Verbal Contract

October 2008

You bid a job four months ago, and the contract was verbally agreed to but never signed. Trouble is, the job wasn’t ready for you four months ago ... but it’s ready now, and they want you to start in a couple of days. If you were to bid that same job today, your price would be higher (mostly because of labor). The initial contract was never signed, so how do you go about communicating that you need more money without losing the job?

We have a clause with a blank on the bottom of our proposal and each salesman writes in a time period based on the size of job and type of job usually 10 day to 30 days.
—Bob Schmid, Archie’s Stone and Fireplaces LLC, Knoxville, TN

I always state that my quotes is only good for 15 days, that way if I don’t have a signed contract I’m not obligated to do the work.
—Anonymous

If the contract was not signed, it is not a contract in my opinion.
—Anonymous

You take the job at the old price and thank God you got a contract.
—Anonymous

Unless revised, the statute of limitations of holding a price that was relied on, is 60 days. Therefore, the original bid is no longer enforceable and an entirely new offer (bid), acceptance, terms and considerations (price) would be the legal position.
—Anonymous

You convey to your client that your contracts only last for 30 days. It has now been four months and somehow the contract was never signed. During this time prices have risen; ask if they would be willing to split these costs with you.
—Anonymous

You should always have a clause in the contract stating the period of time the contract is valid, e.g., "Contract price is valid for 30 days, and is subject to change thereafter.” Most reasonable general contractors are aware of pending increases anyway. You should re-evaluate your relationship with those who refuse to negotiate legitimate price increases. No job is worth doing if you have to work for free.
—Patrick Harvey, President, Patrick G. Harvey & Sons Contractors, Inc., Mission Viejo, CA

If the start date with a disclaimer on labor and material cost increases due to delays were presented in the agreed-to-yet-unsigned contract, then there would be a fine starting point for discussion and resolution.
—Anonymous

We always put a statement (shown clearly in our proposal) that the pricing is good for 30 days. If our costs have increased a significant amount, we explain it to the client, and if they are not willing to work with us on the price, we walk. To us, a more pertinent question is the same situation but the client wants us on-site, and will send us a "Purchase Order” with grossly unfair terms and conditions. We typically lose a large percentage of projects over unfair contractual terms.
—Michael J. Miluski, P.E., President, Compaction Grouting Services, Inc., Media, PA

The sub should have put the general contractor on notice as soon as he knew his pricing would go up. Most pricing quotes have escalators that go through the duration of the schedule of the project. By giving notice to general about additional costs, the sub is protecting himself and forcing the general to expedite the contract to prevent any additional cost.
—Jonathan Diepstra, Estimator, The Bouma Corporation, Grand Rapids, MI

First things first. No job is scheduled for a firm date without a contract, deposit, etc. I have tentatively held a date for a client and called them when my schedule got booked to that point to let them know it’s time to make a decision. A little more preemptive measures might have been good as well. All of my estimates are valid for 90 days and specifically state that they are only estimated costs. They do not account for any additional work needed as a result of other contractors, unknown work as a result of incomplete projects, etc. All that being said, you need to tell them the truth. Tell them after you re-walked the job to prepare for the project you saw the need for additional labor to complete the project as agreed on. Assure them that your job profit is the same and that you will only be billing them at your cost for the additional labor. If they don’t agree, then you need to move on. It is your responsibility to account for issues like these both in the bid and the contract (written or verbal). They should be hiring you for your experience, not your ability to be the cheapest guy on the block. If they are honorable people, they should understand that you have a business and you need to make money also.
—Craig Favors, Craig Favors & Associates, LLC, Dallas, TX

I see two (2) questions in this passage. Is there a suggestion to begin work without a signed contract? If so, don’t do it unless you want to do it for free. In Connecticut we do not do any work without a fully executed contract, and we don’t do any additional work without a billable change order. Our policy has caused us some difficulties, but not as much of a difficulty as getting stiffed on a project. Signed tickets mean nothing up here, and the CMs can thank themselves for this inconvenience.

The other question I see is whether you can get a 4 month labor increase. I see that as hard to do unless there was some kind of union rate increase that kicked in over that 4-month period. With that documentation there is a good chance of getting the increase; non-union or without such documentation, I don’t think there is a cold chance in hell.
—Tim Vellrath, Wesconn Co. Inc., Plymouth, CT

Typically we will honor a bid for 90 days. In this case it would depend on the client. If they were a long-term client with a background of good performance, we would honor our bid. If they were an out-of-town contractor with no running record, we would ask for the increase due to the time limitation of 4 months. We would also have to look at our current schedule to see if we could man the job properly to meet their schedule. Basically, we would not beat around the bush, we would just ask for the increase up front.
—Anonymous

Let’s be on the offense rather than putting ourselves in the defensive position. Does the GC want your company to do the work? If so, you need to make your margins. Because of the procrastination of the GC in getting you the signed contract, it’s now going to cost him more to have your company do the work at an amount where you will make money. If not, let your competitor do the job, and you go play golf.
—Anonymous

Send them a new proposal with the updated cost, and have them sign it. Make sure the new proposal has a 30-day clause in it.
—Anonymous

A verbal agreement is as good as a signed contract, especially if it’s one of your regular customers, so we would honor it. … On the other hand, most of our bids include price escalators to allow for this kind of situation, since most of the contracts are not signed for months after bidding.
—Alan Castro, President, Advanced Specialty Const. Inc., Fort Walton Beach, FL

A verbal deal is just that. Nobody knows what the deal is except those who spoke it. So now it becomes an honor thing. Part of a verbal deal should include signing off on some form of letter of intent or notice to proceed. That way, if this type of stuff pops up, it will not compromise your honor. Either way, it does not hurt to advise of your predicament and ask for more money. Then it just boils down to who is going to do the "right” thing. If you choose to be honorable, it’s called "going to school.”
—Jeff Muller, Project Manager, M&O Exterior Applicators, Inc., Frederick, MD

Verbal is as good as a hand shake. You should have stated that this is good for 30 days or what you felt would have been a good time line.
—Anonymous

As a sub-trade or sub-trade to a sub-trade, you usually "bite the bullet” and accept the penalty to your bottom line. We now try to protect ourselves with a condition in the original bid that relates to time-validity of the bid.
—Izzy Gliener, Western Noise Control

Aird, Inc.’s position on this issue begins with the bid request. We always ask when the job will start and when our work will start. We then track the job, and if it isn’t starting when they said it would, we have a heads-up.

We also ask for price protection from our vendors, if not on bid day, certainly upon award of the job. This affords some protection.

In our proposals we indicate for how long we will hold our price. Especially in these ominous economic times, we need to protect ourselves, but without sacrificing the job.

Relationships count for a lot in this game also. If we have been helping the architect and owner and contractor throughout the design and bidding process—as we often do—then we are aware of the time frames and idiosyncrasies of the project. We hope that the uncompensated work we do will bear fruit on award day and for cost increases incurred during the hiatus period.

If an inordinate amount of time has passed from bid to award or signed contract, we have to evaluate the need for the project against the diminished profit. If we’re tight and need the job, we may take it. If we’re flush with work, we may drop the change request bomb and cross our fingers.
—Rob Aird, Rob Aird, Inc., Frederick, MD
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