Tuesday, June 30, 2015

THE DESIGN/BUILD CONTRACT

Design/Build contractors are really running two businesses at once: there is the design portion of a project, and then there is the actual construction.  Design/Build contractors should therefore have two different contracts for these phases of the job for the following reasons:
  1. Design does not fall under the Massachusetts Home Improvement Contractor Statute, M.G.L. c.142A which governs home renovation projects in Massachusetts. There are strict requirements for which clauses have to be included in these contracts and any violation is a per se, automatic violation of the Consumer Protection Statute, M.G.L. c.93A, which can give consumers up to double or triple damages, attorney’s fees, interest and costs.  For that reason, contractors do not want the design portion of these projects to be subject to these laws.
  2. The contractor must make clear to the homeowner that there is a separate fee for the design, and that the fee is nonrefundable. I have seen too many cases where a homeowner decides to proceed with another contractor and then asks for all of his money back. 
  3. It must be made clear to the homeowner that the design is for the contractor’s use only. One of the advantages of design/build is that the design does not require the degree of specificity that would allow for it to be used by an outside contractor.  The contractor can make modifications as the project progresses.  This provides the homeowner with savings by bundling the design and build services.  However, if the design/build process is not made clear, there is a higher risk that the homeowner will attempt to take the design/build contractor’s design to other contractors.  
  4. The contractor should decide who owns the design once it is paid for. If the homeowner is given the design then the homeowner should have to sign an indemnification clause that would protect, defend and pay back the contractor if he is sued for the use of the design by someone else.
  5. The contractor may decide to include mediation and/or arbitration clauses in the design contract that would result in a settlement of any dispute regarding the design phase. This would be binding, and would not fall under the state Home Improvement Contractor Arbitration Program.
  6. The contractor may also want to include a clause that allows him to end the work at the design phase “for convenience” if the relationship is not going well.
It is the contractor’s job to educate the consumer about the advantages unique qualities of design/build.  The customer should know who is doing the design and the type of qualifications being offered.  They should understand that it is the intent of the parties to engage in every phase of the construction together. 
Most consumers are not familiar with design/build.  It is important to have comprehensive contracts to protect you if unexpected issues occur.

Tuesday, June 23, 2015

Why Contractors Should Strive for Excellence

I have many clients who tell me that they've never been sued. If a problem develops, they work with their clients and try to resolve it. Working as a contractor who does new construction or remodeling has never been harder. Clients turn to the internet and believe they know how to do it faster, better and less expensively. They are savvy consumers who monitor time spent on the job and costs of materials.  Sometimes they work at home and keep close tabs on the work. The pressure on contractors is enormous, and in some cases, can make them discouraged and less motivated to do their best. Despite working in a stressful profession, contractors should always strive to do their best; even if the owner is very, very difficult.

The reason for this is simple. A contractor or construction company's reputation can make or break his business. I have had clients receive bad reviews on known websites and seen them severely damage their financial condition. Unfair as it may seem, once a bad review is posted, it is extremely difficult, if not impossible to remove. We all seem to remember the bad reviews even if there are numerous good ones.
Marketing literature says getting a new client is hard. It is much easier to get new business from an old client, so it is important to keep the relationship on good terms. In addition, most established businesses get their work through word-of-mouth. In that respect, you are only as good as your last job. References are everything.
On that note, the other day I heard a story that amazed me. As part of my practice, I coach my clients on how to deal with difficult clients. Some have had the door slammed in their faces, the locks changed, received nasty emails or been wrongfully terminated. One client was having repeated issues with a job, but he handled every insult with class and respect. He never challenged the owner head on, followed through with his promises and asked for payment nicely. Meanwhile, he never knew what was coming next.
Imagine his surprise when he overheard the owner telling a friend what a great job his company had done! After all his trouble, this same client was giving him an excellent review and the opportunity for future referrals. So, the next time you want to throw up your arms and walk off the job, keep this in mind. It is really worth it to always strive for excellence.


