Legal Questions, Legal Answers

Right after I signed a contract to do a major remodel, the utility company told me it would be six weeks before they could bring power to the house. That will hold up my entire project. What should I do?

Answer: Unfortunately, you can’t control the power company. You can, however, prevent yourself from being in breach of contract with your client. Your contract should have a provision that authorizes an extension of time for any delays caused by a government agency. If your remodel contract contains a date of completion (which it definitely should), you need to submit a change order to the client extending the time of completion by six weeks. Change orders are not just used to document changes in the scope of work and price; they are also used to change the timeline of the project. Whenever there is a change to the project which will require more time, include the new completion date in the change order. Clients will not understand a delay unless they see it in writing.

Question: My general liability insurance company just audited my records and is assessing an additional premium for a subcontractor I used. Is this legal?

Answer: Part of an audit by your insurance carrier will include a review of the documents you have on file for your subcontractors. One of those documents must be proof that your sub has his own general liability insurance policy. If you don’t have that document, your insurance company assumes that he is uninsured. Since you are the general contractor on a project, you will be responsible for that sub’s work. Without proof of separate coverage, your insurance company is assuming they will have to cover the work and so they are assessing the premiums for the additional coverage to you. Before you hire any subcontractor, get a copy of his contractor’s license and a certificate of general liability and workers’ compensation insurance. These documents should be updated annually.

Question: One of my employees just got his contractor’s license. He wants me to pay him as a subcontractor now instead of as an employee so there won’t be any withholding. Can I do this?

Answer: Just because your employee has a contractor’s license doesn’t mean he can be considered a subcontractor. While there are many factors the IRS considers in determining whether someone is an employee or not, licensing is only one of them. If this individual only works for you, if you oversee his daily work as opposed to just the finished product, if he has no risk of loss associated with his work (he gets paid regardless of whether the work is done correctly or not), if you dictate his work schedule, if he uses your tools and equipment, then most likely he will be categorized as an employee and not a subcontractor. If you pay him like a subcontractor, you run the risk of being liable to the taxing authorities for the withholding that you should have collected and the payroll taxes you should have paid, plus interest and penalties.

Question: My client is anxious to start the project, but the plans are not finalized yet. Can I start the work and then modify our agreement later when the plans are finished?

Answer: There is always a risk when you start a project before the plans are finished or before the permit is issued. If things significantly change from what you or the client were expecting, the price and time of completion will be affected. And what happens if you can’t agree on the final price or timeline? If the project is capable of being divided into subparts, there might be a solution. If it is a project that requires demolition, sign a separate contract just for demolition which sets out a price only for that item. When the plans are finalized, prepare a second contract for the remainder of the work. That way if you can’t come to terms on the latter part, at least you have a fully enforceable contract for the work that you did.

If you have any legal issues you would like discussed, please forward your questions for a future issue of Qualified Remodeler.