Source: http://garywmoselle.blogspot.com/2011/
Timestamp: 2017-12-11 16:49:18
Document Index: 255781541

Matched Legal Cases: ['§ 719', '§ 513', '§ 09', '§ 4', '§ 435', '§ 25', '§ 812', '§ 15', '§ 420', '§ 5652', '§ 513']

State-by-State Construction Contract Law: 2011
Why Contractors Like ADR
Construction disputes usually start with a surprise – something nobody considered. A good contract anticipates the most likely surprises. But no contract is perfect. Occasionally you’re going to have a dispute.
If you write the contract, you decide how disputes will be settled – either in court or by arbitration. If your contract requires arbitration, usually called alternative dispute resolution or ADR, the arbitrator’s decision will be final. There’s no right to sue. That can be an advantage. Arbitration is usually faster and cheaper than litigation. Many arbitration cases are decided on written statements alone. Statistics show that merchants usually win and property owners usually lose in arbitration. That makes arbitration a good choice for construction contractors. An arbitration clause in your contract adds leverage when an owner (or the owner’s attorney) threatens to sue.
Eleven states void any arbitration agreement in a residential construction contract that omits disclosures required by state law:
California -- Business & Professions Code § 719
Illinois – Title 815 Illinois Compiled Statutes § 513/15.1
Maryland -- Code of Maryland Regulations § 09.08.01.25.
Massachusetts -- General Laws 142A, § 4.
Missouri -- Revised Statutes § 435.460
Nebraska -- Revised Statutes § 25-2602.02.
Oregon -- Administrative Rules § 812-012-0110-1-f.
Pennsylvania – Title 73 Pennsylvania Statutes Section 517.7
South Carolina -- Code Annotated § 15-48-10(a).
Texas -- Property Code § 420.003.
Vermont -- Title 12 Vermont Statutes Annotated § 5652
The disclosure statement required is different in every state: the exact words, all upper case, underlined, signed or above the signature line, etc. Without the precise disclosure required by state law, your agreement to arbitrate isn’t going to be enforced. That’s a trap for the unwary. Don’t get caught.
What’s in an Arbitration Clause?
No state or federal court will touch a dispute about a contract that includes an arbitration clause – an agreement to settle disputes using private ADR rather than public courts. Your arbitration clause should identify who will do the arbitration (such as the American Arbitration Association or Construction Dispute Resolution Service) and the arbitration rules that apply.
Federal law and policy favor arbitration. State limits and restrictions on arbitration, such as in the eleven states listed above, have been invalidated when the subject of the contract included interstate commerce. And nearly all construction includes materials from out of state. Still, the easiest and cheapest way to get into arbitration (and stay out of court), is to comply with your state law.
Construction Contract Writer makes that easy. If your preference is arbitration and if you do work in one of the eleven states listed above, get the trial download. It’s free.
Posted by Gary W. Moselle at 8:39 PM No comments:
Insurance Repair Work in Illinois
Starting January 1, 2012, residential contractors in Illinois have to jump through another hoop.
If any part of a job may be covered by insurance proceeds, section 513/18 of Illinois’ Home Repair and Remodeling Act will require a special notice in the contract and extra cancellation forms. Section 513/18 applies if:
The work is on an existing residential building with from one to six units, and
The work is valued at $1,000 or more, and
Repairs are needed because of damage from a “natural occurrence” and
More than one residence was damaged by this natural occurrence, and
Part of the work may be covered by proceeds from property insurance.
If § 513/18 applies, a contractor:
Can’t offer a discount on the insurance work.
Can’t help the homeowner file an insurance claim.
Has to include a roofing contractor’s license number in the contract.
Can’t start work until the insurance claim is resolved.
This doesn’t make sense on several levels:
Contractors should be encouraged to give discounts.
Some homeowners need help preparing claim forms.
Not all catastrophe repairs require a roofer.
Homeowners need the right to start repair work before their claim is settled.
Illinois has a reputation for legislating first and regretting it later. Until the Home Repair and Remodeling Act was “fixed” last year, a violation of the law left contractors with no right to collect. For example, in Smith v. Bogard, a contractor who forgot to give an owner the state’s two-page consumer protection brochure lost all rights: The contract was unenforceable, lien rights were void and there was no recovery for unjust enrichment. That opened the door to all kinds of mischief by owners operating in bad faith. The Illinois State Bar, the office of the Illinois Attorney General and the legislature in Springfield stewed about that for a while and decided that wasn’t what they intended. So HRRA was “fixed” last July, allowing enforcement of lien rights and recovery for unjust enrichment.
Now comes the new section 513/18. Sub-section (f) requires a boldface notice in the contract. Sub-section (g) requires a new cancellation form – in duplicate – attached to the contract. This is in addition to the usual Reg. Z (three-day) cancellation form. I have no problem with either the notice or the attachments. Contractors know their contracts have to be letter-perfect. But there will be unintended consequences from sub-section (e). An owner has the right to cancel the contract at any time up to the earlier of:
Five days after the insurer has denied any part of the claim, or
Thirty days after the homeowner has delivered a proper proof of loss to the insurance carrier.
After cancellation, the contractor has ten days to make a full refund – even if repairs are already complete!
So what’s an insurance repair contractor supposed to do? I have three recommendations:
Write the contract now. But don’t start work until the insurance claim is settled.
If only part of a job is covered by insurance, put that part on a separate contract. Write another contract for the remainder of the job. Start work on the non-insurance work when you’re ready.
Explain section 513/18 to the owner. Until the carrier settles, your hands are tied. All you can do is prevent further damage – but only if the owner agrees in writing.
As long as there’s a right to cancel, repairs are on hold. That benefits no one. Better to let an owner acknowledge in the contract that their insurance claim may be denied. Then get on with the work. A “fix” like that benefits everyone. But until the legislators in Springfield make that change, Illinois contractors have to follow the law as written.
