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Contracts are the cornerstone of every project in the HVAC and sheet metal industry. They govern how and when you get paid, who’s responsible for risks and what happens when things don’t go as planned. But, too often, contractors sign on the dotted line without fully understanding the terms they’re agreeing to, and that can lead to disastrous consequences.

Charles “Chip” Mitchell, founder and principal of Blue Fence Advisors, has made it his mission to help contractors better navigate these legal minefields. “Contracts are one-sided by design,” Mitchell explains. “They’re written to protect the party upstream, whether that’s the general contractor or the owner. But there are ways you can protect yourself, even if you don’t have much leverage.”

With over 30 years of experience in construction law and risk management, specializing in helping contractors navigate the complexities of contracts and safeguard their businesses, Mitchell offers practical, actionable advice tailored specifically for HVAC and sheet metal contractors. Here’s how to identify and manage contract risks so you can safeguard your business and focus on what you do best.

WHY CONTRACT RISK IS CRITICAL
The stakes for contractors are high. A single overlooked clause can lead to unpaid invoices, unexpected liabilities or legal battles that drain your resources. Mitchell emphasizes that every contractor, regardless of size, is considered a “sophisticated commercial entity” in the eyes of the law. “Courts expect you to understand what you’re signing,” he says. “You can’t claim ignorance just because you’re a small business dealing with a large general contractor.”

For HVAC and sheet metal contractors, this reality is especially important. As downstream subcontractors, they often face additional risks passed down from the owner or general contractor. “You’re at the bottom of the food chain,” Mitchell says. “If you don’t protect yourself, you’ll be the first one left holding the bag when something goes wrong.”

SCOPE, PRICE AND TIME: THE FOUNDATION OF RISK MANAGEMENT
Mitchell identifies three pillars of contract success: scope, price and time. “If you get these three elements right, you’re already ahead of the game,” he says.

1. Scope The scope of work defines what you’re responsible for, and what you’re not. Mitchell advises contractors to be crystal clear about exclusions. “Ambiguity is your enemy,” he says. “If the scope isn’t detailed enough, you’ll end up doing extra work for free.”
   For example, if the contract specifies “install ductwork,” it should also clarify who provides the duct, whether insulation is included, and what happens if the design changes mid-project. “The more detailed your scope, the less room there is for disputes later,” Mitchell explains.
   
2. Price Your pricing structure should align with the contract’s payment terms and expectations. Mitchell warns against underestimating the cost of complying with administrative requirements, like submitting detailed cost breakdowns or daily reports.
   “Contractors often focus on direct costs and forget about the hidden costs of compliance,” he says. “If the contract requires detailed documentation, build that into your price.”
   
3. Time Unrealistic schedules are a recipe for disaster. “If the timeline is too tight, you’re setting yourself up for delays and penalties,” Mitchell says. He recommends pushing back during negotiations if the schedule doesn’t allow for reasonable contingencies.

Mitchell also offers tips for managing contract risk:

1. Read the Entire Contract and All Attachments. “Think of a contract like an iceberg,” Mitchell says. “The main agreement is just the tip. The real risks are hidden in the attachments.” These include referenced documents like general conditions, specifications and upstream contracts.
   Make sure you have a complete copy of the contract, including all exhibits and appendices. “If you don’t have everything, you can’t fully understand your obligations,” Mitchell warns.
   
2. Create a Risk Register. Mitchell advises contractors to create a risk register for each project. This document summarizes key provisions, deadlines and potential risks in one place. “It’s like a cheat sheet for your project team,” he says. “It ensures someone has read the contract and knows what to watch for.”
   
3. Document Everything. Documentation isn’t just a good habit; it’s your best defense in a dispute. Mitchell stresses the importance of daily reports, photos and written correspondence. “If it’s not in writing, it didn’t happen,” he says.
   Use technology to streamline documentation. Apps and software tools can make it easier to record daily activities, track changes and maintain organized records.
   
4. Understand Notice Provisions. Notice provisions are often overlooked but very important. They dictate how and when you must notify the other party of issues like delays, changes or disputes.
   “Failing to comply with notice provisions can waive your rights to additional compensation or time extensions,” Mitchell warns. He recommends sending all notices in writing, preferably as PDFs on company letterhead.

NAVIGATING RISK ALLOCATION CLAUSES
Contracts often include clauses that shift risk onto subcontractors. Mitchell highlights two common examples:

• Pay-if-Paid Clauses: These clauses state that you only get paid if the general contractor gets paid. “In some states, these clauses aren’t enforceable,” Mitchell says. “But where they are, they put you in a precarious position.”
• No-Damage-for-Delay Clauses: These clauses prevent you from claiming compensation for delays caused by the owner or general contractor. Mitchell advises negotiating exceptions, such as delays caused by negligence. “You may not be able to remove these clauses, but you can soften their impact through negotiation,” he says.

1. Protect Yourself Against Scope Creep Scope Creep. — where additional work is requested without additional payment. This is a common problem. Mitchell recommends documenting all change requests and obtaining written approval before proceeding. “Don’t start extra work until you have a signed change order in place,” he emphasizes.

2. Manage Subcontractor Coordination.
   If you’re working with lower-tier subcontractors, their performance can impact your liability. Mitchell advises including flow-down clauses in your contracts with subcontractors, ensuring they adhere to the same terms you’ve agreed to.

3. Use Technology To Your Advantage.From contract analysis tools to project management software, technology can help contractors identify risks and stay organized. “AI tools are getting better at flagging problematic clauses,” Mitchell says. “While they’re not perfect, they can save you time and help you focus on the most critical issues.”

WHY RISK MANAGEMENT IS ABOUT COMMUNICATION
Mitchell emphasized the importance of clear communication in contract negotiations. “At its core, contract management is about setting expectations,” he says. “The more you communicate upfront, the fewer problems you’ll face down the line.”

He encourages contractors to involve their project teams in the risk management process. “Your project managers and foremen are on the front lines,” he says. “They need to understand the contract and be empowered to act when issues arise.”

For HVAC and sheet metal contractors, managing contract risk isn’t optional — it’s essential for survival in a competitive industry. 

By focusing on scope, price and time; understanding key clauses; and leveraging practical tools, contractors can protect their businesses and improve project outcomes.

As Mitchell puts it, “You’ll never make a one-sided contract perfect, but you can make it manageable. And that’s often enough to ensure your success in the end.”