Litigation-I Win, You Lose vs. Mediation-Win/Win

Image
  Litigation is a zero-sum game.  It destroys relationships and fosters enmity between the parties.  Parties rarely walk away happy.  Even if they win, the expense of litigation is enormous, and collecting on judgments is difficult. Disputes ultimately resolve, but the focus on winning at any cost can lead to prolonged legal battles.  Living with a lawsuit causes ongoing stress, which can distract you from your business and even have an effect on your health. In a courtroom, the final decision lies with a judge or jury who may not fully grasp the complexities of the case. Parties relinquish control over the outcome, potentially leaving them dissatisfied with the final judgment. Mediation has the opposite effect.   Rather than polarizing people, it enables the parties to attack the issues and not each other.     The process promotes open communication, collaboration and problem-solving, which enables parties to actively participate in crafting ...

TEN NEW YEAR’S RESOLUTIONS FOR CONTRACTORS-2018



At the end of the year I think about the disputes I’ve handled, and how they might have been prevented.  I also consider better practices for contractors and how they can improve their businesses.  Here are some old and new resolutions for 2018!

1.               All change orders must be in writing and signed by the parties!  
They must state the change in the contract price and how the date of substantial completion will be affected by the change.  This sounds so simple, but I bet I could prevent 90% of all disputes if contractors and homeowner would follow this simple rule.  Document everything.  E-mails or texts are fine.  Just make sure you confirm that they have been read.

2.               Learn how to properly estimate a job.
This may be the biggest mistake I have seen contractors make in their business.  They have cut their margins and not allowed for increases in pricing of materials or labor in bidding jobs.  As a result, they are not allowing enough latitude for the inevitable issues that arise during a construction project.  This is the way you make a living.  Learn how to properly bid a job and protect yourself.

3.               Make sure you have a good written contract.  
Good contracts establish the expectations of the parties while the relationship is good.  In law, a contract is a "meeting of the minds."  It spells out the payments, scope of the work, date of substantial completion, warranties, basis for termination, dispute resolution alternatives, etc.   Most importantly, it should enable you to recover attorney’s fees if you have to go after a customer for payment. A good contract will help resolve any dispute.  It protects everyone.  Many states also require a written contract under the law.  In addition, have an attorney review your contract!  This is well-worth the money, and will protect your business.  It's a worthwhile investment and will help you sleep at night. Seriously. I even charge flat fees so clients can call me when they have a question.

4.               Make payments contingent upon milestones reached.  
Don't let your work get ahead of your payments, and don't let the payments get ahead of the work.  This keeps both sides honest.  Require payments at the beginning of each milestone so you have cash flow for the next phase of the project.  If the payment gets ahead of the work, the owner may lose trust that you will finish the job.  If you do your work ahead of the payments, the owner may start delaying when you ask for a check.  Numerous disputes develop because the payments are not in balance. 

5.               Insert a Right to Repair Clause in Your Contracts
If you are going to run a contracting business, you are going eventually run across owners who refuse to pay for work because it is (allegedly) defective.  Or, the client may pay another contractor to “fix” your work and try to collect that money from you.  One way to discourage this practice is by inserting a “right to repair” clause in your contract.  Before an owner can go hire someone else to “repair” your work, they are required under the contract to give you the opportunity to review any supposedly defective work and repair it.  This greatly reduces your exposure to defect claims.

6.               Include a Right to Stop the Work for Nonpayment
A contractor does not automatically have the right to stop working if a customer fails to pay.  There are always going to be clients who try to come up with excuses for not paying.  If payment isn’t made within a certain amount of time, you should include wording in your contract that allows you to stop work after written notice to the owner.

7.               Have Agreements with Subcontractors
You may have been working with your subcontractors for years, but you need to have a written agreement with them.  This should include terms of payment, clearly delineated scopes of work and indemnification clauses.  An indemnification clause states that if you are liable for your sub’s work, the sub must pay for your legal fees and pay you back for any damages assessed.  You should also be able to back-charge a sub for incomplete or defective construction work.

8.               Pay Employees as Employees and not as Independent Contractors
Massachusetts is very clear.  If someone is working for you and doing the same work that you do, they are your employees.  If you control the means and methods of their work, they are your employees.  If you pay employees as independent contractors, you could be liable for triple damages, attorney’s fees, interest and costs.  It is not worth it.

9.               Know When NOT to Take a Client
We’ve all experienced those red flags when meeting with potential clients.  Listen to them!  Life is too short to be spending time with someone you don’t like who micromanages your work.  If your gut is telling you to reject a client, move on.

10.           Resolve Disputes and Focus on Your Reputation
It is always better to try to resolve disputes with owners rather than ending up in litigation.  I have had numerous clients receive bad reviews online, and this is more harmful to their businesses than losing money on a job.  Protect your reputation.  There are always going to be problems that arise in construction.  The important thing is how you deal with them.  There is huge value in a good referral once a project is complete.  Focus on the long term and make your clients happy.


If you follow these resolutions, I guarantee you that you will end 2018 on a much better note than when it started. 

*Email me your contracts and I will review them for free!  I will then quote you a price for updating or drafting your contracts.  agoldman@goldmanlg.com


Popular posts from this blog

Eligibility Requirements for the LEED Green Associate Exam from Green Building Education and Training

What are the eligibility requirements for the LEED Green Associate exam? http://www.green-buildings.com/content/78626-what-are-eligibility-requirements-leed-green-associate-exam After March 31st, 2009, candidates for the LEED Green Associate (GA) credentials must fulfill eligibility requirements. LEED Green Associate candidates are required to do ONE (1) of the following: Option 1: You must be (or have previously been) employed in a sustainable field of work This is perhaps one of the more nebulous requirements posed by the GBCI, because no definition of a "sustainable field of work" is given. The USGBC does state that the company needs to "relate to environmentalism or the green building industry". If you are in any doubt that your profession would qualify, contact the GBCI at gbci.org or by calling 1-800-795-1746. Option 2: You must be (or have been) involved in a LEED Certification Project To prove eligibility by way of LEED project involvement, you must have bee...
Read more

When the Homeowner is a Bully

I've seen a new trend in contractor disputes lately, and it isn't pretty.  Some homeowners are making unreasonable demands on contractors, and bullying them into doing work without getting paid.  They unreasonably withhold payments, or impose penalties for delays that they cause.  They expect contractors to do all kinds of extra work without being paid or changing the completion date. I have had a series of these recently.  What is a contractor to do? When first meeting with a homeowner, trust your instincts.  If you are sensing red flags, do not take the job. Never let the work get ahead of the money.  If there is a change order, make sure that the payment is contemporaneous with the work. Make sure that all change orders are in writing and reflect any change in the contract price and date of substantial completion. Include a provision in your contract that entitles you to get attorney's fees if you have to go after a client for payment. Make sure t...
Read more

Should a Contractor Have the Homeowner Test for Lead?

I would like to learn more about the advisability of lead testing.  Homeowners might not want their homes tested for lead, because it becomes public record, and may interfere with the sale of a home or the ability to obtain a mortgage or homeowners insurance.  In addition, I strongly advise contractors not to do the testing themselves.  Let the homeowner pay an independent company to do it.  Otherwise if the GC brings a claim against a lead testing company for a false negative, the company might state that the GC did not use the test kit properly.  If the homeowner does have the house tested, consider refusing to do the work unless the homeowner has lead abatement work done.
Read more