If you’re using Construction Contract Writer, your program will revise automatically when the new Illinois law goes into effect. If you’re not using Construction Contract Writer, the trial version is free.
Posted by Gary W. Moselle at 11:41 PM 1 comment:
A.I.A. Contracts vs. ConsensusDOCS
In April 2009, Bennett Builders signed a contract to remodel the Stamford, CT home of Tarun Mehta. It was a cost plus job at a price not to exceed $446,900. Under the agreement, work was to be completed by October 2009. Over a year later, work still wasn’t done and Mehta terminated the agreement. Bennett filed suit for $31,754.94 still due on the contract and asked the court for a pre-judgment remedy, an attachment of $32,000 on Mehta’s home.
This should have been a good job for Bennett Builders. They stood to earn a fee of $31,500. Even if the court denied payment in full under terms of the contract, Bennett should have been able to collect for the value of materials and labor that went into the job. Unfortunately, it didn’t work out that way. Bennett had made a serious mistake, using an A.I.A. contract.
The 17-page contract Bennett and Mehta signed was essentially the American Institute of Architects ("AIA") Document A107-1997 "Abbreviated Standard Form of Agreement Between Owner and Contractor for Construction Projects of a Limited Scope Where the Basis of Payment is a Stipulated Sum." Go to the A.I.A. site and you’ll discover that A.I.A. contracts are “accepted, reliable, fair and flexible.” Fine. But here’s what the A.I.A. doesn’t explain. A.I.A. construction contracts don’t comply with either state or federal law. In most states and for most jobs, a contractor who works under an A.I.A. contract risks serious legal trouble. That’s exactly what happened to Bennett Builders.
On September 23, 2011, the Connecticut Superior Court denied Bennett Builders any relief – nothing under the terms of the contract and nothing for the value of goods and services that went into Mehta’s home. Why? The law is clear. Connecticut’s Home Improvement Act and Connecticut’s Home Solicitation Sales Act require a notice of cancellation in at least 10 point bold type. The A.I.A. contract doesn’t comply with Connecticut law and won’t be enforced by Connecticut courts. You can read the case at 2011 Conn. Super. LEXIS 2481.
I’m often asked to make a recommendation. Which is better for builders, A.I.A. contracts or ConsensusDOCS? I can’t recommend either. Neither includes the notices and disclosures every state requires in construction contracts. These notices vary with the size of the job, type of work, materials used, who signs the agreement and even where the contract is signed. To see the construction contract notices and disclosures required in your state, go to Construction-Contract.net and click on your state.
To avoid sharing the fate of Bennett Builders, take a look at Construction Contract Writer. The trial download is free – and complies precisely with both federal law and the law of your state.
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Labels: Solar Installation Contracts
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When you hear the term paper contractor, it’s usually in the context of someone being “only” or “just” a paper contractor. I believe this prejudice against general contractors working as consultants is breaking down. And for good reason.
What was known as paper contracting in the last century has morphed into construction management (CM) contracting in the 21st century. CM contracting is replacing traditional construction contract practice on many types of projects -- from the largest public and private jobs to small home improvement projects. Traditional construction practice (prime contractor and subcontractor) has disadvantages that every traditional prime contractor knows all too well: risk of loss, oppressive state regulation, warranty problems, construction claims and callbacks. Modern construction managers avoid most of these hazards by limiting their responsibility to what they do best -- construction management. CM contracts leave the construction headaches to others -- liens, trade disputes, slow payment, code compliance, inspections and government regulation.
What is a construction manager (a paper contractor)? That’s easy. A construction manager earns a fee as a consultant:
Reviewing the plans and specs.
Preparing bid packages and evaluating bids.
Checking insurance coverage.
Approving the proposed contracts.
Communicating with contractors and suppliers.
Monitoring day-to-day construction.
Keeping the owner informed of progress.
Approving payment requests.
Assisting with change orders.
Protecting the owner from construction claims.
Directing project closeout.
What's NOT included in a construction manager’s portfolio? That’s easy too. The construction manager earns a fee for consulting services -- period. The construction manager neither buys nor installs materials, has no contracts with the trades and pays no bills. The owner signs contracts with trade contractors, pays all the bills and holds installing contractors responsible for their work.
Most of a construction manager’s task will come as second nature to an experienced general contractor. What won’t come easy is the construction management contract itself. CM contracts are very different from traditional prime contracts -- and have to be drawn precisely to avoid problems with property owners, trade contractors, suppliers and state regulators.
The recent case of Thurber Lumber Co. v Marcario underscores my point. Joe Marcario agreed to manage construction of a new home for Don Nenninger in Suffolk County, NY. Marcario ordered materials from Thurber Lumber and recommended trade contractors for the job. Marcario forwarded bills from subs and suppliers to Nenninger and Nenninger paid those bills directly. That worked fine until Nenninger ran into trouble with financing and stopped making payments. Thurber Lumber sued both the contractor (Marcario) and the owner (Nenninger) for $59,391.51 and got a judgment against both. Too bad for Marcario. Marcario didn't explain that he was working as a paper contractor (consultant), not a general contractor. Nenninger alone would be liable for materials delivered to the Nenninger job. Marcario could have made that clear by giving Thurber a summary of his CM (consulting) contract before placing the first order. But Marcario didn’t have a written contract for the Nenninger job. And that was Marcario's $59,391.51 mistake.
Don’t try CM contracting without a good CM contract. The free trial version of Construction Contract Writer comes with a sample construction management contract that’s legal in your state. If you want to know more about construction consulting, I can recommend a new book, Paper Contacting.
Posted by Gary W. Moselle at 1:41 AM No comments: