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.

Legal Tools for the Contractor's Toolbox

I was just thinking about two recent clients who were owed money by owners.  One had a contract that was not in compliance with the Massachusetts Home Improvement Contractor Statute and had waited a long time to pursue his money.  The other had a contract that fully protected him and contacted me once communication had broken down with the customer.  In the first case, my client ended up writing the homeowner a check because he couldn't face the risk of the multiple damages, attorney's fees, interest and costs that are available to the homeowner under the Consumer Protection Statute (c. 93A).  In the case of the second, I had no qualms about filing a mechanic's lien and pursuing payment aggressively because my client was in full compliance with state law.

Just as no respectable contractor would work with poor quality tools, contractors and construction companies should make sure that they are working with high-quality legal "tools" that will protect them in the event of a dispute or investigation by regulating authorities.

So, here is a list of the legal tools that should be in your toolbox:

1. Make sure you have all required registrations for your field.  That includes staying up-to-date on developments in the construction arena.  Are you familiar with the special licensing required for roofers, windows and siding, demolition, etc.  Do you know about the lead law for residential renovation work?  Are you aware of the new continuing education requirement for contractors?
2. Invest in a good contract.  The Massachusetts Home Improvement Contractor Statute (142A) has numerous requirements for contracts for home renovation work.  However, that contract does not necessarily have clauses that protect you.  For example, if you don't have a provision that allows you to recover your attorney's fees if you have to pursue payment from a client, you can't collect.  Contracts for new construction are different and should not be the same as your renovation contract.  All contractors should have contracts with their subcontractors.  I have written on this extensively in other posts.
3. Use mechanic's liens.  Mechanic's liens are a great tool for getting paid.  However, the deadlines and procedures for filing them are very strict, and if you don't do it correctly and you miss the deadline, it is usually impossible to fix.  
4. Demand letters.  When clients call, they often ask about filing suit when a dispute occurs.  However, filing suit should really be the last resort when there is a dispute.  A well-written demand letter can frequently resolve a dispute, and is much less expensive and stressful then a full-blown  lawsuit.
5. Your lawyer.  Clients should call me before an issue arises.  I draft contracts on a flat-fee basis and tell clients to call me (for no additional charge) when they want to delete clauses or add language for a particular job.  I want to become familiar with their businesses and act as a trusted advisor. Preventing problems before they occur is much less expensive and stressful and enables you to focus on your business.  If a dispute does happen, we will discuss the best way to resolve it.  We will consider mediation and arbitration as well as the possibility of filing a lawsuit with your goals in mind.

A true craftsman does not work at a job without the best possible tools.  Make sure that you protect your business with the proper legal tools as well.

The Massachusetts Prompt Pay Statute and Back Charges

I recently had the occasion to file my first lawsuit under the (relatively) new Prompt Pay Statute in Massachusetts.  The Prompt Pay Statute applies to construction projects of three million dollars or more.  There is a clause in the law that covers change orders.  It states that in order for a change order to be rejected, the owner or higher level contractor must state the contractual or factual basis for the rejection, and must certify that it is made in good faith.  The rejection also has to be made within a certain amount of time after submission of the change order depending on the level of the contractor (30 days for the owner plus 7 days for each level of subcontractor on down).  As part of this lawsuit, I alleged that back charges were issued late in violation of the contract, but I also stated that back charges are simply change orders after the fact, and for that reason,  the owner should have to state the contractual or factual basis for the back charges and certify that they are made in good faith.

What do you think?

Mechanic's Liens Basics in Massachusetts

Although I have written about mechanic's liens in the past, the power of a lien cannot be underestimated and bears repeating.  The right to file a lien is a huge advantage for contractors and construction companies, and is a unique tool that helps contractors get paid.  As long as the construction company has a written contract with the owner, it can file a lien on a property within ninety days of the date the it last worked at the project.  If the contractor is a subcontractor, the time for filing is extended to within ninety days of the last date that someone working by and through the general contractor worked at the project.  These deadlines are strict, and if they are missed, then the company can no longer file a valid mechanic's lien.

A lien consists of two documents; a Notice of Contract and a Statement of Account.  The Notice of Contract may be filed at the Registry of Deeds at the start of a project to put the public on notice that the company is working at the property. The Statement of Account provides the details of the contract price, the amount paid, and the amount still owed.  The lien is a public record that states money is still owed for work on the property.  These two documents constitute the mechanic's lien.

