DESIGNING AN EFFECTIVE INTERIOR DESIGN CONTRACT

For many interior designers the contract with their clients are rarely given much thought. That is, until an issue arises with a client over payment terms or scope of responsibility. In order to maximize profits interior designers need to get a little more creative with their own design contracts. With the new year approaching there is no better time to review your old contracts, reflect on any negative customer issues that you may have encountered during the year and craft a new comprehensive contract that fully address your needs and will remedy past negative issues. While there is no magic formula for a good contract, there are a number issues that designers should include in their agreements. Below are some of the critical issues that should be included.

SCOPE OF WORK

It is critical that design contracts clearly spell out the limitations of the designers scope of work. Often designers find themselves practically replacing the general contractor on certain types of jobs. For example, if your scope of work is not clearly stated in your contract, a difficult homeowner may blame you for the failures of an electrical contractor or other trade even though that trade should have been monitored by the general contractor. 

In order to avoid this, a good design contract should state exactly what the designer is responsible for. It should not contain generalities such as "designer will design and oversee the overall transformation of Mr. Smith's home located at . . ." This language was actually contained in a designer's contract. Unfortunately, her client was savvy and litigious and ended up negotiating a much lower final payment than he was originally obligated to pay because he threatened her with a lawsuit over drywall, insulation and lighting issues. 

The designer could have avoided this situation if she had listed those items she was responsible for and included a disclaimer concerning the tasks that were not her responsibility. A general disclaimer could state, "Designer has been retained to provide interior design services only. Designer is not a general contractor and will not act in such capacity. Any issues concerning construction elements must be discussed between owner and his/her contractor."

CONFIDENTIALITY & PROPRIETARY PROPERTY 

One of the designers important tools is their subcontractor contact list. The list contains the names and telephone numbers of the designer's go to painters, electricians, etc. For most designers a good list takes years to develop. The last thing that a designer wants is to have to give up their list to a client and have the client start making direct calls to his or her subcontractors. 

In another real world example, a designer on an large project was challenged by the homeowner concerning delays and the work of her subcontractors. He demanded her contact list. Unfortunately, her contract was poorly worded and the homeowner was able to force her into giving up her list. The homeowner then used it to make side deals with her own subcontractors.

Separately, some designers want their drawing and sketches to remain their proprietary property. The same designer discussed above was also forced to provide the homeowner with all of her drawings and sketches.

In order to protect your contact list and drawings your contract should include confidentiality and proprietary information clauses. The clauses should clearly state that the designer owns all of the drawings and sketches, as well as any other documents or information that the designer wishes to maintain control over. It should also forbid a client from directly contacting the subcontractors without the designers consent. 

PAYMENT TERMS

This is one of the most important clauses in the contract yet is often the most neglected. Most contracts simply state the hourly rate , design fees and commission percentages. In order to fully protect your profit, your contract should be broken down into separate sections for design fees, commissions and hourly rates. Each section should specifically state when payment is due and the manner of payment accepted. It should also specify how often your will bill the client and how your bill will be broken down. The more detailed the payment terms the better. 

REMEDIES FOR BREACH

Finally, a solid design contract should specifically state what happens if the client does not pay the designer in accordance with the payment terms. For example, "an interest charge of x% will be applied to all past due balances." It should also state that "failure to submit payment in accordance with the payment terms will constitute a material breach of the agreement."

SUMMARY

The key to writing a good design contract is to spell out all of the terms and conditions that are important to you in plain language. You would not take shortcuts with your designs and you should not take them with your contracts. It is a good idea to have all of your contacts looked at by an attorney who is familiar with the design industry.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

MAKE A LIST AND MAKE THE CLIENT CHECK IT TWICE

It is that time of year again when Santa is busy checking his list in preparation for the big day.  Design professionals in the kitchen and bath industry can learn a valuable lesson from Santa - when dealing with your clients, make a list and make the client check it twice. Checklists are one of the most important tools that all designers and sales personnel should utilize every time they make a sale, issue a change order or prepare for an installation.  To some extent everyone uses a checklist system to help them remember appointments and client's requests.  But those in the industry need to expand the use of the checklist and make client checklists a functional component of the sales and installation agreements with the client.

Far too often issues arise when customers claim they are entitled to massive refunds because their cabinets were not delivered in accordance with the time frame set forth in the contract.  Even though the contract may say "approximate delivery date" customers always come up with stories of oral promises made by sales staff and designers.  Another area of concern is with installation.  Frequently, clients refuse installation by your company and instead opt for installation by their general contractor. However, many general contractors are not familiar with the installation of your products. This is especially true when dealing with European cabinets which require specialized installation. Most times when these complaints arise you issue refunds or provide other price cuts in order to keep the customer happy. This translates directly into lost profits for your company.   

