What Happened to the Handshake?
January 2009"The first thing we do, let’s kill all the lawyers.”
Henry VI, Act IV, Scene II
Once upon a time, there was a one-page contract.
Pat Arrington of Commercial Enterprises in New Mexico saw one the other day. "It was from the 1950s, a $500,000 fireproofing contract that in today’s money would be in the millions,” he says. "The contract is one page long and basically says you are going to do this, this and this, and I’ll pay you this much for it.”
Then Arrington adds, "Things have become complicated since then: sub-clauses, additional provisions, addenda, attachments, riders, inclusions, exclusions, exceptions, ad infinitum.”
And once upon a time, all it took was your word and a handshake.
What on Earth Happened?
"We are no longer a construction company, we are a risk management firm,” observes Gabriel Castillo of Pillar Construction in New Hampshire.
"Today, we are managing risk. Part of that risk is whether you are paid or not. You have to make sure that the other party understands your terms and conditions, and that those are in writing for the ugly days, should they arrive.
"In the past you knew who you were dealing with, you had met him in person: of course, the very nature of the handshake implies that you are in the same room. Today, I sign contracts with people I have never met—it’s all e-mails and faxes.”
Jeff McFarren of Green Mountain Drywall in Vermont can remember things done on a handshake, knowing that his company would complete the work on time and that, in return, he would be paid the agreed amount.
"This does not happen today,” he laments. "I think one of the reasons is that some of the contractors who have started up since the handshake days do not—unless compelled—meet their end of the bargain, necessitating legal protection for both the owner and general contractor. I think it boils down to fly-by-nighters deciding to go into business and then not performing.”
Gail H. Johnson of Acousti Engineering in Florida brings a wealth of contract experience to the table. He was the senior contract administrator for the Walt Disney World Company for years, and he also ran the contracts divisions of several other companies.
"The reason that your word and a handshake is no longer enough,” he says, "is that the AGC (Associated General Contractors), the ABC (Associated Builders & Contractors), and the AIA (American Institute of Architects) have now agreed that both responsibility and liability for a project should be pushed down as far as possible, and that means onto the subcontractor.
"The intent of the handshake used to be: ‘I am going to pay you to provide a service, and you are going to provide it. I have the money, you have the skill set. We shake hands and that is the agreement.’
"This has now changed to: ‘I have the money and I really want to get as much as I can possibly get—better yet, a little more than that, especially if you’re not looking.’ With that intention, the handshake is no longer any good.
"My mom used to tell me that if you’ve struck a deal with someone but can’t remember the color of his eyes afterward—you’ve probably been had.
"Good faith has slipped by the wayside and with it the handshake.”
Kerri Edwards of Division Nine of Alaska & Accented Plastering & Drywall puts it succinctly: "It is because people’s word is no longer their bond. Well, maybe it still is in most cases, but it seems these days something will happen to keep some people from fulfilling their promise and then, if you don’t have a contract, you’re basically out of luck.”
Richard Riley of Simpson Commercial Contracting in Alabama has this take on the situation: "It’s a new generation. Guys graduating now are building a reputation on education, not on craftsmanship and their word. It used to be that someone worked the field for 20 years and everyone knew him. Criticizing his work was as good as insulting him. His word, his pride and his reputation were everything to him, everything he was about. Now it is just about education, what school you graduated from.
"Ultimately, it comes down to two things: One, you can’t trust people to pay just because they say they are going to. And two, when attorneys get involved, the spoken word no longer means anything, it’s all about the written word.”
Should We Kill All the Lawyers?
Brentt Tumey of Managed Subcontractors International in Arkansas firmly believes there are just too many lawyers around. "We’re not contractors anymore, we’re now half contractors and half wanna-be attorneys. It’s getting ridiculous. Have you read some of these contracts?”
Glenn Burley of Drywall Connections in Colorado feels it’s "because of the litigious nature of today’s society. We like to sue everybody. I’m not sure there’s one really good answer, it’s just a wider market out there today and people are no longer as trustworthy as before.”
Joseph Feldner of McNulty Bros. Company in Illinois agrees with Riley: "It is because colleges no longer teach that a man’s word is his bond. They no longer teach the meaning of integrity. Integrity doesn’t mean anything anymore to the college graduate. How cheaply can I buy the job? How much can I fool you out of? That’s all they look at: dollars and cents. Integrity, the company, whether you do good work or not, that doesn’t mean anything anymore. It’s strictly dollars and cents. No trust.”
