Tips for Protecting Your Restoration Company with Legal Documents

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.

How to Differentiate Work Authorizations and Contracts

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.

When deciding which document to use, consider the nature of the project.

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. 

Other Important Distinctions

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.

Need-to-Know Information About Both Types of Documents

Understand That State Requirements Will Come into Play

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.

Follow Best Practices to Guard Your Business

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:

• Collect accurate documentation: Use the app to capture detailed job scopes to ensure that all work authorizations and contracts reflect accurate and comprehensive job details. You can also use magicplan to create and share professional-looking estimates and work-in-progress reports.

• Edit PDF files: magicplan includes a PDF editor with annotation and content editing capabilities, allowing you to easily modify contracts, work authorizations and other documents as project details change. This feature also supports digital signatures and prefilled text.

• Manage files effectively: Save all documents from each project in a centralized manner, ensuring easy access, organization and retrieval of essential paperwork.
  

Contract-Specific Guidelines to Follow

Protect Your Payment Rights 

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.

Include Key Clauses 

When drafting contracts, several key clauses are essential to include for legal protection and clarity. For example:

• Indemnity provisions: These clauses outline the responsibilities of each party in case of damages or liabilities. They can protect you from claims arising from accidents or property damage during the project.

• Attorney fee provisions: Including a clause that specifies who bears the cost of legal fees in case of a dispute can help deter frivolous lawsuits and ensure that you are not left with significant legal expenses. 

• Equipment rental terms: If any project involves renting out equipment, such as air movers or dehumidifiers, ensure that the terms of rental, including costs and responsibilities for maintenance, are clearly outlined in a contract clause. 

• Termination stipulations: Specify the conditions under which either party can terminate the contract, including notice periods and any obligations that remain after termination.

Conclusion 

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.

WANT TO LEARN MORE ABOUT ASSIGNMENT OF BENEFITS?

Watch this short video on How Restorers Use Assignment of Benefits (AOB) to Protect Payments