New Year’s is always a time of reflection and remembering days gone by. But, I thought only “experienced” (read that as “old”) people like me remembered the heyday of the “handshake agreement” in this industry. But, like bell bottoms did a few years ago, not writing out a contract seems to be making a comeback. And while I kind of liked bell bottoms in the 1970s, and thought my kids’ brief recent flirtation with them was kind of cool, I know for a fact that the re-emergence of the unwritten construction contract is anything but a good idea.
I guess the “experienced” people I learned from in my youth had good reason to trust the people for whom they worked without a written agreement. Issues of insurance, indemnity, workers compensation coverage and taxes apparently just somehow got worked out in those days. I guess so did times when plans and specifications were imperfect, the soils were different than expected, or the job wasn’t completed (either in time or money) the way one or both parties expected. Change orders somehow just got recognized and approved, and payment was made timely.
But, all that was before the legislature imposed more pre-lien requirements on contractors and suppliers, and our courts issued a few decisions that make it harder to get paid. Maybe every lender was strong in those days, and recognized handshakes between those to whom they lent and contractors as binding. And, that was before owners were single-purpose limited liability companies with no assets other than the project being built. Consequently, there was more reason between owner and contractor to trust that the other was “good for it.”
We are all fond of the “good old days.” But, the terms of a oral construction agreement are extraordinarily difficult to establish when things go wrong. Failure to provide the proper pre-claim notices are absolute bars to a lien, removing significant leverage, and leaving a breach of oral contract lawsuit—requiring proof of what the contract’s terms were–as the only avenue to obtain payment. Not a very attractive option.
Maybe the current bad times are what prompts a contractor to agree to work without a contract. I remember some lean times, and the pressure I felt to get some work–any work–in the door. But, regardless of the urgency involved, I am floored by the number of people and companies I see working on handshakes today. Given the realities of economic uncertainty, financial instability and highly increased statutory regulation, the risks of going without the protection of a written contract seem huge. Even if things are really tough, a “make or break” job taken on a handshake is often a straight, downhill track to “break.”