Greg Vangellow of R.W. Dake & Co. in New York sighs: "Oh, I wish your word and a handshake was good enough. But due to the litigious state of today’s society, everyone is now covering his or her behind, and trying to push risk as far as possible down the food chain. Seems like we’re managing risk rather than construction.
"That being said, though, there seems to be two sides to construction nowadays. There is the contract and then there is what really happens; the contract only comes into play if something goes terribly wrong. So you just work your tail off to make sure nothing bad happens, and everything’s fine.”
Dennis McDonnell of T.J. McCartney in New Hampshire is convinced contracts grow new clauses each time a GC runs into a problem with a sub. "Each time they get burned by an issue, they add a clause about it to protect them from that issue the next time.”
"Our attorney pointed out an interesting thing recently. Looking over a contract from a general we had not done work for before, he said, ‘There are clauses in this contract that I don’t want you to sign; then again, the same clauses appear in contracts with customers you have worked with for years.’
"The point, of course, is that you work with people, not with contracts.”
Lee Zaretzky of Ronsco in New York has this take: "It’s because lawyers are involved and we are not contractors anymore, we are risk managers.”
Robert Aird of Robert A. Aird, Inc. in Maryland is old enough, he admits, to remember doing lots of business on a word and a handshake. He feels there are a couple of reasons this can no longer happen: "One is that honor and integrity has taken a back seat to money. And the other is that while the legal profession may not have fostered this climate, it has at least facilitated it by getting people to think that if it’s not in black on white they are not beholden to their promises.
"And then, of course, everyone is chasing the dollar. It’s hard to trust people in an environment like this.”
Arrington feels the reason is that we’re not dealing with construction people anymore; we’re dealing with attorneys, insurance companies and bonding agents.
"We’re working through attorneys,” Arrington says, "and we all know they’re just the hired guns, they swear and will be damned as long as their bills are paid. They really have no conscience; their word is not worth anything. In the old days we were dealing man to man.”
Given the above, should we take Shakespeare’s advice and kill all the lawyers?
"Unfortunately, we need them now,” Castillo says. "Lawyers have made a science out of contracts, and have developed encrypted language that can hide or mask intent, and where small words here and there can make all the difference. Now you need an attorney to read the three or 10 pages their attorney has written, just to make sure you know what you think you know.
"There’s a world of difference between the words if and when in the payment clause. ‘I will pay you if the owner pays me’ can leave you high and dry, whereas ‘I will pay you when the owner pays me’ gives you a fighting chance in court if it comes to that. That’s why we need the lawyers, and that’s why we need it all in writing.”
Riley begs to differ: "That would certainly help our industry [killing all the lawyers]. The whole society, actually.”
Tumey goes with Shakespeare: "That’s the truth; he hit it on the nail.”
Vangellow is a little more forgiving. "They do provide some needed protection but believe me, as a former banker, I’d much rather deal with people based on character and integrity than a contract.”
Contract Pros and Cons
However much we might wish it differently, it would be safe to say that the detailed contract has arrived, and is not about to go away anytime soon. So what are the pros and cons of it?
"By being clear and specific in the contract, both parties know what is expected,” Castillo says. "That is a definite pro. What I take exception to is the sleight of word some attorneys use, which masks the true intention of the agreement.
"A grave con, however, is that today I spend as much time covering my behind as making sure I meet the specs. I have to make sure I will be paid. I have to make sure I’m not asked to complete the job in some crazy amount of time. I have to make sure they are not asking me to clean up someone else’s mess. I have to make sure I’m doing it per specs. And I have to make sure they are quoting the documents that I saw and based my bid on and not docs I’ve never seen, which might change my scope of work. I have to cover all my bases.
"Luckily, when you get repeat business, many of these things go away. We have this one customer, a general contractor that goes everywhere, and we go with him. He’ll call us and say, ‘Remember that medical center we did in Arkansas?’ We remember. ‘I have the same building here in Ohio, how much would that be?’ We tell him so much per square foot, and two or three months later we get the contract, with a letter asking us to check the drawings to make sure that is what I quoted him.
"So when you work with someone often, and even though I’ve never met these guys, they know what we do, and we know how they operate, and then the contract becomes more of a formality. That’s as close to a handshake as we get today.”
