The Evolution of Deal-Making in the Construction Industry

Real Estate, Land Use & Construction Law

The Evolution of Deal-Making in the Construction Industry

Mar 7, 2014 | Real Estate, Land Use & Construction Law

Ask anyone who has several years of experience in construction if they ever engaged in a handshake deal and the answer will be a resounding “yes.” For those unfamiliar with the term, a handshake deal is essentially a verbal commitment that is sealed with a handshake between the contracting parties. Handshake deals were not just limited to transactions between a contractor and an individual. It was, and sometimes still is, common for businesses to engage in sophisticated deals with a simple handshake between business owners. The moment the parties agree and shook hands, reputations were at stake and promises were meant to be kept. While the handshake did not obviate the need for documentation, the value of the handshake was understood to be the cornerstone of what the parties involved intended to occur for a construction project.

Fast forward to today and the handshake deal still exists, but it has become replaced increasingly by a hashtag. The hashtag is seen often on Twitter, Instagram, Facebook and other social media websites and represents a means for individuals to communicate on particular topics of discussion. In fact, the credit card industry has embraced the concept of hashtags for purchasing goods online. Customers can synchronize their credit cards with Twitter and take advantage of offers by tweeting and receiving response tweets from the seller of the goods.

With all of the technology available to “seal a deal,” it is essential that contractors understand the framework within which transactions occur and deals are made in the age of social media. If you have ever tried to defend against a customer’s claims by performing a search of every email that your business has sent, then you understand that written documentation not only complements, but precedes the technological concepts that allow for construction professionals to reach business deals. To avoid having to defend your deal on the basis of social media alone, consider the following:

  1. No deal exists until a contract is signed. All parties to an agreement need to know who the other parties are to the agreement, the amount of the agreement, the start and stop dates of the agreement, and the work to be performed under the agreement. Otherwise, you are inviting extended litigation to decipher what each party intended.
  2. Money is still the most effective medium of exchange. Unless you intend to barter goods for services, money is the clearest indicator of the construction professional’s intent to do business with another construction professional. Don’t be in a hurry to enter into an agreement if the monetary components are unclear. Resist pressure to not address whether the agreement is a cost-plus, a guaranteed maximum price or a hybrid that allows for cost overruns or other exigent circumstances. For subcontractors committing to honor all existing monetary agreements between a general contractor and an owner, ensure that you know the terms in advance of entering into an agreement with the general contractor.
  3. Customer first, friend second.  It is acceptable to friend your customers on Facebook, but avoid having conversations on social media as a substitute for written change orders or contract amendments. Think ahead when engaging in communications with a client or customer. It lessens the likelihood of having to interpret extensive communications “between friends” about whether or not terms of your agreement were modified by your actions on social media.
  4. Plan for an uneventful termination of the agreement.  Construction professionals don hardhats and steel toed shoes to avoid injury at the construction site but sometimes neglect to protect against the injury that is often associated with an inartfully drawn agreement. Pay extra attention to those provisions that may appear to be the least interesting. For example, if the agreement terminates unexpectedly or a party fails to fulfill its duties under an agreement, know your recourse prior to having to initiate a lawsuit. Many construction agreements have detailed dispute resolution clauses that are either one-sided or provide for relief in jurisdictions that are far removed from where the possible breach of an agreement may occur. Don’t be afraid to negotiate unfavorable terms for the sake of getting the business. If you do, the costs may very well outweigh the expected benefits of the agreement.

Social media has changed the way that we communicate. The advantages are evident in the speed with which we relate to one another. But ensure that speed does not jettison basic principles in contract negotiation. Whether you shake hands or send hashtags, a signed agreement and a cleared check are universal symbols of the ultimate deal.


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