When a dispute arises on a construction project, the contractor and owner look to the terms of the construction contract to discover who is right and who is wrong. Sometimes they discover that the contract does not have a provision to deal with the issue, so they end up negotiating a solution or going to court. As a result, the contractor has an attorney change his contract so when the situation arises again, he is ready.
The following are some provisions you might find useful to add to your standard contract to take care of those pesky issues.
Issue: The wife signs a change order and later the husband states that he did not sign it, so he is not paying for the additional work.
Solution: “If more than one Owner signs this Agreement, the signature of only one Owner shall be necessary on any future documents pertaining to this project, including but not limited to change orders and payment authorizations, and all Owners agree to be bound.”
Use of Other Subcontractors
Issue: You’re half finished with the remodel and here comes the pool contractor with trucks, equipment and laborers who are getting in your way.
Solution: “The owner shall not allow work to be performed by any subcontractors, contractors, laborers, craftsmen, distributors or other persons on this project or the site except as provided by Contractor, pursuant to the terms of this Agreement until Contractor has completed all of his/her work and been paid in full, absent Contractor’s written consent.”
Opportunity to Repair
Issue: One year after you finish your work, you receive a letter from the homeowner claiming that your work was deficient and they had it fixed. Also enclosed is the invoice from another contractor, and the homeowner wants you to pay it.
Solution: “Contractor reserves the right to repair or replace any deficiencies in its work, both during the construction process and thereafter. Failure of Owner to provide Contractor with an opportunity to repair or replace such deficiencies shall excuse Contractor from any obligation to pay for repairs or replacements incurred by Owner.”
Issue: You complete all items on the owner’s punchlist and you hand the owner your final invoice. Instead of payment, the owner offers another punchlist.
Solution: “Within three days following completion of the project, owner shall review the work for the purpose of compiling one list of items that need touch-up, correction or adjustment. Upon completion of the punchlist items on that one list all remaining funds held by Owner shall be paid immediately to Contractor. In the event Owner discovers other items that were overlooked that would otherwise have appeared on the punchlist, such items shall be treated as warranty items and shall not be the basis to deny final payment.”
Issue: You have a fixed price contract and assumed you would meet with the owner once a week to review the work and discuss issues. The owner, however, requests your presences several times a week for various meetings with them and other people, like the designer, just in case your input is necessary.
Solution: “The Contract Price includes a 60-minute meeting per week with Owner or their representative. Any additional meetings shall be invoiced at Contractor’s hourly rate of $____, payable immediately upon presentation of invoice.” (Don’t forget to send the invoice!)
Guarantee of Sufficient Funds
Issue: You’re half-finished with a project and the owner stops paying. On further investigation you discover that the owner has run out of money.
Solution: “Owner represents that sufficient liquid funds exist to pay the Contract Price and all extra work which may be ordered by Owner. Contractor has the right to demand proof of available funds at any time during the project. Failure to provide sufficient proof of available funds may result in stoppage of work or termination of this contract.” (Ask to see bank statements. Stock holdings are not the same as cash!)
As always, be sure to consult your attorney before adding any of the above provisions to your contract.
Nancy A. Chillag is a construction attorney in Menlo Park, Calif., practicing for over 20 years. She is the author of Building by the Book: Legal Advice for Contractors.