McFarren agrees that "a clear contract does specify the job, what you will be paid, what the retainage is, and this protects you, too. If you are later asked to do something outside of the contract, you can dispute it. The cons are that we spend more time nowadays covering our behinds than planning the project. That is a big con.”
Riley does see some pros as well: "A contract can protect you. It specifies your scope. The con is they can also bury you. If you have not read it and you don’t know what it says, you could be in for a world of trouble.
"Also, today we spend far too much money on attorneys making sure we don’t miss something that’s going to bite us later. One word can make the difference of being paid or not. Paid-when-paid versus paid-if-paid, for example. If you’ve signed a paid-if contract, you may never see your money.”
Michael Hoffrath of Canyon Plastering & Drywall in Arizona sees some pros with the contract as well: "Well, there should be no questions asked. If the contract is well detailed, it should eliminate many issues owners, architects and generals can have with subs.
"The cons, of course, are the extra time and effort it takes to make sure all those items are in it. Today, though, that’s part of what I call the Five Ps: Prior Planning Prevents Poor Performance. Someone told me that years ago and it’s always stuck.
"But I feel that if the attorney for the general contractor spent less time dreaming up new ways to cover their behinds and instead focused on the simple, basic stuff of what’s to be done, how, by when and for how much, we’d have much better contracts.”
Gerald Roach of Forks Lath & Plaster in North Dakota feels the pros are that it keeps people honest. "However,” he says, "I feel that the current contracts are short on the subcontractors and weighed in favor of the owner, architect and general.”
In an Ideal World
In a world of your own making, what does the ideal contract look like?
Castillo: "Three sentences: You’re doing this; in this amount of time; we’ll pay this much. The rest is legal stuff to cover your behind.”
McFarren: "A handshake. We’ll give them a price; they call us up and say ‘you’re good to go.’ If I know the person, and trust the person, I’ll do it. Of course, this is a small community and if you screw up, people will know and will not keep it a secret. If you don’t hold up your end, it will definitely affect your future business here. Word spreads, and fast.”
For Riley, an ideal contract is his quote sheet: "Sign at the bottom and off we go. I’ll do exactly what my proposal and quote says, and you’ll pay me for it.”
Hoffrath feels "it would be nice if they could just stay with an agreed upon AIA contract, an edition that’s balanced and fair among the parties involved. Also, most subcontractors know what’s in there. They would not have to take the extra time and effort to read another contract from beginning to end.”
Tumey: "I would like to see a fair contract. Mutual acceptance of responsibilities, no passing the buck to the next guy. But nowadays it’s no longer a collaborative effort, it’s all: What can I do for myself, and how do I cover my behind?”
Burley: "I prefer to work with those I’ve worked with for a long time. We just say what we’re going to do and then we do it. We work together. You really have to know who you’re dealing with.”
Vangellow’s ideal world would sport "one standard contract where everybody knows where they stand; it’s evenly balanced as to risk and responsibility between owner, general contractor and subcontractor, and I don’t have to look for hidden clauses or ill-intended clauses masquerading as friendly ones.
"I understand that risk is going to get pushed downhill, that’s part of the game, but it should not be that complicated. Really, it’s just a payment mechanism.
"An ideal contract is one you sign, put in a drawer and forget about.”
Kim Sides of Sides Drywall in Alabama agrees: "An ideal contract is one that protects both the general contractor and the sub, and is fair to both parties.”
Are There Any Handshakes Left?
Are there any deals at all made today based on your word and a handshake, or has the entire field been legalized?
"No, there are some things that we still do on a handshake,” says McFarren, "but those are with contractors we have dealt with for years. Granted, a lot of it is residential, but there are some commercial projects, too. But always with people we know and trust.”
Roach: "My biggest customer, a large auto-dealership, is the only man I trust enough nowadays to do a handshake deal with. And I do.”
Zaretzky: "I still do some. Normally, though, I have a general conditions contract on file with a repeat client, in which case the new project is simply done on a purchase order.”
The "good old days” are gone, and they took the handshake with them—that’s the problem. But a contract does not have to be onerous. If you know what to look for, and where—or have competent counsel—there is no reason why you cannot enter into clearly written, above-board contracts that may at least remind you of handshakes.
Coeur d’Alene, Idaho–based Ulf Wolf writes for the construction industry as Words & Images.