Contracts made simple with Nick Knihnisky

On today’s episode, Zach’s getting down to business to talk about contracts. He’s joined by Nick Knihnisky, Buildertrend’s expert for all things legal.

Tune in to the full episode for must-have insights that will ensure you have a reliable construction contract protecting your business.

WHY IS A HARD CONTRACT BETTER THAN AN OLD-FASHIONED HANDSHAKE AGREEMENT?

“Now, of course, handshake agreements are a thing of the past, with lawyers getting involved, disputes, lawsuits, you name it. So, what I want to really touch on is that you don’t necessarily need the longest contract in the business. The key is finding a contract that’s built for your business and what you’re doing for your clients. It should not only protect you, but also set expectations.

And I think, so many people see a contract as a risk mitigation tool. And while yes, absolutely, it should do that should you ever find yourself in a legal dispute. But risk mitigation doesn’t just mean the law in finding yourself in a courtroom. It can also mean client risk and ensuring seamless communication and outlining what those expectations are supposed to be going into the relationship. Whether you’re building a fence or a million-dollar home, you want people to be on the same page of what they can and cannot expect.”

WHAT ARE SOME IMPORTANT THINGS TO CONSIDER WHEN BUILDING A CONSTRUCTION CONTRACT?

“What’s the cost of the project? How will you revise the agreement? If there are additional expenses, who’s going to be responsible for those? We look in the last year, and it’s been an absolutely crazy time, right? Not only COVID-19, but we’ve seen material shortages. We’ve seen rising costs in lumber. Those things probably aren’t going away. And depending on what you read, we might also be facing supply chain issues for many overseas materials that either you or your subcontractors use.

What happens then? Your contract should contain those expectations and outline not only the specific economics, but also what happens if there are delays. What’s the ideal date of completion, date of commencement, any kind of communication burdens that you might have?

Assign a specific individual to contact with. Historically, when you’re looking at homeowners, there’s typically two or more. Who’s going to be the main point of contact? Who are you texting to get answers? Because your project can only move as fast as you can go, but oftentimes it’s dependent on somebody responding to you in a timely fashion.”

DISCLAIMER: The information contained in this post is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this post without seeking legal or other professional advice.

LINKS AND MORE

For a more in-depth breakdown and additional expert advice, watch our contracts 101 webisode here.

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Nick Knihnisky

Nick Knihnisky | Buildertrend

Intro:

Welcome to “The Better Way,” a podcast by Buildertrend. Here you’ll learn to simplify and establish processes that will make meaningful changes to your company and help you achieve your goals. There’s a better way to run your construction business, the Buildertrend way. Tune in this season as Pro Services education coordinator, Zach Wojtowicz, chats with several experts about risk management.

On today’s episode, Zach’s getting down to business to talk about contracts. He’s joined by Nick Knihnisky, Buildertrend’s expert for all things legal. Tune in for must-have insights that will ensure you have a reliable construction contract.

Zach Wojtowicz:

Welcome to “The Better Way.” My is name is Zach Wojtowicz. I’m here with Nick Knihnisky to talk about contracts today. Nick, how are we doing?

Nick Knihnisky:

Not too bad, Zach. Thank you for having me. Happy to be here.

Zach Wojtowicz:

Yeah, absolutely. Thanks for spending some time. Nick, let’s just kind of reiterate what you do here at Buildertrend.

Nick Knihnisky:

Yeah. So, my title is director, Corporate Counsel. To put easily, I am just the resident attorney. Now, it’s not all of the glamor that you might see on TV or something like that.

Zach Wojtowicz:

You’re taking the Buildertrend jet all around the country.

Nick Knihnisky:

Yeah and screaming in court every single day.

Zach Wojtowicz:

Do we have to do that a lot?

Nick Knihnisky:

Well, no. But, you know.

Zach Wojtowicz:

That’s good. Let’s let’s stay on track for this one.

Nick Knihnisky:

There you go. There you go. But, yes, every single one of my days is going to be a little bit different. And we’re going to be handling everything from contract review and drafting, to intellectual property, some immigration stuff, employment law. You name it, we’re doing it on a daily basis.

Zach Wojtowicz:

Awesome. Well, this is a topic that I think people will be really interested in getting into it, which is contracts. Which, we’ve had plenty of people have the question asked to them, can you provide us contracts for you, for us, for your contracting company via Buildertrend? Do we have a Buildertrend contract that we can give to our clients and give them full confidence that they’re protected under the law from compliance and liability?

Nick Knihnisky:

Short answer is no.

Zach Wojtowicz:

Yeah, that was a good setup.

Nick Knihnisky:

There are a lot of reasons that we’ll get into here briefly into why we don’t do that. And truth be told, we want you to be able to set up a contract and an agreement that works best for your business, right?

Zach Wojtowicz:

Sure.

