Cross Examination: Are Work Authorizations Really Contracts?

There is continuous confusion about work authorizations and contracts. A work authorization authorizes the restorer to enter and do the work. A contract is an agreement between 2 or more parties intending to be legally enforceable. 

Work Authorization + Payment Clause ? Contract.

The purpose of a contract, especially when thought out intentionally, is to lay out the rules of the interaction between the parties, along with their wish lists if the rules are broken. Essentially, every contract can be thought of as a board game created between two parties.

If the parties do not lay out how the game is played and an issue arises that lands them in court, then the court will use standard gap fillers for the terms and conditions of your game. Why let the court decide the setup and exchange of the game when you already played most of it? This is why restorers need to build a powerful restoration contract.

If you currently only use a traditional work authorization, throw it away. Most work authorizations simply state that the restoration contractor is authorized to enter the premises and perform work. Sometimes they instruct the insurance company to make the contractor a payee on the check, which the carrier ignores. Most work authorizations are not contracts and are not enforceable. On the other hand, contracts have specific, definite duties that make them enforceable (remember the ‘rules of the game’). 

The typical “work authorization” does not specify the scope, price, completion date, payment due date, and against state statute for the work you are performing.

S500 recognizes that a “work authorization” is not a contract but “may be included as a part of the contract” (emphasis added). I’m not saying to exclude an authorization from your contract. The scope of work won’t make sense if the contract does not indicate that you are authorized to perform the work. I’m saying: you need to lay out how the game will be played. Although the phrase adds no legal substance to the title, I suggest including the word “Contract” rather than the gentler “Agreement” to make it abundantly clear that the customer is entering a binding contract. To help those who are only trained to work with “work authorization” in locating and filing them, I prefer the title “Restoration Service Contract and Work Authorization.” This title is clear to the customer, and satisfies other stubborn parties.

In simple terms, the contract should explain everything you expect of the customer and every significant thing the customer can expect from you. Clarity in written form makes sense because it is the only way to play a game successfully.  I know countless restorers who do not do this and have avoided litigation for years, even their whole careers. But what if I told you a powerful contract would speed up the collections process and lay the foundation for being paid fair prices. I do not wish litigation upon anyone; thus, I wrote The Restoration Book on Collections and The Book on Assignment of Benefits to help restorers avoid litigation and use it as the last resource. Still, if there is a workmanship complaint, or the adjuster crossed out $60,0000 worth of line items that were out of pocket, then you may have to resort to litigation.

Judges and customers cannot read your mind. Legally, a contract needs to have “mutual assent,” basically, it needs to show that both parties agreed on the terms. Mutual assent is determined by the reasonable meaning of the words and acts of the parties. In most cases where there are disputes, a customer will say something to the effect of “Well, this wasn’t our understanding,” or “This isn’t what I meant.” To the extent the written contract contains enforceable duties, the parties will be bound by what is described within the four corners of the paper and not from the parties’ unexpressed intentions or understandings. Once again, the contract is the game’s rules played between the parties.

There are five essential elements in a restoration contract: (1) identification of the parties, (2) Thorough description of the scope of work, (3) Price & payment terms, (4) Time for completion, and (5) Notices & disclosures.

“#1 – Identification of the Parties

The contract must state the name(s) of the party or parties you expect to pay any amount not covered by insurance. A court will not give you a judgment for a breach of contract against a party who is not named in the contract. The contract should explicitly state: “The customer will pay [the contract price].”

#2 – Thorough Description of the Scope of Work

Strive to include reasonably detailed descriptions of your scope of work. Describe the labor, equipment, and materials that will be used, and whether or not the work will involve reconstruction. the scope does not have to identify every screw you will use, but it must be reasonably definite so that a court will know how to enforce it.

Actively and deliberately search for pre-existing conditions, photograph them, and show them to the customer. Thoroughly identify and exclude pre-exist­ing damage in the contract and disclaim liability for it.”

Read more about the requirements of a contract in this C&R article.

It Takes Two to Play the Game

As Irme Jele said, “You can make an amazing game, but you can’t make a success. You players make the success.” Your newly assembled powerful contract may be excellent, but it will only succeed if both players like the game. Building trust with the customer will be your most vital method of getting paid.  

A contract is always negotiable; invite them to write on the contract. A marked-up contract shows that the customer actually read the contract. It removes their ability to come in later and say, “Oh, I was bamboozled. I didn’t understand, blah, blah, blah.” I have had some contracts come in, and the contractor wanted my office to recover money on their project. I turned to page two ( which has the limits of liability, indemnity provisions, payment terms, attorneys’ fee, and late fee clauses) and was shocked to see the customer had drawn a big x through the entire page. Let a competitor have that particular job if your customer is wiping out multiple paragraphs on your contract. Red flags stick out for a reason; if you see one waving, save the time and money and move on.

Contracts are More than Just One Paper

As you have been reading this article, I hope you have realized that a contract is more than just one piece of paper, and this is good; it protects you, the customer, and improves your relationship. As you build your powerful restoration contract, you should have a grab bag of forms and “Check the Box that applies…” to pick and choose from for each unique job.

Clear communication regarding your expectations and the customer’s expectations results in the customer understanding the consequences of breaching the contract and being more likely to pay on time.  We want strong contracts because we need to approach every restoration project as a potential legal case. Understanding how a case will play out in court is the essence of effective risk management. 

You may be 100% correct in your position, and your workmanship may be second-to-none, but jurors are suspicious of contractors. Walk into court with a solid foundation of evidence showing integrity, honesty, and compassion, and you will have the upper hand. 

Ready to improve your collections? This restoration resource covers building a powerful restoration contract, communicating with adjusters, defeating carrier attempts at standardized prices, and much more. 

Ready to let go of that work authorization and start using a contract? Check out these Cleaning & Restoration Contract packages that includes instructions and scripts. 

Read Cross Examination: Are Work Authorizations Really Contracts? Over at C&R Magazine.