Saturday, October 17, 2009

Time and Materials Contracts-Are They Illegal in Massachusetts?

I must admit, this question has been plaguing me as it pertains to Massachusetts. This issue applies to residential renovation only, but I know of many high-end contractors who use this method for their projects.

Massachusetts law provides:

Chapter 142A: Section 2. Residential contracting agreements; requirements

Section 2. (a) Every agreement to perform residential contracting services in an amount in excess of one thousand dollars shall be in writing and shall include the following documents and information:

(1) the complete agreement between the owner and the contractor and a clear description of any other documents which are or shall be incorporated into said agreement;...

(4) a detailed description of the work to be done and the materials to be used in the performance of said contract;

(5) the total amount agreed to be paid for the work to be performed under said contract;

Given that a Time and Materials Contract does not have a price, I would argue that it violates the Home Improvement Contractor Law. Further evidence to support that belief was supplied by the Office of Consumer Affairs and Business Regulation. They administer the Home Improvement Contractor Arbitration Program that is run by the state. The program is supposed to provide consumers (and contractors) with a more economical alternative to resolving disputes than litigation and does not require the parties to hire attorneys.

The Office of Consumer Affairs and Business Regulation recently rejected a claim filed by a colleague because they said that the Time and Materials Contract made it ineligible for the program.

The purpose of a Time and Materials Contract is theoretically to protect both the owner and the contractor. The owner is only paying for the cost of the actual materials (usually with a mark-up) and the actual hours worked. The contractor does not run the risk of under-bidding a job and much of the risk is removed because he is paid for all of the actual effort expended. These kinds of contracts can be fraught with problems because homeowners frequently question the amount of time spent and are frustrated if the contractor cannot substantiate his records. That said, as long as the contractor stays in constant communication with the owner (I believe in weekly meetings), they can work well. They also allow for instantaneous change orders to keep the project within budget.

However, when one looks at the statute, it requires, "the total amount agreed to be paid." Contractors should keep in mind that any violation of M.G.L. c. 142A is an automatic, per se violation of the Consumer Protection Act, M.G.L. c. 93A. Under that law, the consumer may obtain up to double or triple damages, attorney's fees, interest and costs in a verdict against the contractor.

So, a colleague has suggested that one way to avoid this issue is to include a guaranteed maximum price (GMP) in your contract. The GMP could be adjusted if necessary when a change order occurs. It is also important to include a detailed scope of the work to validate that price. I strongly urge all of you to include a GMP in your contracts and make sure that you ask for no more than one-third of that price for your deposit (unless the deposit also includes the cost of custom materials).

I cannot guarantee that this will avoid the question of the legality of Time and Materials Contracts, but we will not find out until this solution is tested in the courts.


77 Comments:

At 11:51 AM, Anonymous Anonymous said...

Andrea,
we had a fixed price contract 1.3 million and the contractor 2 mos after house completed gave us a bill for $160,000. over our price.We executed many change orders yet now he claims we decided to let him do the landscaping on a time and materials basis. (90,000 over budget)We NEVER wld have agreed to that!!!!!They said no cost breakdowns were done on the time &materials portion& workers worked on our house and 6 of his other projects at the same time.No chabge oredrs done or no mention he was going over budget on landscape. He also added 70,000 in extras that were things included in our 1.3. final price.They lost motion to attach but we're going to court.Pls help.How can he suddenly have "verbal" unsubstantiated claims ,no Change orders,what protects us???orotected

 
At 10:34 AM, Blogger Christopher G. Hill said...

Andrea,

Interesting post. How does this affect "cost plus" in Massachusetts?

 
At 10:10 PM, Anonymous Anonymous said...

Great advise for the homeowner. But what about the contractor? Time and meterial is used when the homeowner is too cheap to pay the quoted price. The homeowner knows times are tough and is willing to negoiate with the contractor to low ball him. The homeowner always wins. Contractor don't. Case and point: Contractor does the work the homeowner asks and then doesn't get paid. Why? You work all day and get paid for your time why can't a contractor. When you go to work you expect a check at the end of the week the contractor must wait until the homeowner decides to pay. Can you imagine your boss telling you at the end of the week that they didn't feel you were worth it. Everyone deserves to to paid. If your boss held your pay check for weeks or even months how would you feel. My husband is a contractor and tiled a woman's bath room. At first she was thrilled with the out come, 20 minutes later she was unhappy because it didn't look like the picture in a magazine she saw the tile in. She never showed the picture to my husband. So he retiled the bathroom. He special order more tile and even had it overnighted to please the homeowner. The job is now finished and she refuses to pay the balance because she feels it wasn't done to her liking and the floor looks uneven. My husband did not tile the floor he tiled the walls which now make her floor look uneven because it wasn't plum to begin with. She has told him she will decide what to pay him but will not be the orginal price agreed upon by both in a verbal contract. Let's face it, we will never see our money she will win. Because the law is on her side not ours. He went above and beyond for her and now she is in conroll. Wrong wrong wrong. My husband workds hard for a living. He should be paid for the work he does.

 
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At 1:32 AM, Anonymous mary land home contractors said...

Hmmm Interesting post, but for me to see is to believe. Well im not against the girl, but she gave me an idea because i am planning to have a another house preferably in Massachusetts. I experience having a difficulty in time but not in material for 10years my house is good. I hope that i don't have any difficulty having a house in MAssachusetts.

 
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Personally, as a homeowner I don't like dealing with time and material contracts because the contractor can delay the job by working slowly, breaks and who knows what else. By having a set price, you know exactly what your paying for at the end of the job!

 
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