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REGS REMINDER: The Importance of Written Contracts

Importance of Contracts

We probably don’t need to tell you how important contracts are. After all, your livelihood depends on the revenue they generate. The regulation requiring written contract has been in place since late 2010, but it was amended in 2019. NAC 625.545 states that a written contract is required for each client.

The Board receives many complaints that could have been prevented with clearly worded and easy-to-understand written contracts. The regulation states:

Before performing any work, a licensee must enter into a written contract with each client. The written contract must include:

  • Scope of work;
  • Cost for completion of the work; and
  • The anticipated date for completion of the work; and
  • A disclosure as to whether the licensee currently maintains a policy of professional liability insurance.

Let’s consider what the regulatory requirements of a contract means to you.

Scope of Work (SOW)

The scope of work requirement is very important because it is the foundation of the contract. It protects both you and your client and should prevent confusion and misunderstandings. The more clearly the SOW is written, the more likely the client’s expectations will be met, and the more likely the project will be successful.

At a minimum, the SOW should describe the parameters of the project—the type of work you’re going to perform, a timeline with anticipated start and completion dates, specific methods and techniques, and deliverables. It should also describe the working relationship between you and your client, including financial terms.

Be advised, however, that contracts are often written using terminology that is common for engineers and surveyors but is unfamiliar and potentially confusing to the public. While some professional terminology is necessary, using words and language that are easy to understand will help both parties in the long run.

Establishing open lines of communication early on can help prevent misunderstandings, as well. Encourage your client to ask questions about the terms and language up front.

Cost for Completion of the Work

The second requirement might seem obvious, but it is the most common source of complaints the Board receives—“­A client expected to pay X but was charged Y”. The client feels blindsided by additional costs that may not have been included in the contract or by not understanding that ‘change orders’ incur additional costs.

The board understands that estimating completion costs is challenging, and projects rarely go exactly as planned. But including “what-if” clauses in your contracts can help avoid disputes. For example: “If the client requests X, then I will deliver Y. If the client later requests Z, then I will deliver Y+Z.”

Anticipating unforeseen costs from third parties such as city, county or state authorities is also difficult to estimate. But including a simple explanation that third party costs may increase, can save you and your client heartache down the road.

The anticipated date for completion of the work

The third requirement is like cost estimating, in that it’s difficult to estimate the amount of time needed to complete a project. Delays are common—and often outside your control—but allowing for potential delays and including language that explains how they will affect the project schedule, can result in a peaceful conversation with your client instead of an angry client complaining to the Board. Many disputes can be avoided entirely if you simply communicate with your client during the entire project—especially when you encounter delays. And when delays are caused by client changes, we strongly recommend that you document them in written change orders.

A disclosure as to whether the licensee currently maintains a policy of professional liability insurance

Section two of NAC 625.545 was added to the regulation in 2019. This addition does not require that professional liability insurance be carried, only that full disclosure be provided to the public/clients, allowing them to make informed contractual decisions.

Conclusion

While NAC 625.545 specifies that every contract include certain items, it really should be viewed as a basic guideline. A detailed and well written contract is a mark of professionalism. And although all contracts are legally binding, the best contracts include enough detail about the project to satisfy you and your client while also preventing disputes.

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