What does a lien do?  A lien causes a blemish on the title.  What this means is if the owner has a construction loan, or is trying to refinance or sell the property, the bank will not disburse funds until the lien is removed.  Even if a property owner is not trying to currently sell or refinance, most owners hate having a lien on their property.  They are usually extremely motivated to have the lien removed.

There are only three ways to have a lien dissolved.  One is to settle with the general or subcontractor and have them file a Notice of Dissolution of Lien.  The second is to go to court to have the lien removed because the construction company did not follow the proper procedure for "perfecting" or finalizing the lien.  If the lien is filed too late, the company fails to file suit within ninety days of recording the lien, or if the lien fails in some other way, the owner can file suit to have the lien dissolved.  Finally, the owner can purchase a bond to "bond off" the lien, but this is usually a costly remedy.

If a construction company misses the window for filing a lien, it can still move for a real estate attachment, but this requires filing an action with the court, and it must show a "likelihood of success on the merits."  A mechanic's lien can be filed by a contractor as of right; a party can only file a real estate attachment if a court grants them the right to do so.  That is why a mechanic's lien is a tool that cannot be ignored.

Liens can be an incredibly powerful tool when a contractor or construction company is owed money.  However, unlike most legal actions, the contractor may lose his opportunity to record a valid lien if he does not follow the proper procedures.  

When the Homeowner is a Bully

I've seen a new trend in contractor disputes lately, and it isn't pretty.  Some homeowners are making unreasonable demands on contractors, and bullying them into doing work without getting paid.  They unreasonably withhold payments, or impose penalties for delays that they cause.  They expect contractors to do all kinds of extra work without being paid or changing the completion date.

I have had a series of these recently.  What is a contractor to do?

1. When first meeting with a homeowner, trust your instincts.  If you are sensing red flags, do not take the job.
2. Never let the work get ahead of the money.  If there is a change order, make sure that the payment is contemporaneous with the work.
3. Make sure that all change orders are in writing and reflect any change in the contract price and date of substantial completion.
4. Include a provision in your contract that entitles you to get attorney's fees if you have to go after a client for payment.
5. Make sure that your contract is in compliance with state and federal law.
6. Include clauses in your contract that allow you to stop work if payment isn't made in a timely fashion.
7. Make sure that your pricing is contingent upon reaching clear-cut milestones and that your clients understand how allowances work.
8. Do not cut your margins so much that you don't have a cushion in order to profit from a job.
9. If you work on a Time and Materials basis, bill weekly and communicate regularly with the homeowner.
10. Send me your contract.  I will review it and let you know if it needs work, and I will quote you a flat fee for bringing it into compliance with state law and adding clauses to protect you.

How to Get Paid

It seems as though clients' disputes come in waves.  The latest pattern that has emerged is contractors are finding that they are having trouble getting paid.  As usual, the best way to deal with this problem is by preventing it entirely.  The two tools in your arsenal are your contract, and written change orders.

Prior to starting any job, a contractor or construction company should negotiate a clear-cut payment schedule that makes payment conditioned upon milestones. The work should never get ahead of the payment and vice-versa.  Payments should be broken down into numerous, frequent payments.  That way if either side is having money trouble, it will be discovered before huge receivables accrue.

The contract should also have a clause that the contractor is entitled to stop work if payment is not made within a certain time period.  That way the contractor will not be accused of breaching the contract or abandoning the job if he refuses to work due to nonpayment.

Contractors should not allocate all of their profit to the last payment.  They should also also not cut their margins so close in order to be able to win a bid that any failure to get payment in full results in a loss on the job.

Finally, as always, all change orders must be in writing and reflect the change in price and any extension in the date of substantial completion.  Oral change orders are frequently not honored, and memories conveniently fade.  At minimum, confirm all change orders through email.

Ten New Year's Resolutions for Contractors

Given the approach of the New Year, I have been reflecting on the mistakes that I see contractors make and how to prevent the severe consequences that can occur as a result.  If you follow these resolutions, I assure you that you will prevent most conflicts with your clients, or at least protect yourself in the event of a dispute.

1.  Make sure that all of your licensing and insurance policies are up-to-date.  In most states, the penalties for not being properly licensed can be severe, including double or triple damages, attorneys' fees and costs awarded against you.  Follow the requirements for your profession.  If you do renovation work on pre-1978 homes, make sure that you are lead-certified.  Have proper insurance to cover your business and your employees.

