The Blueprint blog
featured
/Restoration
Navigating the legal landscape of your restoration and mitigation business can be nerve-wracking, especially when it comes to understanding the nuances of work authorizations and contracts. So, let’s dig into the differences between these two types of agreements.
Work authorizations and contracts serve distinct purposes in the restoration industry.
A contractor work authorization form is essentially a document that grants permission for a contractor to enter a property and perform specific work. It is typically not a legally binding restoration contract and lacks the enforceability that a contract provides. Work authorizations often include requests for direct payment from insurance companies but do not obligate them to comply, leaving contractors vulnerable to payment disputes.
On the other hand, a contract is a legally enforceable agreement between two or more parties that outlines specific duties and obligations. It must include essential elements such as the identification of parties, scope of work, price and payment terms, completion time, and notices and disclosures to be considered valid.
For small, straightforward jobs, a work authorization might suffice, especially if the scope of work is well-defined and prompt payment is expected. Work authorizations may also be appropriate for emergency-service jobs, such as requests for immediate water-damage mitigation. However, for larger projects or those involving complex work scopes, such as disaster restoration jobs, a comprehensive contract is indispensable. This is because contracts provide a clear framework for resolving disputes and ensuring payment, which are critical for protecting your business interests.
Properly-drafted contracts state specific and definite duties and terms that make them enforceable.
In contrast, most work authorizations are not enforceable because they do not state specific duties and terms.
Two more vital facts to consider:
1. A work authorization with a payment clause attached does not constitute a contract.
2. Performing work under a work authorization is like performing a flying-trapeze routine without a safety net: it may not end well.
Legal requirements for contracts and work authorizations can vary significantly by state, particularly for residential projects. For instance, some states mandate specific titles or headings on contracts for certain types of work. It is crucial to consult with a qualified attorney who specializes in construction contracts to ensure compliance with local regulations. This helps ensure you have enforceable agreements, and it also provides an opportunity to review and tailor your contracts to address specific business needs and risks.
Best practices for both documents include ensuring they are clear, concise and easy to understand. Work authorizations should be kept simple and focused on granting permission for work, while contracts should be detailed and comprehensive.
Additionally, maintaining good documentation practices is vital for both types of agreements. This includes
documenting the scope of work, and also keeping detailed records of all communications, all work performed, and any changes affecting the scope of work. One way to do that is to use a professional software app specifically designed for contractors. For example, the magicplan app enables you to do all of the following:
This is a critical aspect of managing restoration projects. One effective strategy is to include specific payment obligations in your contracts, such as clear payment terms and consequences for non-payment. For instance, you might specify that payments are due within a certain timeframe after completion of specific milestones.
It is also important to include provisions for direct payment from insurance companies, although these should be complemented with assignments of benefits (AOB) where possible. AOBs legally obligate insurance companies to pay contractors directly, providing a stronger safeguard against payment disputes.
When drafting contracts, several key clauses are essential to include for legal protection and clarity. For example:
Understanding the differences between work authorizations and contracts is essential for protecting your restoration business legally. By recognizing when and how best to use each document, you can help reduce the risk of legal issues and ensure smoother project execution.
Reminder: Always consult with legal professionals to tailor your agreements to your specific needs as well as local regulations.
Watch this short video on How Restorers Use Assignment of Benefits (AOB) to Protect Payments
Bernd Wolfram
Head of Product