you need it.”
Nasim says they learned the hard way that they needed to clean up their contracts and work with a contract attorney after subcontracting for a general contractor who filed for bankruptcy.
“Unfortunately, our contracts with them at the time did very little to protect us, and we ended up losing a substantial amount of money due to this experience,” Nasim says.
You also shouldn’t assume that once you have developed a custom contract with your legal counsel, you can just set it and forget it.
“I think they should have their attorney review it annually because there may be a development, either a case development, a development in state law, or development in business where the language needs to be modified,” Lehr says.
Murray says they’ve added clauses time and time again after a client gets creative and they didn’t realize a specific scenario could happen.
Drew Garcia, vice president of Rancho Mesa Insurance Services and Landscape Group Leader, notes that contracts are also important for insurance companies when underwriting clients.
“From the insurance carrier side, they want to see more oversight, they want to see formality with the contract, and consistent upkeep on the contract so that you’re staying up to date and the indemnity and hold harmless language is in their favor,” Garcia says.
Garcia says improved contracts are necessary for insurance carriers to continue to have an appetite to underwrite commercial landscape maintenance. Currently, they are picking up claims that could have been avoided if there was more clarity written in the contract.
Josh Ferguson, a partner at Freeman, Mathis & Gary, LLP, says he frequently sees litigation over ambiguous contract language and the contractual defense of indemnity language.
“If you’re signing on a client contract and it’s got an indemnity, you want to try to narrow it down as much as possible,” Ferguson says. “You’re only going to be responsible for your negligence, not anything else on the site.”
Key Elements of Landscape Contracts
There are numerous aspects to include in your contracts, but some of the areas to consider fine-tuning or adding include a clear scope of work, an indemnity and hold harmless agreement, definitive payment terms, and clauses to protect your business if a relationship goes south.
Murray says you need to be very explicit when outlining what your services include and what is not included.
“If they’re getting lawn mowing, what all is entailed with lawn mowing?” Murray says. “Is there bed maintenance involved in that? Explicitly say what each service offers and what each service doesn’t offer. I think that’s very important. You can’t assume that everyone will read between the lines.”
In design/build contracts, Murray says they’ve added a rock clause for unforeseen circumstances when they encounter subsurface conditions that require additional excavation so they can charge for time and materials in order to complete this portion of the project.
You should also spell out what clients are responsible for and communicate to them so they are aware.
Garcia says that ambiguous contracts that don’t have a clear scope of work are frustrating for insurance carriers.
“That leads to maybe the carrier having to absorb an issue that could have been outside the scope of the contract, but because the contract wasn’t very clear, they end up having to defend the property owner who probably got sued in some kind of a claim,” Garcia says.
Ferguson says it is critical for landscapers to identify and limit their risk and liability on any site. Having a clear scope of work in the contract can help with this. He adds that with indemnity and hold harmless agreements, there’s no reason not to push these back up to the property manager, where they will defend and identify the contractor for anything that occurs as a result of the manager’s negligence, like declining services.
“For instance, you tell us not to finish hardscaping on half the property and then somebody trips and falls in an open hole,” Ferguson says. “There are endless examples, but if we put that language in there, it helps the contractor; it helps their insurance company.”
Another area to focus on is payment terms and penalty provisions. Outline when payment is due and what interest rates a client will take on if they fail to pay on time.
“I would like contractors to make sure they include that if they’re not paid on time, there are interest penalties, and the right that if you have to proceed with any kind of collections, you have an avenue to recover attorneys’ fees,” Ferguson says.
Ferguson says if a landscape professional doesn’t have those penalty provisions in their contract, and they have to file a lawsuit, they’ll likely only recoup about half their money due to the cost of litigation.
Ferguson notes including a mandatory arbitration clause can be much more cost-effective and quicker than filing a lawsuit. Murray and Nasim both say their contracts include this for disputes.
“For us, it’s all about covering our bases and making sure we are protected,” Nasim says.
Termination clauses should also be included in your contracts as they can provide an out for projects that cannot be resolved.
You should also address how change orders will be processed and if any price increases will be added after signing the contract. Murray says they added a mutual fairness clause that uses the Department of Labor’s Producer Price Index to calculate the rising costs that will impact the overall project expense. He says they’ve had projects increase by $10,000 to $20,000 due to inflation spikes.
In Local Roots’ contracts, this clause reads as follows: “Under this clause, the client understands that they will be responsible for any percentage increase in the total value of their project that is commensurate with the total increase by percentage in the PPI ‘Final Demand’ preliminary numbers from the month this contract is generated and signed by a Local Roots Representative till the month of the project completion. This percentage increase will be reflected in the completion payment.”
Murray says they do not abuse this clause, but it is there to protect them when the economy is shaky.
“Especially in the unstable climate that we are in today, we have language about the price of fuel increases, or excessive and unforeseen labor and materials increases,” Nasim says.
Lehr says some other clauses to consider, including the limitation of damages and non-disparagement terms that can prevent clients from making negative statements about your company on social media.
Ferguson and Murray both recommend steering clear of including warranties in their contracts. Ferguson recommends that if you decide to include some type of warranty, focus on your workmanship, not the materials and limit the timeframe.
“Use your integrity and your judgment to just make it right for clients, but you don’t need to hold yourself to the contract,” Murray says.
This article was published in the May/June issue of the magazine. To read more stories from The Edge magazine, click here to subscribe to the digital edition.
