At the beginning, everyone is friendly with each other and excited for the upcoming project. Your enthusiasm might cause you to shortcut your normal procedures and to dive into the project before you have executed a comprehensive contract. After all, this is a friend of a friend – what could go wrong?
What
could
go wrong is what
always
could go wrong when you aren’t protected by contractual safeguards. Starting work without executing a comprehensive contract beforehand can lead to costly (and avoidable) problems down the road, such as arguments over:
- what is or is not included within the scope of work;
- the total cost of the project;
- when payments are due;
- what happens if new unforeseen conditions are uncovered;
- who is in charge of getting the permits;
- how changes may be made and how they are paid for;
- who is responsible for unexpected cost increases; and
- timelines.
There is nothing wrong with wanting to make sure that everyone is on the same page ahead of time by executing a contract. If the friend of the friend is unwilling to memorialize the agreement through a comprehensive contract, then that is a red flag, and you should walk away.
When disputes unfold on the project itself, the good feelings quickly disappear. Disputes involving money can ruin even the best of relationships. Compounding matters, this was not your friend to begin with. The friend of a friend receives the benefit of your trust at the outset (or on the project itself), but because you are not actually friends, they are more likely to turn on you when problems arise.
Nobody enjoys thinking about what happens when things go bad, but a good contract at the outset can help avoid disputes and, better yet, resolve them. In his excellent article, “Contractors: A Good Construction Contract Reduces Risk, Boosts Profits,” Lang Thal King & Hanson partner
George King describes how a good contract can confirm the contractor’s right to notice and opportunity to cure alleged defaults under the contract. Additionally, parties can agree to alternative dispute resolution procedures ahead of time, such as agreeing to mediate any disputes.
Without addressing the above issues in advance, disputes can, and often do, result in a lawsuit. When this occurs, especially without a contract containing an attorneys’ fees provision for prevailing parties, a party that “wins” in the underlying dispute may end up losing in the long run if the court does not award their full attorneys’ fees.
Takeaways. Without a comprehensive signed contract in hand, a friendly favor can quickly turn into a costly – and avoidable – nightmare.
Remember, just because someone is a friend of a friend, that does not mean they are your friend, nor does it mean that they would not be willing to take advantage of you simply because you failed to exercise good business practices.
