Construction and renovation expenses can be substantial, often in excess of $100,000.00. While many projects go smoothly, others do not. Contractors (or subcontractors) can fail to build to specification, damage other property, fail to finish work or produce defective work. After a payment dispute, property may be liened and lawsuits brought pursuant to the Construction Act. That begs the question as to how owners can best protect themselves?
The first step, as in many cases, is to do your research beforehand, especially as the value of the work increases. Who are you hiring? How long have they been in business and what is their reputation? If you’re dealing with a mid-size or larger company that’s been in business for a long time, and that has a good reputation, then odds are decent that should a problem arise, it will be dealt with reasonably. More established companies are also more likely to have the required insurance and Workers’ Compensation coverage. Conversely, if you hire a tradesperson directly or someone new to the business, you might save substantial money (if everything goes according to plan), but you might also be left holding the bag if things go wrong (are the savings worth the risk?). Likewise, is the company local? Where problems arise, it’s easier for the Manger to supervise if they can drive to the site in 10-20 minutes. Once you start hiring at a distance, the odds of getting someone responsible onsite regularly decrease significantly.
Next, what is it that you’re paying for, and how are payments to be made (i.e. progress payments after achieving milestones)? Hiring a contractor to ‘build an enclosed structure behind the house’ may lead to building either a guest house or a dog house. Likewise, who is responsible for obtaining any permits (and having a contractor tell you that permits aren’t required is a bit like being reassured by a ‘street pharmacist’ that all of their products are quality tested and perfectly legal – it’s usually a red flag)? While I suspect there may be exceptions, if you’re spending more than $10,000.00, I suspect a permit is almost always required (though permits can be required where less than that amount is spent as well – it’s best to check with Planning and Zoning before commencing construction).
If the contract value is substantial, consider having a lawyer review (or draft) the agreement, prior to signing. While verbal contracts might be fine for building a fence or a small wood deck, I wouldn’t recommend trying to build a house or building with one. Likewise, problems can arise where the parties’ contract is too complex for either party (and specifically the owner) to follow, and where none of the values are broken down (i.e. lump sum contracts). The best contracts (from a pragmatic viewpoint) are likely to be those that are simple, and contain a payment schedule, triggered by the completion of various sequential objective milestones, i.e.
- Initial materials deposit payable by April 1st.
- Materials delivered to site by April 10th.
- Foundation completed to architect Bob’s specifications by May 1st.
- 2nd deposit/progress payment due after foundation inspected and approved by owner’s architect/engineer. Inspection to occur by May 15th
- 1st floor to be framed by June 1st. 3rd deposit/progress payment due after framing inspected and approved by owner’s architect/engineer. Inspection to occur by June 15th etc.
Finally, if problems do arise, and you are not able to quickly sort them out, consider scheduling a consult with a construction lawyer sooner rather than later. In many cases after problems arise, owners dig themselves deeper into a hole, rather than out, and disputes that could have been resolved at manageable cost become much more substantial. If you would like to schedule an initial consult, call us at 647-495-8995 to schedule a consult with Michael Lesage.