            You can prevent this type of issue from occurring if you use checklists as part of your contract and have the client sign off on each line item.  Here is a real world example.  Recently a cabinet company sold a large kitchen to a client.  The client signed the contract and declined to purchase installation from the company.  Instead she chose to have her general contractor install the cabinets.  The sales person verbally explained to her that the cabinets were manufactured in Europe and were tricky to install.  She again refused.  The cabinets were manufactured and delivered without issue.  However, during installation her general contractor, who was not familiar with this type of installation, damaged cabinets and improperly installed others.  Of course, the customer blamed the cabinet company for the problems.  She claimed that they measured her kitchen incorrectly and provided her with improper panels. 

 In general, judges and juries are not familiar with the cabinet and design industry. Additionally, lawsuits arising out of cabinet and design contracts lack the flair of personal injury trials and thus, juries are not interested and typically decide to "split the baby" on these type cases.  The bottom line  is that your company losses money even when you did everything right.  So how can a checklist help you avoid this scenario?

Even the most basic contract can be confusing to both the designer/sales person and the client.  They all contain at least some legal jargon which requires at least a glance at Black's Law Dictionary.  You can eliminate any grey contract areas by supplementing your contract with a checklist.  In the scenario above, here is how a checklist could have prevented the loss of profits.  After signing the contract the customer should have been required to review and initial a checklist concerning the installation.  

            The checklist should have stated (at the very least) the following:

            The customer understands that "X" company offers installation services.    _____ (initial)

            The customer understands that "X" specializes in the installation of specialty European       cabinets.                                                                                                          _____ (initial)

            The customer understands that "X" company highly recommends that client utilize the        installation services of "X" company.

            The customer has declined installation services from "X" company.              _____ (initial)

            The customer understands that his/her contractor may not be proficient in the installation   of "X" companies' products.                                                                                _____ (initial)

            The customer agrees that "X" company will not be responsible for any damage to   cabinets during installation or issues arising out of improper installation.             _____ (initial)

Once the client signs off on the checklist you have a written record that you advised the client about the potential dangers of using her general contractor to install the cabinets. You have also cleared up any confusing legalese contained in the contract.  Now if you are sued as a result of installation issues you have clear cut, admissible evidence that should get you out of the case without any loss of profit.

Checklists can be used for more than just installation.  You can prepare a separate checklist for delivery issues, appliances, countertops and for any other issues that you wish to clarify or wish to limit your liability.  So while you might not have Santa's helpers to assist you in the creation of checklists, the benefits to your company are  well worth the time and effort that  you will put into their creation. 

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

The ABCs of Subcontractor Agreements

Are you and your business sufficiently protected?

By Peter J. Lamont

October 13, 2010

The importance of an effective contract with your subcontractors cannot be overstated. In the kitchen and bath industry, you utilize the services of subcontractors on a regular basis to assist with numerous tasks, including installation and delivery. An effective contract with your subcontractor can save you and your company a tremendous amount of time, money and frustration. Unfortunately, far too often dealings with subcontractors are handled informally and, as a result, may even end up costing your company your client.

First, understand that when you hire a subcontractor, you are essentially hiring a company or individual who is not employed by you, and over whom you have very little control, to act on your behalf. Thus, it is imperative that you have a written contract with each and every subcontractor you use regardless of how small the services the subcontractor is providing to you.

Next, certain critical elements must be contained in the contract in order to provide your company with maximum protection. The main issues that should be in your subcontractor agreements are licensing, job and payment, timing and defense and indemnification.


LICENSING

Let’s assume that you are going to hire a subcontractor to install kitchen cabinets for your client. You need to make sure that your subcontractor is properly licensed and registered pursuant to state and local laws. The easiest way to do that is to insert a provision into your subcontractor agreement that essentially states that the subcontractor is properly licensed in accordance with all state and local laws and that the subcontractor agrees to defend and indemnify your company for any damages or legal action arising out of licensing issues.

In today’s litigious society it simply is not enough to ask your subcontractor if he’s properly licensed. He must acknowledge that he is in writing in order to protect your company. In the event that he is not properly licensed, a signed contract wherein he states that he is will protect you.


JOB AND PAYMENT

The job you are hiring the subcontractor to perform should be explicitly stated in the contract. For example, you should include the address of the client’s residence and the specific tasks the subcontractor is to perform (for example, “subcontractor is to remove old cabinets, prepare the walls for installation of new cabinets and confirm measurements of the installation area.”) The more specific you are the better.

The same holds true for payment options. The contract should explicitly state when the subcontractor will get paid. For example, “subcontractor will receive payment once all cabinets are installed and the punch list is completed and signed off on by client.” Make certain to include in the contract any prepayments already me to the contractor. If you're payment agreement consists of multiple payments throughout the course of the job you may want to include a payment table in the subcontractor.


