Thursday, December 17, 2009

Construction Contracting in Hawaii

Hawaii has a reputation for making life difficult for contractors who don't toe the line. Sometimes the results border on the ridiculous, at least from a contractor's perspective. Just ask Michael Sakatani, a Honolulu contractor doing business as 808 Development LLC.

A few years ago Mike's company landed a $1.8 million contract to build a 9,000 SF home at 4902 Kahala Avenue in Honolulu – in the shadow of Diamond Head and just a block from the blue Pacific. That should have been good work for Mike. But costs ran a little more than expected and relations with the owner soured. Payments stopped and you can probably guess what happened next. A team of lawyers stepped in to sort things out. The case dragged through Hawaiian courts for several years, eventually landing in the Hawaii Supreme Court.

Like many other states, Hawaii requires specific notices and disclosures in construction contracts. What's required depends on the type of work. Mike's Diamond Head job was residential. For residential work:
· Hawaii Revised Statutes § 444-25.5 voids any contract which omits specific notices and disclosures.
· Omission of the same disclosures is also considered a deceptive act under Hawaii Revised Statutes § 480-12, making the contractor liable for a $5,000 fine (§ 444-23).
· Failure to provide the disclosures required by Hawaii’s Code of Rules, Title 16, Chapter 77, Subchapter 12, § 79 and § 80 can result in suspension or revocation of a contractor's license. That's Hawaii Revised Code § 444-17.
· Hawaii’s Contractor Repair Act, § 672E-11, requires that contracts include a notice of the contractor's right to repair construction defects.

Once Mike's lawyers took over, they discovered a problem. One of Hawaii's required notices was missing from Mike's contract -- the mechanics' lien notice in § 444-25.5. Mike claimed the lien notice had been delivered as part of the contract. But he couldn't find a copy and neither could the property owner.

So the contract was void under Hawaii law.

In most states, that leaves the contractor with two choices. Either collect under the theory of "unjust enrichment" or file a mechanics' lien. Neither will get you the full contract price. But at least Mike could recover his sunk costs. And that's what Mike's legal team argued. In their words, anything else would be "absurd and unjust."

That's not how Hawaii's Supreme Court saw it. No matter how absurd and unjust, a contractor who omits even one required notice from a construction contract has no right to collect, period.

When it comes to construction contracts, Hawaii takes no prisoners. If you plan to collect, the contract better be perfect.

But the court's decision wasn't all bad news for Mike. He wasn't assessed the $5,000 fine, didn't have his license revoked and didn't have to pay the owner's attorney fees. And if he ever finds that missing mechanics' lien notice, the court offered to reconsider their decision. That was in 2006 (808 Dev., LLC v. Murakami, 111 Haw. 349). There's no later appellate decision. So I guess Mike is still looking for that missing lien notice.

If you need letter-perfect contracts for any type of construction in Hawaii, this site has free sample downloads. If you make a living as a construction contractor in Hawaii, here's the best tool available for drafting Hawaiian construction contracts.

Wednesday, November 11, 2009

Sunset of the Texas RCCA

The Texas Residential Construction Commission Act (TRCCA) has joined the Alamo as a memorable episode in Texas history. Like defenders of the Alamo, defenders of TRCCA went down swinging. But the result was about the same: A commendable effort that came up a little short.

As I pointed out in this space last May, TRCCA was basically a good idea: Provide every new home and every home improvement project over $10,000 with a detailed statutory warranty against defects – what's covered, what's not covered and for how long. Get an independent third-party opinion if the property owner and the contractor can't agree on a defect claim. Then identify what a contractor has to do about any true defect.

The essential element in this scheme was the TRCCA performance standards – 47 pages developed by knowledgeable professionals with the help of the Construction Science Department at Texas A&M. These standards took most subjective opinion out of the equation, leaving less room for dispute. I like that. And courts do too – freeing up dockets for more important work.