Nick Knihnisky:

We run a gamut of clients running all the way from fence builders, pool builders, to contractors building million-dollar plus homes. Believe it or not, if we handed you a template, probably wouldn’t work for your business.

Zach Wojtowicz:

No way. I can’t believe it. I think people are just looking for guidance about what should it include? What shouldn’t it include? And the unfortunate answer to that question is it just depends on your business type.

Nick Knihnisky:

Right.

Zach Wojtowicz:

It depends on your location, as well, right?

Nick Knihnisky:

Right, right, right, a number of state-level considerations to look into there. And we did a webisode, I believe this was last fall, shoot, time has just flown by recently. But I was joined by Bill Gschwind from Minnesota Construction Law, where we essentially did a tear down of a building agreement, and I believe there’s also a blog post with that same material. Josh, if you wouldn’t mind potentially linking that in the show notes or show description so that people can access that material about the webisode as well as the blog.

Like I said, the key is to remember that different jobs are going to need different agreements depending on the size and the scope of that contract. But underlying everything related to a contract is the fact that we’re talking about contracts here. Why are they called contracts? Because there’s a contract link to it. And that may not be a 50 page legal document filled with countless lines of …

Zach Wojtowicz:

Talk about a sales experience.

Nick Knihnisky:

Yeah.

Zach Wojtowicz:

Let’s get dinner first before you hit me with a 50-pager contract.

Nick Knihnisky:

I can tell you from personal experience reading 20,000 words of legalese is not a joyful evening. However, an agreement can be as simple as a handshake, and that actually can serve as a “contract.”

Zach Wojtowicz:

Really?

Nick Knihnisky:

Now, of course, handshake agreements are a thing of the past, with lawyers getting involved, disputes, lawsuits, you name it. So, what I want to really touch on is that you don’t necessarily need the longest contract in the business. The key is finding a contract that’s built for your business and what you’re doing for your clients. It should not only protect you, but also set expectations.

And I think, so many people see a contract as a risk mitigation tool. And while yes, absolutely, it should do that should you ever find yourself in a legal dispute. But risk mitigation doesn’t just mean the law in finding yourself in a courtroom. It can also mean client risk and ensuring seamless communication and outlining what those expectations are supposed to be going into the relationship. Whether you’re building a fence or a million dollar home, you want people to be on the same page of what they can and cannot expect.

Zach Wojtowicz:

Right. Yeah, that makes a lot of sense. And it’s just one of those things that obviously everybody knows when they go under any sort of home improvement or remodel, a fence, there’s going to be some outline of the terms and conditions. And it’s not that we want to read every word of it, but just to know generally important information.

A lot of my time spent with clients is you have a contract, let’s get it into Buildertrend, so that it’s easily transferable. It’s the vehicle that you’re sending out. And then, you know, hey, they got this information, and it outlines not just if we end up in litigation, but what are my payment terms? When is the scheduled completion going to be there? It can contain a lot of things, not just when are we going to end up in court? And I think that gives it kind of that scary aspect that doesn’t really need to be there in what we’re trying to accomplish.

Nick Knihnisky:

Yeah. Your contracts can actually be sales tools.

Zach Wojtowicz:

Right.

Nick Knihnisky:

I know that sounds absurd to say because you’re handing over …

Zach Wojtowicz:

That is a good-looking contract. I’m signing with this guy.

Nick Knihnisky:

But believe it or not, that’s true. You want your contracts to contain transparent expectations as well as exuding professionalism and not setting yourself up for failure, both in a legal environment, but also in a professional environment. If something goes wrong with the client, that’s still going to reflect poorly on you, and you don’t want to find yourself in that scenario. And can ensure that doesn’t happen by having a clean contract on the front end that you know what’s in it, and you’re able to communicate those provisions.

That doesn’t mean just going and pulling a template and being like, oh, here you go. Here’s your contract. No. Go and meet with an attorney, build something that makes sense for you that applies in your state, in your local jurisdiction, that you can then hand over to a client and have full confidence to say, hey, here’s how our business operates. Here’s how our project’s going to kind of be outlined along the way, and here’s what you should know.

And I can promise you, nine times out of 10, that’s going to be a far better experience than just handing over a template and saying, good luck. Because then you’re going to hear back from their attorney, God forbid that happens, and then, you have to go …

Zach Wojtowicz:

Hey, we’re based out of Arizona, and this is for Maine. That’s a problem.

Nick Knihnisky:

Exactly. And that’s the last spot you want to be in. It’s a waste of everybody’s time. So, if you have something on the front end that makes sense for everybody, you’re going to be in a good spot.

Zach Wojtowicz:

Yeah. And one thing I always kind of think about is there’s always that concern out there that people’s contracts are missing something. Is there a right or wrong way to build a contract? I know you said meet with the attorney, but I’m just interested if there’s something that a contractor’s contract should include compared to if I’m just going to any sort of other merchant or type of person who might require a contract, some sort of medical example or something like that.

