Sunday, April 23, 2006

Paying Subcontractors

When a homeowner hires a contractor, his contract is with the contractor. The contract is usually for a specific sum and the general contractor (GC) hires subcontractors to do various aspects of the work, and pays them out of the proceeds received by the homeowner. At least, that is the way it is supposed to work. The GC is also responsible for the work of the subcontractors if a problem arises.

In the real world however, that is not always what happens. GCs do not always pay their subcontractors, and then subcontractors are faced with the possibility of having to go after the GC, who may be in financial trouble. Their only other alternative is to turn to the homeowner and ask to get paid directly. The homeowner is then faced with the issue of whether she should pay "twice" in order to avoid trouble with the subcontractor. In Massachusetts, subcontractors are protected in part by the lien law, because they have a right to place a lien on the homeowner’s property if they are not paid. The procedural requirements are very specific, however, so the subcontractors must make sure they follow the law to the letter in order to perfect (activate) their lien.

I would love to hear from homeowners and subcontractor who have dealt with this issue. How have they resolved the matter? Are there any subcontractors out there who have sued homeowners in quantum meruit (unjust enrichment), and what has been the result? I will be researching Massachusetts case law on this subject, and will report back with advice about how to deal with this problem.

Friday, April 14, 2006

Pulling Permits

A new client came in last week. She is a homeowner who discovered well after her renovation project was underway that her contractor had not pulled the proper permits for the job. She is now subject to the risk that the work may not be up to code, she may be fined by the city, and work needs to be "undone" so that inspections can be made. Homeowners can suffer the consequences if the proper permits are not obtained by their contractors. In addition, in Massachusetts, the contractor must be the one to pull the permit in order for the homeowner to qualify for the Home Improvement Contractor Arbitration Program.

When a homeowner is planning a project, he/she should call the town building inspector and find out if a permit is necessary. He/she should also ask if the plans need to be filed with the city. In addition, the homeowner should make sure that the work does not require plans stamped by an architect. Certain kinds of renovations do not require an architect’s involvement, but there are projects that do. Finally, the homeowner should find out if the specifications comply with all zoning requirements, or whether variances are required.

Thursday, April 06, 2006

If You Are Honest and Reliable, It Does Not Matter If You Are Slow

I was invited to a party last week to celebrate the completion of an extensive addition and renovation at a friend's house. The contractor, the architect and others were all present to appreciate the result of months of hard work. The owners could not have been more pleased. As one of the owners said, "We knew he would be slow, but we did not mind. Our contractor was reliable, and he really listened to what we wanted. He never said anything was impossible, or refused to hear us out."

As a lesson to all contractors, as long as you do your job, and really listen to the clients, they are more likely to tolerate the delays and unforeseen problems that occur. After all, it's the end result is what really matters.

The National Arbitration Forum

I have just been appointed to the National Arbitration Forum's panel of arbitrators and mediators. I assume that I will be handling construction disputes as well as other matters. I am also an arbitrator with the American Arbitration Association and the National Association of Securities Dealers.

Wednesday, April 05, 2006

10 Tips to help the Construction [Sub]Contractor Get Paid

A post from guest poster Robin Fisk:

We’ve all heard the stories of the contractor who didn’t get paid or the sub who got “nicked” when the job ran over budget. The following are a few quick tips to increase your chances of collecting the amount you are entitled to:

1) When bidding or quoting a job, be sure to set a deadline for the owner or GC to accept. That way, they won’t try to hold you to an outdated price or schedule you at a time when you have a full plate.

2) Be sure your contract sets specific times for interim payments and clear rules for determining when they are earned and how much you are entitled to collect.

3) Add a line on your quote or estimate stating that you reserve the right to add an interest charge of X% per month if your bills aren’t paid within a certain time after the due date, and then DO IT.

4) Make sure your contract gives you the right to back charge attorneys’ fees if you have to use one to collect from the owner or GC.

5) State up front in the contract that you reserve the right to discontinue work if any interim payment is more than a certain number of days late.