TIMING

It is very important that your subcontract set forth all deadlines for the project. Be as explicit as possible. Verify the subcontract contains language stating that the subcontractor understands and acknowledges that time is of the essence. Also include in the subcontract a provision stating that the subcontractor must inform you immediately upon his awareness of any anticipated delay with the project.


DEFENSE AND INDEMNIFICATION

Finally, and most importantly, your subcontract must include a section addressing defense and indemnification of your company by the subcontractor. Essentially, your paragraph should state at the very least, “subcontractor, agrees to defend and indemnify your company against any claims, lawsuits and damages arising out of the subcontractor's negligence or intentional acts.” You should also include language concerning the subcontractors agreement to defend and indemnify you for any misrepresentations, whether made knowingly or unknowingly, including misrepresentations of licensing, corporate status and other relevant issues.

The simple fact is if you do not have a well-thought-out subcontractor agreement, you will eventually get burned. If you choose to use software or a generic form agreement as your subcontract, make certain to review it and conform it, if necessary, to include the provisions addressed in this article. Remember, it is completely appropriate to include an addendum to a form subcontract so long as the form contract states that the addendum is made part of the subcontract. You should also note that while the example in this article involves a subcontractor installation company these recommendations hold true for any subcontractor. Finally, don’t be afraid to tell a subcontractor who refuses to sign your subcontract that you will not be utilizing his services. Your goal is to find a subcontractor who will represent you in a positive light and perform as directed.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

Legal Aid: Understand Force Majeure

Using the force in your contracts

By Peter J. Lamont, Esq.

April 02, 2010
 

One of the prime areas of concern for kitchen and bath companies with respect to the successful performance of a signed contract is focused around manufacturing and shipping delays, which can create liability and are rather commonplace throughout the industry. Manufacturing and shipping delays affect small local companies as well as large national companies, and everyone in between. In particular, this winter’s snowstorms have created numerous shipping and manufacturing delays for a large number of companies. As a matter of fact, Amazon.com recently posted a statement on many of their items indicating that because of inclement weather, many scheduled deliveries were delayed.

The kitchen and bath industry differs vastly from Amazon.com. Customers, including individuals, general contractors or large construction companies, are always concerned about delivery dates and deadlines. Quite often cabinets are ordered with a specific delivery date that will allow other trades, such as plumbers and electricians, to complete their tasks before the cabinets are installed. A fair amount of litigation in the industry stems from manufacturing and delivery delays. So how can you protect your company from such liability? The answer is to use the "Force" in all of your agreements. This is not the mystical "Force" of Star Wars but rather the force majeure clause.

USING THE FORCE

Force majeure is a French word that literally means "superior or greater force." The force majeure clause serves to excuse a party from liability if some unforeseen event beyond the control of that party prevents it from performing its obligations under the contract. In other words, a force majeure clause provides a means by which the parties may anticipate in advance a condition that will make performance impracticable. Such clause conditions a party’s duty to perform upon the non-occurrence of some event beyond its control and serious enough to interfere materially with performance.

Typically, force majeure clauses cover natural disasters or other "Acts of God," war, or the failure of third parties, such as suppliers and subcontractors, to perform their obligations to the contracting party. It is important to remember that force majeure clauses are intended to excuse a party only if the failure to perform could not be avoided by the exercise of due care by that party.

BE SPECIFIC

When creating your force majeure clause, it is beneficial if the clause sets forth some specific examples of acts that will excuse performance under the clause, such as wars, natural disasters, inclement weather and other major events that are clearly outside a party's control. Inclusion of examples will help to make clear the parties' intent that such clauses are not intended to apply to excuse failures to perform for reasons within the control of the parties.

A typical example of a force majeure clause is as follows:

"Neither party shall be liable in damages or have the right to terminate this Agreement for any reasonable delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including, but not limited to Acts of God, Government restrictions (including the denial or cancellation of any export or other necessary license), wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected."

Yet another example is:

"Delivery dates, when given, are approximate. Seller shall not be liable for any reasonable delaying performance or failure to perform which is attributable to any cause beyond its immediate control, including, but not limited to, Acts of God, fire or other catastrophes, strikes, pickets, civil or military authority, fabrications delays, inability to obtain materials, transportation delays or other causes beyond its control."

In general, courts will enforce properly constructed force majeure clauses. When analyzing the enforceability of a force majeure clause, the courts will consider the contractual terms, the surrounding circumstances and the purpose of the contract. Notwithstanding the foregoing, the ultimate key to the enforceability of a force majeure clause is that the supervening event which prevents performance under the contract must be beyond the control of the seller.

