Saturday, December 13, 2008

Contractors-What to do in a Bad Economy

The construction industry is in a terrible state right now, and I know many contractors who are suffering the worst downturn in work in their careers. Now, more than ever, contractors need to protect themselves when they undertake projects and make sure they are operating their businesses correctly.

In my practice I see many distraught homeowners who want to file claims against contractors. They are now willing to fight over less and less money and their general level of anxiety has risen.

The best contractors recognize that maintaining good client relations is the best way to stay out of trouble, ensure future referrals, and stay in business. Particularly in this economy, this is not the time to ignore phone calls, disappear from the job, hit consumers with unexpected change orders and extra bills and cut corners. Many builders do not realize that their best source of future business is their current clients.

So, keep the following in mind:

1. Keep the lines of communication open at all times. Make sure you manage your clients' expectations. Let them know that the project may go over budget and that they should allocate for that. Address problems early before they accelerate.

2. Make sure you have a good contract that protects you. Include a provision that allows you to collect your attorney's fees if you have to sue a client for payment. Most of the contractors I meet with do not have this clause in their contracts. They are shocked when it costs them two-thirds of their payment in legal fees when they have to sue a client for their fees.

3. Follow the law. Would you drive a car without a license? There are so many contractors who do not have the proper licenses for performing their work. Do this at your peril. It will catch up with you at some point. In addition, make sure you know the requirements of the building code for your state. Code violations provide excellent evidence against you in a lawsuit. I know of a contractor who sued a client for a $7000.00 payment who ended up with a $130,000.00 judgment against him because he did not follow the law.

4. If you run into a dispute with a client, and you have committed a violation of some sort, resolve your disagreement quickly and protect yourself for next time. You may have to "eat" your fee in order to keep from suffering further consequences.

When business is slow, it is time to review your contract, brush up on the building code (Massachusetts recently published the 7th edition of its code), check the status of your licenses, and check in with former and current clients. If you do your housekeeping now, you will greatly reduce your worries when business is booming and you are too busy to pay attention to these important tasks.

Tuesday, December 02, 2008

Warranties When the Contractor Abandons the Job

About a month ago, a woman walked into my office, and she said that her contractor told her that he would not honor his warranty unless she gave him a good reference. It seems like, of late, that homeowners are extremely concerned about the warranties provided by their contractors. What if something fails over time? Who is going to address problems that arise?

Let's face it. Good contractors honor their warranties. In fact, for you contractors out there, here's a tip: warranty your workmanship for life. A contractor I know says, why not? I have complete faith in my workmanship. There is no reason not to give a lifetime warranty

When a contractor abandons the job, it is unrealistic to expect that he or she will honor his warranty. It is not unusual for problems to develop as months pass. That is why it is important not to bring a claim before all of the damages are discovered. When claims are filed initially, it is important to factor in the value of the warranty and the likelihood of something going wrong when making a demand.

Once the relationship between the parties has broken down, the homeowner should assume that he has lost any warranty provided by the contractor other than those that are passed on from the manufacturer. The homeowner should do his best to reduce his damages by documenting the issues and then preventing further losses (if water is leaking into the house, you can't allow it to continue leaking and create a more extreme problem in order to pursue further damages against the contractor).

If you are extremely concerned, it may be worthwhile to have an independent home inspector come in and review the work. In my experience, this usually increases the estimated amount of damages and is worth the expense.

Rather than being worried about whether warranties will be honored, think about whether you would want your contractor back if he has abandoned the job. Factor the price of future repairs into a potential settlement figure, and then move in. It is not worth it to stay in a bad relationship where you will doubt the workmanship ofrepairs done at your home.

When the Contractor Files for Bankruptcy

As the economy has gotten worse, I receive phone calls from homeowners asking: what do I do if my contractor files for bankruptcy? First, the disclaimer. I am not a bankruptcy lawyer. The bankruptcy law changed within the last few years, and lawyers are required to issue a number of disclaimers before offering bankruptcy advice. So, I am not going to tell you how to file for bankruptcy, or which debts are dischargeable in bankruptcy and which are not.

If your contractor states that he is on the verge of bankruptcy, understand that you may never recover even if you can bring a claim against him. That is why it is important to take one's ability to collect into account prior to filing a lawsuit. In Massachusetts, tshere is a fund called the Guaranty Fund that will pay up to $10,000.00 of your damages if you obtain a judgment and your contractor files for bankruptcy. I do not know if other states have similar funds. In any event, I always say that the easiest thing for a contractor to give you is his time and labor. Keep that in mind when you are trying to resolve a dispute.