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Construction Contracts

    Contracts Generally

      Business relationships rely on "contracts."

      Some people believe that a contract exists only if there is a written document signed by both parties. This is not always the case. There are situations when verbal agreements can be binding.

      Signed documents are a common form of contract (and are mandatory in some situations) but that is not the only form they can take.

      In very broad terms, in order to form a contract you need:
      1. Offer
      2. Acceptance
      3. Consideration

      Typically, a contract is formed when:

      1. "A" makes an offer.
      2. "B" accepts the offer (after negotiation or without negotiation).
      3. "Consideration" - something of value - is given by one party to the other party. This can be money, merchandise, labor, or "something else." 1

    Example:

      I offer to sell you my pen for $1.00 and you agree to pay me $1.00 for my pen. We have a contract.

      Simple:
      • Our agreement has scope ("this pen") a price ("$1.00") and consideration (the value of the pen and the value of the dollar.
      • It is a completed contract when we trade my pen for your dollar.

      Not So Simple:
      • You need my pen today, but don't have cash on you. I give you the pen, you promise to pay me tomorrow.
      • You need my pen today, and have a dime in your pocket. I agree to take your dime as down payment/consideration and your promise of paying me $0.90 tomorrow, and give you pen.
      • You give me your dollar, but I need my pen for the rest of the day and promise to give it to you tomorrow

      It is a completed contract when I have all of your dollar and you have my pen. If you don't have my pen, or if I don't have all of your dollar, the contract is incomplete. There is potential for controversy - which probably means expensive attorneys.

      It is pretty common for the terms of a deal to grow fuzzy in memory - even one as simple as the above example of an overnight transaction.

      That's why industrial democracies and republics consume so much paper.

1
         "Consideration" - the "third leg" of the contract tripod - is loosely defined as giving and accepting something of value. The giving and accepting of consideration marks a point in time where both parties agree-to-agree. Consideration can be payment in full, a partial down payment or.... "something else."
         It's the "something else" where things can get tricky.
         A purchase order, a signature on a bid or making a down payment... not controversial very often. A handshake, ordering supplies, scheduling time to be on the job... not so clear.
         In the "not so simple" examples above, handing off the merchandise with no payment or making a partial payment with promise of more is "consideration."
        

         My lawyerly advice: Don't guess and don't take chances. Always get the consideration on paper and never misplace it, just like the contract itself.