Saturday, June 13, 2015

The Pros and Cons of Design/Build

It seems as though more and more contractors are branding themselves as design/build these days.  The process is attractive for both homeowners and contractors.  Rather than seeking the services of an architect, the homeowner only needs to engage one professional for the design and execution of a renovation project.  The contractor has a great marketing tool.  He can advertise as a “one-stop” shop that provides both the design and construction as part of a seamless, efficient process that will result in a less expensive, successful project.
What I have found in practice is that design/build has both advantages and traps for the unwary contractor and consumer.  The pros for the contractor are many:
  1. Earning a fee for both the design and the construction aspects of home improvement projects.
  2. Working with a design that has the necessary components for the construction phase. No unclear specifications that handicap the builder.
  3. Dealing with known in-house or independent contractors who have a preexisting relationship with the contractor. Fewer conflicts with unfamiliar design professionals.
  4. Longer-term projects and the ability to provide a greater variety of services to the customer.
  5. The ability to provide a lower bid for a job, since the specifications will not require as much detail as modifications can be made onsite.
  6. An additional creative outlet for the contractor
  7. More “bang for the buck” on one’s website since photos will reflect both design and construction ability.
That said, numerous clients have run into issues with design/build that can be prevented.  The most common problem is when client(s) wants to terminate the relationship before the construction phase, take the design and have it executed by someone else or want to stop the project altogether.  In addition, clients frequently don’t understand the process and request numerous revisions or designs beyond their budget.  Finally, I have seen numerous instances where clients do not understand the pricing and payment schedule associated with the project.
All of these issues can be prevented with a proper design/build contract.  This will be the topic for my next blog post.

Saturday, November 01, 2014

How to Get Paid When You’re a General Contractor

Image courtesy of satit_srihin at FreeDigitalPhotos.net

The #1 complaint that I hear from contractors is that they have trouble getting paid.  They provide a service to an owner, do additional work when asked, and then when an owner is presented with a bill, the owner ignores it, pays less than asked or refuses to pay at all.  What is a contractor to do?

Here are the rules for getting paid:
  1. Start with a good payment schedule. The payments should be linked to milestones so the work does not get ahead of the payments or vice-versa.  Ask for payment at the start of a milestone to ensure reasonable cash flow.  For example: 10% at the start of plumbing.
  2. Ask for a reasonable deposit. Make it enough money to ensure payment for custom materials and make it non-refundable.  If you are a home improvement contractor in Massachusetts, the deposit cannot be more than one-third, and you have to include language in your contract stating that fact.
  3. Include a provision in your contract that allows you to stop work or suspend the job if a payment is not made when due. For that reason, make sure that the payment schedule is broken down into more frequent payments.  That way, if one is missed, it will only constitute a small percentage of the job.
  4. Charge finance charges. As long as your state allows you to do so, charge finance charges for late payments. You can also include a discount for immediate payment if you would like.
  5. Include a provision in your contract that entitles you to attorney’s fees and all costs of collection. In Massachusetts, you can’t get your attorney’s fees back if you don’t include a clause in your contract saying that you have a right to them if you have to pursue a customer for payment.
  6. Consider having a “pay when paid” clause with your contractors. Unless you are working on a commercial job in MA that is >$3,000.000.00, you have a right to wait to pay your subcontractors until you are paid.  This may not be great for your relationship with your subs, but it will put pressure on the owner to pay you.
  7. Insist that all change orders are in writing and reflect the change in contract price. In addition, indicate in your contract when payments are due for change orders.  Then, do not make any additions to projects without written change orders!
  8. State in your contract who will have the authority to sign change orders. If the owner asks others for change orders, make sure the owner understands that he will have to pay for all unauthorized change orders.
  9. Invoice on a regular basis and keep proper accounting of your job.  Guess how many owners are willing to pay for change orders that a general contractor discovers after final payment has been made.
  10. Finally, if all else fails, make sure you are in compliance with the timing of your state’s law for filing mechanic’s liens. Mechanic’s liens are an excellent tool for getting paid, but the rules for filing them are usually very specific, so consider hiring an attorney so they are done properly.
Next up:  How Subcontractors Can Make Sure They Get Paid.