Nick Knihnisky:

Right. So, I mean, easy answer here would be the economics.

Zach Wojtowicz:

Right.

Nick Knihnisky:

What’s the cost of the project? How will you revise the agreement? If there are additional expenses, who’s going to be responsible for those? We look in the last year, and it’s been an absolutely crazy time, right? Not only COVID-19, but we’ve seen material shortages. We’ve seen rising costs in lumber. Those things probably aren’t going away. And depending on what you read, we might also be facing supply chain issues for many overseas materials that either you or your subcontractors use.

What happens then? Your contract should contain those expectations, and outline not only the specific economics, but also what happens if there are delays. What’s the ideal date of completion, date of commencement, any kind of communication burdens that you might have?

Assign a specific individual to contact with. Historically, when you’re looking at homeowners, there’s typically two or more. Who’s going to be the main point of contact? Who are you texting to get answers? Because your project can only move as fast as you can go, but oftentimes it’s dependent on somebody responding to you in a timely fashion.

Zach Wojtowicz:

Yeah. And I know you and I have talked about this before, but I think it’s worth revisiting, the idea of signatures, digital signatures. I’ve met a lot of builders who it’s like 45 signatures and every line item needs a little initial. And generally, I could see how that’s important, but is that necessarily required or is it mandatory that every part, every clause in a contract needs a specific acknowledgement in order to hold it legally binding?

Nick Knihnisky:

Short answer is no. However …

Zach Wojtowicz:

This is so relieving to hear.

Nick Knihnisky:

Right, right, however …

Zach Wojtowicz:

However, there’s always an asterisk.

Nick Knihnisky:

But, but …

Zach Wojtowicz:

This is not legal advice.

Nick Knihnisky:

There you go. This is not legal advice. Please consult a local attorney. However …

Zach Wojtowicz:

Did I have to sign a waiver to be here for this podcast?

Nick Knihnisky:

You did, you did, you did. Again, short answer is no, but there are going to be local stipulations in some communities, in some jurisdictions, that do require an additional consent mechanism beyond just a contract or a signature at the end. When you’re in the real estate space, there is a hefty degree of legal construct around it. And whether that’s a county-based requirement, a state-based requirement, a city-based requirement … sometimes you’ll see real estate obligations that say, every single page needs to have initials at the bottom just ensure that you’ve read it. And that’s to not only protect the client, but also you as well to say that you’ve presented this material to them and that everybody’s comfortable with it.

Zach Wojtowicz:

Yeah. And just in Buildertrend, we have the ability to send out proposals and estimates. They work as contracts. There’s plenty of reason to be confident when you’re sending those out to your clients, that those are acknowledged and within the confines of the law. Correct?

Nick Knihnisky:

Correct. And we get this question all the time to the point that we actually created, shoot, this was about six months ago, a little handout.

Zach Wojtowicz:

Oh, really?

Nick Knihnisky:

So, rather than having to type up a response every time, we can just send over the handout that outlines what our legal posture is for our contracts. And easy response there is to say, look, we reviewed federal e-signature laws. We’ve reviewed state-level e-signature laws, at least the model what’s called UETA. And I don’t need to go into the specifics of what all that means.

Zach Wojtowicz:

Not that kind of podcast.

Nick Knihnisky:

Not that kind of podcast. That’s right. But we reviewed all of that, and we feel comfortable that our contract execution process complies with everything they’re in. And not to mention, we’ve seen our contracts and our signature process tested a number of times in disputes, as well as in lawsuits, and we’ve come out on top every single time.

If you ever find yourself in that scenario, and somebody is challenging the validity of your contract and the signature they’re on, we’re happy to help you pull metadata down and say the who, what, when of that contract.

Zach Wojtowicz:

Yeah. And on the flip side of this, I’ve worked with plenty of clients in Buildertrend where we’re trying to find a way to get contract language, or they don’t have any with their … is it important to get these things into the program? Does it actually enhance anything or is the signature and the price enough to acknowledge that you’re going to be receiving payment?

Nick Knihnisky:

I would certainly recommend going to go check out our podcast that does the tear down on the builder agreement.

Zach Wojtowicz:

Sure.

Nick Knihnisky:

Because I think that’ll provide you a little bit more context and granular knowledge than we’re willing to get into today. Short answer is, yeah, it’s always great to have more rather than less in this context. But at the same time, you don’t want to inundate your homeowner with something that’s completely overwhelming or your subcontractor or somebody like that. Because as soon as you hand over a 50-page contract, you’re losing somebody, right?

Zach Wojtowicz:

Yeah.

Nick Knihnisky:

That’s just going to be awfully intimidating.

Zach Wojtowicz:

Yeah, yeah, expecting your client to be aware of every ins and outs of that little detail seems a little unrealistic too. I mean …

Nick Knihnisky:

That’s right, that’s right.

