Defined. A contract is "an agreement to do or not to do a certain thing.” (Civ. Code § 1549.) They are legally binding promises between two or more parties to perform or refrain from performing some specified acts in exchange for lawful consideration (something of value, such as money or personal services). There are two broad categories of contracts:
1. Express Contract. An express contract is can be oral or written in which the parties state the contract’s terms and express their intentions in words.
2. Implied Contract. An implied contract is one that arises from the conduct of the parties. For example, a contract is implied when a party knowingly accepts a benefit from another party, where the benefit is clearly not a gift. The party receiving the benefit is obligated to pay fair value for the benefit received.
Types of Contracts. There are broad categories of contracts used in the industry. Each has its advantages and disadvantages.
1. Fixed Fee. The board negotiates fixed fee with the contractor for the successful completion of a clearly defined scope of work. The contract price, once negotiated, does not change unless the board approves change orders. Most associations negotiate fixed fee contracts because it gives them an amount for budgeting purposes or special assessments.
2. Cost-Plus or Time and Materials. This approach pays the contractor for the actual direct materials costs, actual direct labor costs (usually at specified hourly rates), plus an agreed upon markup to cover overhead and profit. Cost-plus contracts are used when it is not possible to accurately estimate the extent or duration of the work or to anticipate costs with any reasonable degree of confidence. The disadvantage of this kind of contract is that it is open-ended and gives the contractor no incentive to economize.
Statute of Limitations. Statutes of limitations for enforcing a contract are different depending on whether the contract is written or oral, but the remedies are the same.
Contract Clauses. There are important contract clauses that should be included in all agreements entered into by the association. In addition, the time-period of a contract may be limited by an association's CC&Rs.
ASSISTANCE: Associations needing legal assistance with contracts and contractor issues can contact us. To stay current with issues affecting community associations, subscribe to the Davis-Stirling Newsletter.