Sunday, September 15, 2013

What to Do When Subcontractors and Suppliers Ask the Owner for Payment

Stacks of One Hundred Dollar Bills with Small House.
When owners discover that their contractor has not paid subcontractors and suppliers, anxiety immediately sets in.  Contractors who are not adept at running their businesses end up with cash flow problems and operate on credit.  The situation then catches up with them and they stop making payments.  Suddenly the owner finds himself being contacted by subcontractors and suppliers who are demanding payment. 

The law in Massachusetts is clear; a subcontractor or supplier can only collect against an owner if it records a properly perfected mechanic’s lien.  Then he can only expect payment to the extent that money is owed to the contractor at the time the lien is filed.  That said, the owner has the right to finish the job.  If there are no funds left, the subcontractor or supplier can only go after the general contractor for payment.

Mechanic’s liens are complicated.  They consist of two documents: a Notice of Contract and Statement of Account.  After filing these documents, the sub or supplier must file suit within 90 days, or the lien is no longer valid.  Contractors and construction companies frequently fail to properly perfect or record their liens.  If this occurs, they may be dismissed.

Generally, in MA, liens must be filed within 90 days of when the general contractor or someone working through him was last at the job.  If an owner pays subs during the period that others can still record liens, he “pays them at his peril.”  For that reason, the owner should record a Notice of Termination with the Registry of Deeds.  That starts the clock running and all liens must be filed within 90 days of the recording.

At that point, the owner has a decision to make.  Should he file a motion to dismiss the lien because no money is owed to the general contractor, or negotiate with the sub or supplier and pay them something to dissolve the lien?  Unfortunately, the answer is, it depends.

In order to have a lien dissolved, your lawyer has to file an application to dissolve the lien with the court, and schedule a hearing.  The whole process may take ten hours or more of your attorney’s time.  As with any matter before a judge, there is no guarantee that the decision will go your way, even if the facts are on your side.

If the sub or supplier will agree to a smaller amount to pay the general contractor’s debt, it may be worth it to pay and have him sign a release.  This may be a preferable and perhaps the only option if the subcontractor still has work to do, or if additional supplies are needed from the same supplier.  It is generally more expensive to hire someone new to come in and complete work that has been started by someone else.

On the other hand, the amount owed may be so large that it is more economical to fight it out in court.  If money is still owed to the general contractor, then that amount will be distributed pro rata to the subs who have filed properly perfected liens.  Unless one can get all of the subcontractors to agree, it is better to obtain a court order decreeing the amount owed and how it should be distributed.

It is extremely stressful for an owner when subcontractors and suppliers start knocking on his door. Given the complexity of the situation, it is advisable for an owner to contact a construction attorney to determine how to best resolve the matter.



Friday, August 02, 2013

How to Handle Micro-Managing Homeowners

I assume that some of the contractors out there are already nodding their heads.  The Internet has done a lot of good in the world, but in certain ways, it has not benefited home remodelers.  The access to information allows anyone to research products and methods in construction, and unfortunately, a certain percentage of the public concludes that they have developed a level of expertise that trumps that of their contractor's.

I have heard numerous complaints from home improvement contractors who now deal with homeowners who want to buy their own materials (they can get a better deal, they want something unique), have their contractors use different methods, or finish a task within an unreasonable amount of time. I am sure that the customers mean well, but interference from their clients can be a real problem for contractors and at its worst, derail a project or result in litigation.

How can a construction professional avoid getting stuck with micro-managing (albeit well-meaning) homeowners?

