Can you get away with using a letter, or even handshake, agreement when performing construction work on a small project? After all, you may have used them in the past, so what could possibly go wrong? Contractors should be aware that even their first lawsuit could be the one that sinks their company and risks their professional livelihood. Yes, courts will generally recognize letter and oral agreements as binding contracts between two parties, so long as the basic elements of a contract are in place. However, the harsh reality is that oral agreements are difficult to prove in court, and letter agreements often lack essential terms to deal with nuanced issues such as insurance, dispute resolution and contract termination. Given this, instead of asking whether a letter or handshake agreement will suffice, contractors should ask themselves why they should put their company at risk for any given project.
The American Institute of Architects offers a range of standard form agreements that can help contractors with their contracting needs. AIA Contract Documents enable parties to rely on contract provisions that have been tested in courts for over 100 years. In fact, case law interpreting the AIA standard agreements has shaped a significant portion of the law that applies to the construction industry in the United States. Even with this history and precedent, the AIA contract documents are by no means static. The AIA continuously monitors new developments in the construction industry and uses that information to update its existing documents and publish new documents that reflect industry trends and practices. In fact, the AIA will release 19 design-bid-build documents this April as part of its once-in-a-decade update of the A201 family of documents. When using these new documents, contractors should pay close attention to updates that affect them, including the introduction of a new insurance exhibit with modernized requirements for both parties and the requirement that each party provide the other with notice of impending or actual cancellation or expiration of insurance coverage.
Another advantage of using AIA documents is that the AIA offers contracts tailored to projects of varying sizes and complexities. The AIA offers a set of abbreviated documents that includes owner/contractor (A104-2017) and owner/architect (B104-2017) agreements that can be used on medium-sized projects. These documents offer the efficiency of having the general conditions of the construction contract integrated into the owner/contractor agreement, rather than referenced as a separate document. The AIA also offers several documents that can help contractors navigate the bidding process, including a template for instructions to bidders (A701-1997) and a spreadsheet for contractors to keep track of bidding documents during that phase of the project (G804-2001).
So, will a letter or handshake agreement stand up in court? Maybe, but why take that risk when there is an AIA Contract Document readily available to address your needs?