Using a force majeure clause in your contracts may help your company avoid liability the next time Mother Nature decides to muddle up your manufacturing or delivery schedules. While it is recommended that you seek the advice of an attorney in preparing your contracts, the sample clauses above can be incorporated into your company’s contracts.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.

A Good Start

Eight resolutions for a new and more profitable year

By Peter J. Lamont, Esq.

January 20, 2010

Amazingly, another year has flown by and, for many in the kitchen and bath industry, not a moment too soon. Last year was a very difficult year for many kitchen and bath companies, both large and small. Because of the horrific economy, fewer consumers were willing to put their cash into kitchen and bath renovation projects. On a larger scale, many construction projects lost their financial backing, leaving cabinet companies with hundreds of thousands of dollars in uncollectable receivables.

The good news is that things are looking up for 2010. Many economists are predicting that the economy will continue to pick up while more and more consumers will complete old renovations or begin new home improvement projects. Now is the time to re-evaluate your company's business plan and corporate procedures and to create focused News Year's resolutions, or better yet, goals to set your company up for a profitable and litigation-free year. The following are some suggested resolutions to get you started.


RESOLUTION 1: Review what worked for your company last year.
If your company is still conducting business, you must have done some things right. Perhaps you employed a new marketing or sales strategy that ended up being successful. Just because a new year is upon us does not mean that you should abandon all of last year's practices. You should only abandon those that did not work. You must be willing to spend the necessary time to analyze what you did right last year and work those practices into your new resolutions and goals.


RESOLUTION 2: Create manageable and attainable goals and be willing to adapt to market trends.
One of the biggest mistakes businesses make when setting goals is failing to set small, manageable and attainable goals. While the ultimate goal may be for your company to net $400,000 this year, you need to have daily, weekly and monthly goals to keep you on track. For example, in striving to reach your $400,000 goal, you should set monthly sales goals and review your sales procedures regularly. You must also be willing to acknowledge those strategies that are not working and be flexible enough to change them to meet customers' current needs and desires.


RESOLUTION 3: Revise contracts and sales agreements.
The beginning of the new year is the perfect time to revisit current sales contracts, vendor contracts and employment agreements. One of the biggest mistakes businesses make is that they hire an attorney to create form contracts and agreements when they start up their business, yet fail to update and revise them. This can be problematic because consumer protection and employment laws are constantly changing. Make sure that your contracts are up to date, comply with current laws and serve and protect your interests.


RESOLUTION 4: Review your business structure and compliance with state laws.
Make sure that your business is properly registered with state and local government agencies, many of which may require annual filings. For example, consumer protection laws are constantly changing and may require kitchen and bath companies to obtain new certifications and licenses. Make sure also to prepare and submit your annual filings in a timely manner. Far too many companies fail to keep up with their governmental filings, which can result in heavy fines.


RESOLUTION 5: Reconnect with old leads.
Most kitchen and bath companies keep contact information for customers who may have expressed an interest in their products but did not end up making a purchase. January is the perfect time to go through that information and make cold calls to those potential customers and invite them to come back to the showroom to see new products or explore new designs. You will be surprised at how many may still have an interest in your products and services.


RESOLUTION 6: Meet new successful entrepreneurs for business, mentoring and networking purposes.
Join a business-networking group, find or become a mentor, join the Chamber of Commerce or utilize online business networking services such as Linkedin.com.


RESOLUTION 7: Make business planning and lead development a daily task.
Make a monthly calendar containing daily business and lead development projects. For example, dedicate 30 minutes on Monday to reviewing customers who expressed interest in your products but never made a purchase. On Tuesday, call 10 of those potential customers. On Wednesday, search NKBA events and training seminars. On Thursday, run an advertisement in a local paper, and so on. If you plan out a month at a time and dedicate small amounts of daily time to business and lead development, your business will grow and so will your revenue.


RESOLUTION 8: Seek legal counsel when necessary.
Far too many people shy away from lawyers because they fear high hourly rates. While some law firms do charge exorbitant rates, you will be surprised to find that far more attorneys are easily affordable and are willing to work with clients to make their services affordable. Lawyers can provide a number of important services that can save your company time and money. For example, lawyers can: prepare contracts and agreements and negotiate on your company's behalf; ensure compliance with local and state laws; handle lawsuits and other claims; provide business guidance; set up employment policies and much more.

Take the time now to create you company's own resolutions and goals and stick to them throughout the year. Remember, sow now, reap later.

—Peter J. Lamont, Esq., is a commercial litigation attorney with offices in Hawthorne, NJ, as well as Massapequa, NY. His practice focuses on the representation of small- to large-size companies in the building and design industry, as well as individual designers and architects. To contact him with questions and suggestions on topics for future articles, please email him at plamont@peterlamontesq.com or call him at (973) 949-3770.