6) Make sure each invoice clearly documents what work is covered and has the due date printed clearly on it.

7) Add a clause in the contract requiring the owner and / or GC to notify you of all known problems with the work within 3 days of receiving an interim invoice to allow you to begin fixing them promptly. Your contract should clearly make it the owner / GC’s responsibility to address problems promptly or keep paying. Obviously all problems will have to be fixed before the final payment is due.

8) If you are notified of a problem, document it in writing along with your plan to fix it, specific times for fixing it, who is responsible for providing materials, etc.

9) If you are asked to provide an “extra” or make a change to the original plan, don’t even start it until a detailed change order has been signed.

10) Know your state’s mechanic’s lien laws and use them to your advantage.

Robin Fisk
Fisk Law Office
P.O. Box 223
23 West Street, Suite 1
Plymouth, NH 03264
(603) 968-3810

Managing Expectations-Part II

This post is aimed at homeowners. When a homeowner starts a renovation project, he/she needs to be realistic about the scope and budget for the project. It is important to make two columns for a home improvement project: "wants" and "needs." The needs are the items that are not negotiable. Usually, they're the reason for the project in the first place. The rest of the plans should fall in the "wants" category. That means that the owner must be flexible and understand that there will be items that fall outside his price range.

Homeowners have a tendency to underestimate what things cost. They are also not always familiar with the process involved in adding a design feature. For example, a homeowner might choose to install recessed lighting in a room without realizing that the current electical wiring in the house is not up to code. The minute the contractor opens up the walls, he has a duty to bring the wiring up to code prior to installation.

In addition, ideally a contract should spell out every item that is included in the job. However, in reality, renovation projects are fluid. Some problem is discovered, or the homeowner comes up with a new idea. At that point, it is very important to have all change orders IN WRITING! Many of the claims I see occur because the homeowner thought something was included, when the contractor did not.

So, when managing expectations, homeowners should be aware of their own preconceived ideas. They should try to be as realistic as possible about their budget and what can be included at a given price point. Owners should be willing to make tradeoffs if they do want to add an extra and be prepared to give up on something else. Most importantly, all involved should know whether a change order is involved, and how that is going to affect the bottom line.

Maintaining Loyal Employees

As an attorney, I am often shocked by how quickly employees will turn on their employers when problems occur during home renovation projects. The employees are often as willing as subcontractors to "spill the beans" about a contractor's lack of attendance at the worksite, mismanagement of money, cutting corners, etc. At the NARI/BAGB event, employees had the chance to air their dissatisfaction with their employers in the workplace. So, here's a warning: listen to your employees. They are often the only people on the front line who can alert you if something is going wrong with a project, and protect your reputation. Advice to employers:

1. Pay your employees fairly, on time, and don't bounce your checks.

2. Make clear to your employees what their authority is on a project.

3. Give the homeowner a point person to talk to when you are not there, and let both the employee and the homeowner know whether the employee can make a decision without checking in with the GC. I have seen numerous cases of employees doing "extra" work where the homeowner thinks it is included, and then is furious when he/she finds out that the work costs extra.

4. Have regular meetings with employees to discuss how projects are going. Make sure that you let your employees know that you appreciate their efforts.

5. If a problem does arise, show your employees that you are on their side, and deal with the homeowner to resolve the issue in a way that shows respect for your employees.

Remember, your employees represent you and interact with your customers on a daily basis. Make sure that they present a picture of your business that is professional and consistent with company policy. Treat your employees well. If you do not, you are operating at your peril.

Continuation of Profile

Andrea Goldman, Esq. was admitted to the Supreme Judicial Court of Massachusetts in 1989. In addition, she is admitted to practice before the United States District Court for the District of Massachusetts and the United States Supreme Court. She is a member of the Massachusetts Bar Association, the Women's Bar Association, and is a Co-Chair of the Middlesex County committee. Ms. Goldman received her A.B. from Brown University in 1982, and her J.D. from Northeastern University School of Law in 1989.