Zach Wojtowicz:

You’re just trying to go into an agreement. Are there any pitfalls of contracts that our listeners maybe aren’t aware of that we could kind of point out to them?

Nick Knihnisky:

Yeah. So, I’ve alluded to this already, but too many people see their contracts as a defense mechanism if they find themselves in a lawsuit. And I don’t think that’s necessarily fair. Instead, contracts should be about setting expectations. We’ve talked about this. What are the economics? What are the dates of commencement and completion? What other documents are included in the agreement? Are you also wrapping in your plans in your bids? Things like that. And like I said, this last year has been tough. We’ve seen a number of instances arise that are causing unforeseen examples to the contractor.

You’ve heard this, there’s a French term that goes around by the name of force majeure. And that’s basically to say, acts of God, who bears the responsibility? Does it excuse performance? Include something like that in your contracts because when we saw the early days of the pandemic set in, and I believe I actually did a podcast last spring on this exact same topic with Paul Wurth and The Building Code, where we were talking about, hey, what happens if you’re no longer allowed on your job site? Are you still responsible for completing that project on time? Well, a force majeure would have protected you in that instance to at least buy you a couple more months until local regulations were lifted, you were able to get back, your subs were able to get back, and you were able to continue on building, whether it was a home, pool, fence, whatever it might’ve been.

Zach Wojtowicz:

Right. Well, Nick, one other place that we kind of see contract-type language outside of proposals and estimates are change orders. Do a lot of the same principles apply when I am making a scope change? You brought that up, and it just interests me because I talked with that with one of our other guests in a different episode. Same concept, you want to outline the expectations and make sure they’re there. Is there anything about a change in scope that kind of makes it different, or is it still considered a type of contract?

Nick Knihnisky:

So, the easy answer there is, yes, that is considered a type of contract. If I were to say the number one reason for disputes that we see, it’s because people execute a change without actually getting it on paper, and that’s when they end up in court, right?

Zach Wojtowicz:

Right.

Nick Knihnisky:

And they’re arguing, well, did you ever actually agree to this additional work? Are you actually on the hook for it? And if you don’t get that on paper and have signatures associated with it, you’re going to run into some uphill battles.

Zach Wojtowicz:

A little he said, she said situation.

Nick Knihnisky:

That’s what it all comes down to.

Zach Wojtowicz:

Yeah.

Nick Knihnisky:

I would actually say a change order and getting that documented is the most important part of the process.

Zach Wojtowicz:

Interesting. You heard it here first, folks.

Nick Knihnisky:

That’s right.

Zach Wojtowicz:

And we have a lot of those conversations on the phones about processing around change orders and making sure you are documenting for that exact reason. I’ve shared plenty of stories myself, large litigation cases, 40, $50,000, because of something simple like not getting it somewhere that you can easily record it. You might as well put it into the program if you’re using it for everything else, if you’re not, and get that benefit of that extra layer of protection.

Nick Knihnisky:

That’s right. And Buildertrend makes it so easy. I mean, it’s basically three steps. Boom, signatures, out the door, you’re moving on with your life.

Zach Wojtowicz:

Right.

Nick Knihnisky:

No longer do you need to worry about chasing down a homeowner, meeting up, getting a signature on a change order, putting it back in whatever records you might be keeping. Instead, it’s all in one place. Document, document, document, can’t say that enough. And, end of the day, a change order acts as an amendment to the contract. I mean, it’s pure economic terms. We should be outlining those and putting them on paper.

Zach Wojtowicz:

Yeah. And it just also, for the benefit of your own people, the subcontractors, the people who are doing the work, they need to know what the scope changes are because otherwise they’re going off the original terms that the client agreed to at the beginning of the project.

Nick Knihnisky:

That’s right. And oftentimes, lenders are going to be curious for those as well. These are some significant investments for a lot of people, even if you were just doing a large remodel.

Zach Wojtowicz:

Yeah. Building a house is hard. Who would have guessed?

Nick Knihnisky:

Who would’ve guessed?

Zach Wojtowicz:

There’s a lot of people, a lot of individuals getting involved here.

Nick Knihnisky:

That’s right.

Zach Wojtowicz:

Well, Nick, that will wrap up our conversation on contracts. Thanks for being here.

Nick Knihnisky:

Absolutely. Thanks for having me.

Zach Wojtowicz:

Yeah.

Outro:

Thanks for listening to “The Better Way.” If you’re a Buildertrend customer, schedule a training to learn more. All listeners, be sure to rate, review and subscribe to “The Better Way” wherever you get your podcasts. Also, visit buildertrend.com/podcast to sign up for the email notifications when the next season drops and explore our other podcast, “The Building Code.” Don’t miss our next episode where we will be discussing liens and waivers.


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