Wednesday, November 28, 2007

When Contractors Fail to Pay Subcontractors

In most home improvement contracts, the contractor serves as the general contractor (GC) and hires the subcontractors to do various aspects of the job. It is understood that it is the homeowner's duty to pay the contractor, and the GC then pays the subs. At least, that is how it is supposed to work.

One of the most upsetting experiences for a homeowner is when a subcontractor knocks at his door or walks off the job stating that he has not been paid. It is even worse when a sub files a lien on the property. The homeowners are caught off guard and frequently between a rock and a hard place.

They face a difficult choice: Should they re-pay the subs in order to get the work done, or rigorously defend against subcontractors' claims? In Massachusetts, if the sub's contract is with the contractor, he cannot prevail legally against the homeowner for payment. However, this is no consolation for a homeowner who is defending against a lawsuit, or living in an unfinished house.

The reality is that one has to weigh the cost of paying the subs, the likelihood of success in collecting against the GC, the cost of defending against a lawsuit and the consequences of have a lien on one's property, in order to decide what to do. That said, the best remedy is really prevention.

There are two ways to prevent claims from subs. One is to insist on lien waivers as the subs finish their work. This will immediately put the homeowner on notice if there is a refusal to provide the waiver . The other is for the homeowners to check in on a regular basis with the subs and ask them directly if they are getting paid. If not, they can immediately confront the GC and nip the problem in the bud.

In any event, it is a nasty surprise for homeowners when they discover that the subcontractors are not being paid. That is why they need to be vigilant and make sure that the situation does not get out of hand.

Saturday, November 24, 2007

Attorney's Fees and Construction Contracts

Many of my clients come to me with their claims and assume that the law will afford them their attorney's fees if they prevail in their case. Unfortunately, nothing could be further from the truth. The law does not provide you with attorney's fees unless there is a law that applies to your claim that gives you attorney's fees, or, they are provided for in the contract.

There are a variety of ways of wording attorney's fees provisions in contracts. They can be very one-sided, or more equal. I was just reviewing a contract for a client that allows for the contractor to recover his attorney's fees if he has to pursue payment from the homeowner. This is the contractor's contract, and not surprisingly, it does not afford the homeowner the same benefit. Since in this case, I represent the homeowner, I would be inclined to cross that line out. However, it is unlikely that the contractor would agree to such an exclusion.

The compromise provision would allow the prevailing party to collect attorney's fees. This spreads the risks equally between the contractor and homeowner. In many ways, this is a good clause to include in a contract, because it makes both sides think carefully before filing a claim. It actually promotes settlement because their is greater risk involved and the penalty for losing can be quite high.

One has to think quite carefully before signing a contract that gives either party attorney's fees. I have never seen a contract with a cap on the fees, although courts have been known to reduce them if they think they are unreasonable.

So, before creating a contract, or signing a contract, think about your goal, and think about what is fair. Here in Massachusetts, any violation of the Home Improvement Contractor Statute is a per se violation of the Consumer Protection Statute, which provides for attorney's fees, up to double or triple damages, interest and costs. Given that the law protects homeowners, I try to ensure that contractors have a clause that gives them attorney's fees in their contracts. It equalizes the playing field and makes both sides try to work together to resolve disputes.

Friday, November 02, 2007

The Home Improvement Contractor License and the Construction Supervisor License

Both contractors and homeowners alike often do not realize that there is more than one type of licensing for contractors in Massachusetts. From the Office of Consumer Affairs & Business Regulation (OCABR) website:

A Home Improvement Registration certificate and a Construction Supervisor License are different.

The Home Improvement Contractor (HIC) Registration Program is primarily a business registration program designed to protect consumers. The registration process identifies the responsible party for the contracting business, who is responsible for the company’s business practices. A registration does not certify that a contractor has a set of construction skills.

A Construction Supervisor's License, however, does fulfill that function. If a contractor is going to be supervising certain structural work, then that person will need to have a license, which presently requires that the contractor has at least 3 years of construction or design experience and has passed a written examination on the State Building Code. Exams are intended to test the literacy of Building Code requirements and general construction practices.

The Department of Public Safety’s Board of Building Regulations and Standards (BBRS) requires an individual who supervises building construction for certain building types to be licensed as a Construction Supervisor.

Here's the confusing part: all contractors who do home improvement work must register for their HIC license unless they fall within certain exceptions. Contractors frequently believe that if they have their CS licence, they do not need the HIC license. However, this is not true.

Homeowners should make sure they hire only contractors who have their HIC license, or they will not be able to avail themselves of the benefits of the Home Improvement Contractor Arbitration Program or the Guaranty Fund.

Depending on the kind of work they do, contractors may need to have both licenses. They can check with the Board of Building Regulation and Standards to make sure that they are complyng with the law.