Managing Expectations

I attended a joint event sponsored by NARI (National Association of the Remodeling Industry) and BAGB (Builders Association of Greater Boston) last week. They conducted roundtable discussions on a number of topics, but an issue that came up frequently was the importance of managing clients' expectations. For many homeowners, your job may be the first significant home improvement project that they have ever done. Homeowners often do not know what to expect, and become extremely nervous if things do not seem to be going according to plan. Given that unexpected delays do occur, unforeseen problems do arise, and general contractors are not always on the job every day, it is very important to keep clients apprised of what is happening during the renovation and warn them about projected delays and issues as they occur. I have seen contractors get themselves into trouble that could have easily been prevented by communicating with the homeowner.

In order to facilitate matters, schedule weekly meetings with your homeowners. Let them know how often you will be on the job, and who is the point person for questions if you are not there. Tell them immediately if a change order is going to be necessary, if a mistake was made, or if unforeseen circumstances happen. Negotiate fairly if something is done wrong, or try to brainstorm about less expensive alternatives if something can't be done according to the original plan.

Do not make decisions for your client without consulting him or her (such as the contractor who opted to use pine siding for an addition instead of matching the existing cedar). Fess up if your original estimate was too low and you underbid a project and try to work out a solution with the homeowner.

I can't emphasize enough the importance of managing expectations. Most of the claims that I handle could have been prevented if the homeowners or contractors had not been kept in the dark about changes in financial circumstances, overcommitments on the part of the contractors, or unrealistic notions on the part of the homeowners. By managing expectations, contractors can go a long way towards building an excellent reputation in their community and ending up with a happy client when the project is done.

Contracts for Home Contractors

Home contractors should be careful when drafting their contracts to make sure that they are in compliance with state law. If your particular state does not have a law governing home improvement contractors, a good example of a "proper" home improvement contract can be found at http://www.mass.gov/Eoca/docs/sampcont.pdf. Other factors to consider are including provisions for mediation, arbitration and an allocation of attorneys' fees. It is important to spell out the quality of materials to be used and the allowance for those materials. For a contractor who works on a larger projects, it may be worthwhile to have a lawyer review your contract prior to presenting it to a homeowner. In Massachusetts, the failure to prepare a contract that is in compliance with the law can result in double or treble damages, attorney's fees and costs against the contractor. That is why it is wise to prevent problems and prepare good contracts from the beginning.

Arbitration Clauses

Home contractors and homeowners should consider whether they want to insert arbitration clauses into their contracts. Arbitration usually offers a quicker alternative to litigation. It can also be a less expensive process if the parties agree to keep to a timetable and limit discovery. Some states, such as Massachusetts, have home improvement contractor arbitration programs. It is assumed that homeowners have the right to arbitrate if they satisfy certain requirements, but contractors who want this right must insert an arbitration clause into their contracts. The parties should also consider where the arbitration will be held, which state's laws will apply, and whether any particular arbitration companies will be used. Making agreements about these issues in advance helps to prevent problems later on. One must keep in mind however, that arbitration is usually binding, and the right of appeal is very limited. So, be careful to read the contract and think about whether arbitration would be suitable for your given arrangement.

Make Sure the Contractor is Registered

In Massachusetts, all home improvement contractors are required to register with the Board of Building Regulations and Standards (BBRS). It is very important to check if your state has a registration requirement. If so, you must check to see if your contractor is registered. If not, do not hire him or her! It has been shown tht there are far more incidents of problems with unregistered contractors. In fact, contractors may incur criminal penalties for failing to register. This is an easy tip to follow, and homeowners can save themselves a great amount of trouble if they do.

Introduction to My Blog

I am an attorney who represents both home contractors and homeowners when disputes arise between them. People tend to call me after problems have developed when it no longer seems possible for them to resolve the issues themselves. Unfortunately, I am presented with many situations that could have been avoided with careful planning, or improved communication. The purpose of this blog is to provide a guide for both homeowners and contractors to help them prevent disputes, avoid collection difficulties and make for satisfying stress-free projects.