Tuesday, August 28, 2007

The Contractor and Unreasonable Delay

We have all heard how construction/renovation projects take longer than we think they will. How you're lucky if they're done by a certain date. How you should be thrilled if your contractor actually shows up. The question is, when is delay par for the course, and when does it rise to the level of unreasonable or become actionable (resulting in an actual claim against the contractor)?

Of course, the place to start with all of this is the actual contract. Homeowners and contractors should spell out how often the workers will be on site and for how many hours. There should be minimums, and everyone should be clear about managing expectations. As an aside, a person should always be designated as the point person for the job when the contractor is not on site. Both sides should know what that person's authority is, and how to reach the GC if that person is not authorized to make decisions.

What should a homeowner do, however, when it is clear the project is not on track; that it will not be finished anywhere near the completion date listed in the contract?

The answer is quite straightforward, but it does not usually occur to homeowners to try to work things out with the contractor. They feel helpless and like sitting ducks with a home that is fully gutted. The homeowner should request a meeting with the contractor. They should sit down with a calendar and map out work to be done each week with specific dates of completion. The deadlines should be short so the homeowner will know right away if the contractor is going to follow through. Then, there should be a penalty built into the agreement. If the contractor breaches the agreement, there should be an understanding that there is a monetary penalty, and/or that the contractor is in breach and that the homeowner has the right to terminate the contract. It should be stated that this addendum is now incorporated into the contract. Both parties should then sign off on the agreement.

In this way, the homeowner can take back control over her project. The contractor will no longer have free reign over when and if he shows up. The homeowner will know that he will win no matter what, because the work will either be completed, or, the homeowner can terminate the contract without fearing repercussions for illegal termination.

Additional factors to consider may include stating who will show up and when, whether intermittent inspections will occur, and what kind of damages will ensue if the work is found to be substandard. Substandard work and delay frequently go hand in hand, but that is fodder for another posting.

Thursday, August 23, 2007

Think Before You Sue

For those who are wondering why I am posting so much this week, it is because I am away on vacation. I would like to take this opportunity to ask those of you who read my blog to ask questions and suggest future blog posts.

This post is not directly about contractor or homeowner issues, but I have been thinking lately about the stress of dealing with a lawsuit. Parties vary regarding their involvement in their own disputes. Some are happy to hand their claims over to an attorney and check in now and then, and others want to be directly involved and strategize about their claims. However, no matter how much or little involvement you choose, you should realize that lawsuits are extremely emotionally taxing.

First of all, the financial burden cannot be underestimated. Lawsuits are unpredictable. Even if your own attorney is prudent about expenses, he or she has no control about how the other side conducts themselves. Opposing counsel and/or parties can make life miserable and drive up costs. That's just the way it is. Even if you prevail in a lawsuit, there is frequently no guarantee that a judgment will be paid. Different states have different measures available for collection, but it is not usually easy.

Emotionally, lawsuits are difficult. You will be living with your dispute for a long time, and re-living unpleasant experiences every time there is discovery (written questions, document requests and depositions). Your suit will become a part of your life that feels like it never goes away. It is unlikely that a win will be a slam dunk. Ultimately you will probably settle for less than you had hoped for at the beginning.

Why would a lawyer say all of this? The truth is, I am like a surgeon who does not want to do surgery unless it is medically necessary. Most cases settle. Clients have to understand that resolving disputes short of filing suit is usually a better option. Legal expenses have not accumulated extensively, and statistically, parties are much more likely to comply with negotiated settlements. Resolution is not left up to chance where twelve arbitrary jurors are deciding your fate, or a judge is making the decision for you. It is much better to maintain control over your own outcome.

I do not hesitate to advise my clients to file suit when it is necessary and recovering a judgment is feasible. Litigation is my forte along with arbitration and mediation. However, I do not recommend filing suit unless it is worth it, because the emotional and financial consequences are too high.

Wednesday, August 22, 2007

Home Contractor Claims - to Litigate or to Arbitrate (From the Contractor's Point of View)?