2.  Learn how to properly estimate a job.  This may be the biggest mistake I have seen contractors make this year.  They have cut their margins and not allowed for increases in pricing of materials or labor in bidding their jobs.  As a result, they are not allowing enough latitude for the inevitable issues that arise during a construction project.  Within the last month I have received calls from at least four contractors who are having trouble getting paid, built all of their profit into the last payment, mis-bid the job and have to put money into it to finish.  This is the way you make a living.  Learn how to educate your customer and protect yourself.

3.  Define the scope of the work.  Educate your customers and make sure they know what they are getting.  Clients will always assume they are getting granite when it is your intention to install Formica.  Designate materials to be used clearly.  Use as much detail as possible.  If something is going to be "builder's grade," make sure the clients know what that means.

4.  Make payment contingent upon milestones reached.  Don't let your work get ahead of your payments, and don't let the payments get ahead of the work.  This keeps both sides honest.  If the payment gets ahead of the work, the owner may lose trust that you will finish the job.  If you do your work ahead of the payments, the owner may start delaying when you ask for a check.  Numerous disputes develop because the payments are not in balance.

5.  Make sure you have a good written contract.  Good contracts establish the expectations of the parties while the relationship is good.  In law, a contract is a "meeting of the minds."  It spells out the payments, scope of the work, date of substantial completion, warranties, basis for termination, dispute resolution alternatives, etc.  I have written so many blog posts about why you need a good contract that I can't spell it out here, but read the archives.  A good contract will help resolve any dispute.  It protects everyone.  Many states also require a written contract under the law.

In addition, have an attorney review your contract!  This is well-worth the money, and will protect your business.  It's a worthwhile investment and will help you sleep at night. Seriously. I even charge flat fees so clients can call me when they have a question about their contract.

6.  Have written contracts with your subcontractors.  I get it.  Most of you have been working on a handshake with your subs for years.  However, now is the time to change your policies and have a written agreement.  Your subs should agree to indemnify (pay you back) you if a claim is brought against you for something they did.  You should have a written scope of the work so the responsibilities are clear.  Under the RRP rule, you must submit your documentation to the homeowner within thirty days of completing the job or upon final invoice.  You therefore need the documentation from your subs before they get paid.  This is in the archives as well.

7.  If you are working on a time and materials basis, invoice your clients weekly.  I promise you that if you have a T & M contract with your clients, one day they will wake up and realize that they have written you a blank check.  If you invoice them infrequently, they will have no way of checking whether your labor charges are fair.   They are also more likely to dispute your charges if there is not total transparency in your billing.  T & M contracts do not work well for the contractor who does not maintain good business practices.  You must communicate with your clients at least weekly by email or in person to keep them apprised of costs and whether you are working within your budget.  If not, you could have a nightmare on your hands as lawsuits about overcharging are very expensive to litigate.

8.  Designate who has the authority to make decisions in your contracts.  This is necessary from the homeowner as well as the contractor side.  You do not want your clients asking your subs if they can make change orders and having them rely on their response.  You want them to know who has the authority on the job site or how to reach the contractor by email or cell.  You also want to be able to rely on the instructions that are given by clients.  I see these issues arise most frequently between spouses.  If one spouse authorizes a change order, you don't want the other one saying that it was not okay.  It's nice to be able to point to the contract and say that you relied on a person with authority.

9.  Make sure your clients know that the job will probably exceed the budget by at least ten percent.  If I had a dime for the number of homeowners who have been shocked by the fact that their job exceeded their  budget, I would be a rich woman.  It is your job to educate your clients.  Do not be coy.  Tell them that more often than not, there are concealed conditions that will increase the cost of the project. Make sure they have a cushion built into their budget.  I can't tell you how many homeowners are blatantly refusing to pay for change orders because they were unanticipated.  Tell them, and then tell them again.

10. Finally, all change orders must be in writing and signed by the parties!  They must state the change in the contract price and how the date of substantial completion will be affected by the change.  This sounds so simple, but I bet I could prevent 90% of all disputes if contractors and homeowner would follow this simple rule.  Contractors laugh when I say that homeowners always believe that a minor change (can you add two outlets?) is free, and homeowners are always shocked when they are charged for verbal change orders.  Never, ever rely on a verbal change order.  Document everything.  E-mails are fine.  Just make sure you have a return receipt to show that they are read.

Happy New Year!  Hopefully I just saved you thousands of dollars worth of legal expenses in 2012.