The rap on TRCCA was that the claim process took too long (5 months) and didn't resolve enough disputes (only 12%). Worse, TRCCA didn't give anyone authority to enforce decisions that go against Texas builders (or Texas home owners).

Like defenders at the Alamo, the Commission is gone. They aren't accepting new complaints, aren't making inspections and aren't registering builders and remodelers.

But even with TRCCA gone, Texas still has plenty of construction defect law on the books. The Texas Residential Construction Liability Act of 1989 gives builders the right to inspect and repair after a claim of defect. There's a heavy incentive for builders to make a reasonable offer of settlement. If the dispute ends up in court, Texas may throw in attorney fees and the cost of temporary re-settlement if the owner has to relocate during repairs.

I believe the legacy of TRCCA will be their performance standards. These standards won't be the law in Texas after August 31, 2010. But they're still the best authority on residential construction defects. Texas is the only state that's made a conscientious effort to develop residential performance standards. Expect to see these standards recycled the next time legislators in Austin re-visit ways to protect Texas home owners.

With TRCCA gone, Texas builders and remodelers need to make a few changes in their contracts. Title 16 notices and disclosures are obsolete. These include registration (§ 420.001), registration number (§ 420.002), arbitration (§ 420.003) and dispute resolution (§ 426). But the right to repair notice in Texas Property Code § 27.007 must now appear in residential contracts because the exemption in Texas Property Code § 27.007(c) no longer applies. And, of course, the statutory TRCCA warranty is now optional.

If you need a little help sorting all this out, TexasConstructionContract.com offers a program that drafts post-TRCCA contracts. If you've already installed Texas Construction Contract Writer, the update is free. Click Help on the program Menu bar. Then click Check for Updates.

Saturday, October 31, 2009

Checklist for New York Contractors

Staying legal in the New York construction contracting business begins with licensing.

New York State licenses only asbestos contractors. But that doesn't make licensing a trivial issue in New York. Cities and counties in New York are free to require a license for any type of construction activity. And many municipal governments do exactly that. For example, New York City licenses home improvement contractors. The site is:

http://www.nyc.gov/html/dca/html/licenses/100.shtml

A word to the wise. Don't sign a contract or begin work without checking into license requirements. New York State may be a little casual about licensing of contractors. But New York courts are ruthless in enforcing licensing laws. Where a contracting license is required, unlicensed contractors may have no right to collect for work completed. Nassau and Westchester counties enforce their license laws by impounding construction vehicles.

But even if you don't need a license, New York State jumps with both feet into your construction contracts. You need to know about several statutes.

If the contract price is $150,000 or more for commercial work or if the job is a larger residential project, New York's Construction Contracts Act dictates many key terms: payment dates for both contractors and subcontractors, grounds for stopping work, termination of contract and arbitration (required). That's New York General Business Law § 756-a. But that's just the beginning. New York General Business Law Section 756-b sets penalties for violation of Albany's contract terms – maybe not what you wanted at all.

New York General Business Law, Section 771 is even more explicit on what has to be in residential construction, home improvement and home repair contracts.
(1) The name, address, telephone number and license number, if applicable, of the contractor.
(2) The dates when work will begin and be completed, including any contingencies that could delay completion.
(3) A description of the work including makes and model numbers
(4) A disclosure in bold type that subs and suppliers have lien rights.
(5) A notice that the contractor has to deposit payments in a trust account or supply other security for payment of subcontractors and suppliers.
(6) A progress payment schedule by job phase in dollars and cents.
(7) A 3-day right to cancel.
For technical violations, the penalty is $100. For substantial violations, the penalty is the greater of $250 or 5% of the contract price up to $2,500.

New York General Business Law, Section 771 also requires the same information in every amendment to a residential construction, home improvement or home repair contract. That makes for lengthy change orders.

New York General Obligations Law Section 5-322.2 requires that every construction contract for residential work of less than five units (1) identify who owns the property and (2) include a property address adequate for lien law purposes. Subcontracts have to include the same information.

