As I sit down to write my annual list of resolutions for contractors, I am amazed at how much things changed in 2020. Construction was going well and then, in March 2020, COVID-19 hit. At first, we thought it was going to be a disaster for the construction industry. States, cities and towns shut down projects and many applied for PPP loans. Then, something amazing happened. Construction was considered an essential service and everyone was back to work.  That said, the work world changed: companies were donating their PPE to frontline workers, COVID-19 protocols had to be followed and paperwork had to be filed. Everyone was scrambling to figure out how to comply and keep their businesses going. So, you may or may not ask, what was I, as a construction lawyer doing? I spent March and April thinking about the new risks contractors/construction companies were facing and developing contract clauses to protect the industry. I wrote a number of blog posts with clauses to add to your contra

When the Homeowner Cuts Corners

I have encountered a new issue in home renovation projects that should put contractors on alert. Perhaps it is even time for a new contract clause.  I assume this is due to the state of the economy and the widely available access to information on the Internet, but homeowners are taking their construction into their own hands.  In one situation, the homeowner insisted on buying her own fixtures at a well-known hardware chain and asked the contractor to back the allowances out of the contract price.  In another, the contractor was told which personnel were acceptable on the job and was presented with a never-ending punch-list.

In both situations, the outcome was the same; contractors were seeing their profit margins dramatically reduced. What to do?  As always, the responsibility for educating the homeowner falls on the contractor.  The homeowner needs to understand that the budget should allow for at least a 10% increase over the contract price as a result of unanticipated change orders.  In addition, I strongly recommend that contractors build in a cushion into their pricing and that they mark up all supplies and labor.

You may think you are doing the homeowner a favor by passing on items at cost, but you are not allowing for overhead and other costs.  The homeowner must understand that the contractor has a relationship with his suppliers and will have more control over quality, timing of delivery and installation of fixtures if he arranges for the purchase of these items.  For that reason, I am considering including a clause in my contracts that states that the homeowner may not start bargain-hunting for supplies.  I already include a disclaimer for owner-supplied materials, but perhaps it is time to insist that homeowners stop micro-managing the process.  Or, alternatively, perhaps the contractor should insist on a mark-up if the homeowner wants to buy his own materials.

Finally, the homeowner needs to be taught what is an appropriate punch-list item and what is not.  I have a lengthy description in my contracts about what constitutes punch-list, latent defect and warranty items.  There should be a time limitation for identifying punch-list items and having them addressed.  Projects need to end.

These situations are remarkably similar to parenting.  Contractors need to set limits with their clients and define the scope of the relationship in addition to the scope of the work.  After all, they need to be able to earn a living!

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