Damages When the Contractor is not Paid
Contractors run into problems when they advance money for custom materials or do a great deal of work on a project without receiving payment from the homeowner. The best way for a contractor to avoid getting "burned" is to start with a good contract. If the homeowner breaches the contract and refuses to allow the contractor back to complete the work, the contractor is entitled to the value of the work done to date. He or she may also be able to claim lost profits if it is found the the homeowner has unlawfully terminated the contract.
Unless the contractor has provisions in his contract entitling him to attorney's fees, interest and/or costs, the contractor will not be able to collect for those items.
Contractors may incur other damages that are caused by the homeowner. If the homeowner delays in making decisions, or acquiring materials, he or she can cost the contractor money as a result of the delays. In addition, homeowners may bring other independent contractors onto the site who interfere with the contractor's work.
However, if contractors do not allow for these kinds of damages in their contracts, they will not be able to recover their losses.
A good contract will include progress payments as work is completed, along with advances for custom items. The contractor and the homeowner will sign off on each phase as it is completed so there is no misunderstanding about payments and what they cover.
All change orders will be in writing and initialed by both parties, and they will be billed as each change order is finished as well.
For the contractor, available damages are limited unless they are provided for in the contract. That is why it is so important for a contractor to put in the time and effort to create a good contract and protect himself from forseeable problems.