Unless a contractor has a provision in his contract that entitles him to attorney's fees when pursuing a claim against a homeowner, at least in Massachusetts, the contractor will be forced to pay his attorney's fees whether he is choosing to arbitrate or litigate. If the homeowner opts to file with the Home Improvement Contractor Arbitration Program in MA, then neither side is entitled to attorney's fees.

So, let's assume the following scenario: The contractor has fully performed, and the homeowner now refuses to make the final payment, or the homeowner is withholding payments, or the homeowner has unlawfully terminated the agreement (the contractor should have the terms for termination included in her contract). What should the contractor do?

First of all, do not underestimate the stress and impact of a lawsuit (the subject of an upcoming post). It should always be one's goal to try to resolve disputes without a formal proceeding. Contractors should attempt to communicate with clients so that irresolvable conflicts do not arise. However, there are situations where the communication does break down and it is helpful to have a plan if this occurs.

First of all, most states offer a powerful option for contractors/construction workers, and that is the mechanic's lien. The procedures required for filing liens vary by state, so it behooves contractors to try to familiarize themselves with their rights under the law. You should also form a relationship with an attorney so that you do not have to frantically search for one if you need to file a lien.

The contractor should also consider sending a demand letter to the homeowner. Although this is not required, it is helpful to spell out your side of the story and understanding about how the work has progressed, what (if anything) is left to be completed and why payment is due.

Then, consider whether you want to arbitrate or litigate if all other options fail. Actually, the time to decide whether to arbitrate is when the contract is drafted, but the homeowner might agree to arbitrate even if there is no arbitration provision in the contract.

Advantages of arbitration: The parties choose the arbitrator (as opposed to a judge, where there is usually no choice), they choose the location and timing of the arbitration, they can elect an arbitrator with expertise in construction, and the process is frequently more expedient and less expensive than litigation.

The main disadvantage? Arbitration is usually binding and not appealable. That means that the parties are subject to the whims of the arbitrator, and there may be little or no discovery (the exchange of information prior to the hearing), and in some states, arbitrators can disregard the law. The bases for appealing an arbitration are so limited (bias or fraud on the part of the arbitrator and in some states, manifest disregard of the law) that one must assume that the arbitration will be final.

Litigation is a well-established process with rules of evidence and legal precedent. The parties all work with the same rules and there is an opportunity to exchange information by sending out interrogatories (written questions), document requests, requests for admission and taking depositions. This gives each side the chance to continuously assess the strength of their cases and consider whether settlement is an option. If one is unhappy with the outcome, then appeals are possible. However, one should keep in mind that parties usually do not appeal because the process is costly.

The main problem with litigation is that costs can spiral out of control depending on how the other side approaches their case. If they request numerous depositions for example, costs can quickly accumulate. In addition, one is subject to the court's timetable, and hearings and trials frequently get postponed even though the attorneys have prepared. They will then need to prepare again which adds to the cost.

All in all, it is better to avoid disputes altogether. However, it is better to be well-informed about one's alternatives and think them through before an irresolvable conflict occurs.

P.S. I always appreciate questions or comments.

Sunday, August 19, 2007

When to Get an Inspection Report

I have recently been thinking a great deal about when a homeowner should hire an independent expert to review the work that a contractor has done at his/her home. This usually arises when the quality of the work has come into question. The homeowner is concerned that some items may need to be re-done, and subsequent contractors may have alarmed the homeowner with sweeping statements about extensive repairs. In addition, the renovation work may have failed the rough inspection, or the building inspector may alert the homeowner to violations of the building code.

I used to tell homeowners to get two or three quotes from subsequent contractors. If the quotes were all similar, then the homeowner would be able to verify the problems. However, as with new hairdressers or dentists, each contractor has his or her style, and there is a fair amount of subjectivity in looking at someone else's work.

The advantage with an independent home inspector is that he has nothing to gain from finding problems, and his opinion will carry more weight with the court. I will often bring a motion to attach real estate as potential security against a contractor. In my experience judges are more likely to grant the motion when an independent inspection report is attached.

