Risk Proof Your Contracts

By Loura K. Sanchez, Esq.

Associations enter into all sorts of contracts for many types of projects ranging from landscaping to pool maintenance and repair, to name a few.  The majority of contracts involve large sums of money and a major amount of work.  In order to protect the association and its investment, the association should ensure that it has an effective contract with the service provider.  A contract will clarify the scope of work the contractor will perform, giving the association a way to measure the quality of service provided. All contracts should be in writing, incorporating all the material terms and conditions of the transaction, and contemplate how the parties will handle events that may occur during the performance of the contract.  When writing contracts the following key provisions need to be included: 

*       Formal names of parties to the contract;

*       Terms (e.g. start, completion, schedule, compensation);

*       Termination provision, including notice; avoid right to cure;

*       Scope of work; including exclusions;

*       Specifications and definition of terms;

*       Standards of work/qualifications of contractor;

*       Warranty and guaranty for contractor;

*       Insurance required (e.g. general liability, casualty, workers compensation) -  all contractor insurance is primary to association insurance which is secondary and non-contributing;

*       Indemnification by contractor for negligence, willful and wanton acts, damages;

*       Rights of assignment;

*       Use of subcontractors;

*       Contract is complete agreement between parties; amendments, modifications, change orders;

*       Attorneys fees to prevailing party in event of breach;

*       Venue in event of lawsuit;

*       Contractor not an employee;

*       Responsibility for obtaining permits, licenses, etc.;

*       Lien releases/waivers;

*       Dispute resolution/ADR requirements in event of breach;

*       Payment is not a release;

*       Payment schedule, including when and in what manner payment will be made, setoff and withholding payment rights;

*       Notice: whom, where, how, when;

*       Signature page noting in what capacity the signatories are acting.

 
Most contract-related problems associations encounter arise because the agreements specify too little, explain too poorly, and assume too much.  Before any contracts are entered into by the association, we recommend an attorney review the agreement to ensure the association is properly protected.


Community E-ssentials, April 2008