Hiring and selecting a contractor is a critical decision, a decision that a construction defect attorney with 35 years of experience can offer valuable insights to, having seen decades worth of situations where the relationship between the owner and contractor ends up in litigation or where the contractor simply does not perform.
Certainly, many lawsuits with contractors arise from the simple fact that the contractor does not perform as promised, and, in many instances, where the promises made by the contractor at the time the contract was signed were false and misleading. No doubt, when the contractor is pitching his services and their ability to perform before the contract is signed, they’re full of assurances and guarantees of excellence in performance, on-time completion and cost control. And, the owner typically views a few prior or ongoing projects to see the type and quality of work, and takes the time to call references to discuss their satisfaction with the work, whether the time schedule was kept and cost overruns. This due diligence is necessary and important.
However, even with a solid and thorough background check, one is still relying heavily on the honesty and integrity of the contractor. Still, one would want to be sure to review the proposed contract carefully to ensure that certain elements of the contract are present which would protect the owner.
The American Institute of Architects, or AIA, has drafted an extensive series of contracts applicable to virtually every contract, design and building situation, and these contracts can be acquired for a fee, and adapted to any situation. The AIA contracts are very, very thorough, well thought out and tend to be owner friendly. The AIA is an excellent source for contractor agreements.
Issues and Elements to Look for in a Contractor Agreement
Basic issues and elements to look for and include in an owner-contractor agreement are as follows: a clear definition and description of the contracting parties, their relationship, the basic contract terms and purpose, the proposed time to start and time to completion, the cost and pricing, with preliminary or agreed upon costs and pricing being referenced in and added to the contract as a contract document, any plans and sketches, also listed and added as a contract document, provisions for the supervision and control over the means and methods of construction and oversight and supervision of subcontractors, specifically detailed provisions dealing with change orders, and a clear provision requiring that change orders be approved in advance, in writing, and that any adjustments or increases in costs, and the time for completion, also be set out in writing in advance and approved in writing, warranties and guarantees that the work will be performed to industry standards and free of defects, and finally, some sort of dispute resolution provisions if the parties are inclined to submit disputes to arbitration or in the case where dispute resolution is not mentioned, then the courts will be the default resolution forum, and any other issue or consideration that comes up during the contract negotiations. AIA agreements cover all of the foregoing and can be an excellent point of reference for any contractor contract proposal.
While this analysis is intended to address contracts dealing with custom home construction, the California Business and Professions Code, at Section 7159, contains very specific requirement and guidelines for any home improvement contract for a work or improvement valued over $500. The requirements are very extensive and detailed and it is recommended that owners take a look at these requirements and compare them to any home improvement contract they are considering.
The final and vitally important factor to check before hiring any contractor is to check their financial capability, including insurance and the financial stability and assets of the principals to stand behind the work. Proof of insurance is vital and critical, but insurance does not cover all claims and has very carefully worded limitations on coverage that limit and exclude coverage for defects in workmanship that have not caused property damage, or in some specific instances, have only caused damage to other products.
In other words, insurance carriers and the policies of insurance that are issued to contractors are not guarantees or insurers of the quality of the workmanship or coverage for errors and omissions. Rather, the insurance is a carefully worded and limited policy of coverage for property damage (or bodily injury). Thus, it is important to know whether the contractor has the financial resources to cover the remainder, to cover the financial costs or repairing all defects, especially those that have not caused property damage, but are faulty and substandard workmanship nonetheless.
So, one would need to look closely at who the contractor is, are they financially secure, are they a bare-bones entity with no assets, no office, no employees and nothing but a license and an insurance policy, then one might wonder whether they would have the financial capability to stand behind their work.
When a Dispute Arises: Right to Repair Act Claims
It’s important to note that when a dispute arises over defective workmanship, many contractors will insist that the California Right to Repair Act applies and that they’re entitled to certain pre-litigation procedures and the right to repair defects and that they can prevent the owner from filing a lawsuit.
However, the Right to Repair Act applies only to original construction of homes intended for sale, and not direct contracts between the owner and the contractor in which the contractor is building a home for the owner, and not for sale. This is a critical distinction. Also, the Right to Repair Act, by definition, applies to original construction of new homes, and not to remodels or additions.
Therefore, in the situation where the owner contracts directly with the contractor for the construction of their home, not to be sold, there is no right to repair, the Act does not apply, and the owner is free to pursue claims for defects against the contractor by filing suit against the contractor, and any subcontractors.
When a dispute does arise with a contractor, particularly one that involves defects of a serious nature, or financial and accounting issues, then its best to contact an attorney immediately to get a case evaluation and an understanding of your rights and remedies, as well as the statute of limitations. Norton & Associates has 35 years experience. with $190m in jury verdicts and $72m in punitive damages awarded.
Speak to our construction defect attorneys. For a consultation on construction defects and any related financial or accounting issues arising from any construction project, contact us today for an appointment at (310) 706-4134 or visit us on the web to make an appointment.