  1. Pre-screen your customers.  Most of my clients tell me that they saw red flags prior to signing a contract, but did not pay attention to them.  You are the expert; if the client starts out by telling you how to run the job or insisting that he order his own materials and supplies, take notice.
  2. Set expectations.  You are running the project.  Although a homeowner may believe that she can get a cheaper price, most contractors have ongoing relationships with suppliers that allow them to buy at a discount (which they can then mark up) and control the schedule for delivery so it does not delay a project.  If something arrives damaged, these relationships can enable the contractor to replace the item on an expedited basis.
  3. Draft a good contract.  Let the homeowner know that you will be taking a markup on your materials and supplies.  Issue a disclaimer for any owner-supplied items.  Do not guarantee performance of green materials.  Charge extra if the product requires special installation methods.  Let the homeowner know that improper installation can invalidate the warranty.
  4. Write in the contract that you control the means and methods of the work.  Make it clear that the homeowner can only enter the construction site if he/she is escorted by one of the workers.  Have the owner commit in advance to the fact that you are the expert and must make sure that work will be up to code and pass inspection.
  5.  Have a clause in your contract that allows you to terminate if the homeowner refuses to make decisions in a timely fashion, causes unreasonable delay or refuses to cooperate with you.


Renovating or building a home should be a positive experience for both parties, but as all builders know, there are aspects of it that are stressful.  Don’t let your client add to your stress level by allowing them to invade your territory.
 

Sunday, June 09, 2013

Safety Checklist for Homeowners

In Massachusetts, homeowners are not held responsible for complying with safety regulations in construction.  They can sandblast paint that may contain lead, walk on their roofs without protection and operate in blissful ignorance of the laws regarding safety.  If homeowners hire contractors who do not follow safety rules, they are not responsible for that either.  The risk of noncompliance falls on the contractor.  If a homeowner creates an unsafe condition, of course he/she may be liable if someone gets hurt, but the homeowner does not have to police the contractor.  In fact, since many safety regulations make the cost of doing a job more expensive, there is an incentive for homeowners to hire contractors who do not follow the rules!  Today my friend and colleague, Mark Paskell posted a story about a roofer in Connecticut who died after falling off a roof  http://www.thecontractorcoachingpartnership.com/Blog-Contractor-Coaching--Construction-Business-Coach-EPA-RRP-Lead-Rule/bid/65475/roofer-killed-in-fall-from-roof-in-westport-ct-osha-investigates?source=Blog_Email_[Roofer%20killed%20in%20fal].  You do not want to have that occur during your job.


Here is a checklist for homeowners to use when hiring a contractor:
  1. Make sure your contractor has worker's compensation insurance to protect his employees, and call the insurance company to ensure that it is still in effect.
  2. If the contractor is a sole practitioner, make sure he has health and/or disability insurance.  Sole practitioners do not have to have worker's compensation insurance in Massachusetts.  Check with your home insurance to see if they will protect you if someone gets hurt on the job.
  3. If the contractor is handling any kind of hazardous waste, make sure the he is complying with the proper procedure for removal and disposal of the materials (this protects both of you).
  4. If you hire a roofer, make sure that your roofer is using proper fall protection.
  5. If your house is pre-1978 and has not been tested for lead, familiarize yourself with the Renovation, Repair and Painting Rule (RRP) and confirm that your contractor will be following the lead-safe procedures
  6. Cooperate with your contractor by staying out of the construction site without asking whether it is safe to enter.
  7. Keep pets and children away from the work.
  8. Ask workers to leave the premises broom-clean at the end of the day; no one wants to step on or drive over nails.
  9. Follow safety procedures yourself, even though they are not required.
  10. Do not hire contractors who do not comply with the law!
As a homeowner, you have a responsibility to see to it that safety rules are follow when doing work on your home.  Even if the law does not require it, you should try to make the work safe for your family, the workers and your neighbors.