Independent inspectors also help ferret out exxagerations on the part of the homeowner and can verify whether work has been done to industry standards. In some ways, this can also support a contractor who is being unjustly accused by an over demanding homeowner who finds fault with the work.

An independent inspector can inject some reality into an emotionally charged situation, and help both sides have a more realistic view of potential damages. This can only serve to help resolve the situation.

Home Contractor Claims - to Litigate or to Arbitrate?

Once the relationship between a home contractor and a homeowner has broken down, and a demand letter has been sent, a decision must be made about how to proceed if the dispute is not resolved. At this point most homeowners and contractors are fairly anxious. They are wondering about what happens next, and what it is all going to cost. The steps I take in these situations is always the same, but the outcome will vary.

First, the homeowner side:

1. What are my damages? I have posted on damages before, so I am not going to explain how to determine damages in this post, but this is the most important question.

For claims less than $5000.00, one should consider small claims court or in Massachusetts, the Home Improvement Contractor Arbitration Program.

For claims between approximately $5000.00 and $20,000.00, one should consider the Home Improvement Contractor Arbitration Program. The reason is simple; the filing fee is low, the Office of Consumer Affairs and Business Regulation administers the whole process, and one does not need a lawyer to use the program (although one may decide to hire a lawyer for this process as well). As long as one qualifies (the contractor is registered, the contract was signed within the last two years, the contractor pulled the permit, the construction work was a renovation, etc.), this is the easiest process for resolving a home contractor dispute and the contractor must submit to arbitration as long as he is registered. In addition, the Guaranty Fund will pay up to $10,000.00 in damages, and it is not as important to procure security for one's claims.

For claims over $20,000.00, it would be much more important to establish whether the contractor owns assets that would be available to satisfy a judgment against him. At this point I do an asset search and usually file a Motion to Attach Real Estate along with a lawsuit in order to have security for a judgment. Violations of the Home Improvement Contractor Act usually will allow for getting one's attorney's fees back, so it is worth it to pay for the costs involved in filing suit. This is a much longer, complicated process than the arbitration program, but the opportunity to obtain prejudgment security makes the process worthwhile.

These are very general guidelines for how to decide how to proceed with pursuing a claim against a contractor. The decision made for a specific case will depend on the ability to collect at the end, the size of the claim, the amount of hassle and difficulty involved in a lawsuit vs. arbitration, and the individual homeowner's goals. However, this will hopefully answer the general question of how one goes about making the decision what to do next.

Wednesday, August 01, 2007

The Endless Punch List

In Massachusetts, a homeowner does not have to make the final payment until the work is done to "the mutual satisfaction of the parties." What is a contractor supposed to do when the homeowner is never quite satisfied, or the punch list of items to be completed never seems to end?

I have seen this situation occur with my contractor clients, where homeowners take advantage or have unrealistic expectations about when a project is complete. How can contractors avoid this problem?

1. Start with a a good contract that spells out the work to be done and the materials to be used, IN DETAIL!

2. Make sure that all change orders are in writing, and adjust the completion date accordingly. Make sure both the contractor and the homeowner signs off on all change orders.

3. Designate in the contract who the decision makers are and make sure they sign the contract and all of the change orders.

4. When the job is complete, have the homeowner create a punch list and discuss each item in detail. Agree in advance what "complete" means.

5. Plan in advance for potential delays by suppliers or for possible mistakes when ordering materials and agree what the consequence will be for these delays.

6. Once the punch list has been created over a reasonable period of time (a contractor should assume that a homeowner is not going to notice everything immediately), say over a ten day period, then the contractor should agree to come back and finish the work by a certain date.

7. Once the work is finished, it would be worthwhile to have the homeowner sign off on the job and agree that the work has been done to his satisfaction.

8. Once final payment has been made, the contractor may want to "sweeten" the deal by signing something saying that all subs have been paid or by supplying lien waivers from the subs.

9. As always, keep the lines of communication open so there are no nasty surprises at the end of the job.

10. Make sure the homeowner knows which warranties are provided and how long they will last. I know one contractor who warranties his workmanship forever.