If you have better ways to spend your time than deal with all this legal gibberish, I can recommend a couple of web sites.

Construction-Contract.net has a good selection of New York construction contracts and subcontracts for residential and commercial work. All are available for download in several formats (PDF, RTF, TXT) and all are free.

If you're serious about construction contracting in New York, have a look at a site that specializes in New York construction contracts.

Thursday, September 24, 2009

Directions to the New Jersey Supreme Court

Not many home improvement contractors get their day at the supreme court. But it happened in New Jersey earlier this year. And there's a lesson here for residential contractors in many other states. I'll explain.

Jo Anne and Tom Heath selected Czar, Inc., a Patterson, NJ cabinet shop, to install kitchen cabinets and woodwork in their new home. The Heaths weren't happy with the cabinets Czar installed and refused to pay. Czar filed suit to collect. To this point, it's a story you've heard many times. But this is where the case got interesting.

The Heaths knew a thing or two about New Jersey home improvement contract law. They knew Czar didn't have a legal contract. They didn't have to complain about the job. Instead, they could counter-claim over the contract. The Heaths filed suit in Morris County for damages, alleging violation of the Home Improvement Practices Act.

New Jersey Administrative Code sections 13:45A-16.1 to 16.2 (Home Improvement Practices) and New Jersey Administrative Code sections 13:45A-17.1 to 17.14 (Home Improvement Contractor Registration) require that all home improvement contracts for more than $500 be in writing and include very specific disclosures. Failure to include those disclosures in the written contract is a violation of New Jersey's Consumer Fraud Act. Penalties include a full refund (New Jersey Statutes Annotated Section 56:8-2.11) or treble damages plus legal fees (New Jersey Statutes Annotated Section 56:8-19).

The Heath's counter-claim put the case under New Jersey's Consumer Fraud Act. The Heaths were in line to collect treble damages and their attorney fees – not because of any defect in the cabinets but because of a defect in the contract.

What should have been in that contract?

(1) The legal name, business address and registration number of the contractor.
(2) A certificate of commercial general liability insurance.
(3) The total price including any finance charges.
(4) A notice of the right to cancel.
(5) Disclosures: start date, finish date, phone numbers, etc.

Omit any of those from a home improvement or home repair contract and you've dropped into New Jersey's Consumer Fraud Act: full refund, triple damages plus attorney fees.

Unfortunately for contractors, New Jersey isn't unique in this respect. Many states give owners the right to collect for a defective home improvement or home repair contract: Texas, Oklahoma, Arkansas, Illinois, Indiana, Tennessee, Ohio, Maryland, Pennsylvania, Connecticut and Massachusetts come to mind.

As for Czar, Inc. I doubt they got much satisfaction out of their day at the Supreme Court. The Heaths won, of course. It was an expensive lesson for Czar, Inc. Legal fees on the way to the New Jersey Supreme Court can run many times the cost of kitchen cabinets. Which proves a point I've made more than once on these pages: When a job goes bad, you better have a good contract.

What to do? Easy. The Web site Construction-Contract.Net has a selection of home improvement and repair contracts that comply precisely with New Jersey law. The download is free and available in PDF (Adobe Acrobat), RTF (MS Word or WordPad), and CCF (Construction Contract Writer) formats.

If you're serious about writing New Jersey construction contracts, have a look at NewJerseyConstructionContract.com.

Wednesday, August 26, 2009

Checklist for Florida Contractors

I'm asked occasionally to recommend a simple 2-page construction contract.

Where can I get a contract like that?

If you see one of these two-page wonders, you can be sure it's junk – at least in the State of Florida. The legislators in Tallahassee have seen to that. Every valid Florida construction contract will include several pages of notices and disclosures required by Florida law.

If you've been using a two-page contract for residential construction in Florida, here's a handy guide to what you're missing.

Opportunity to Repair (Florida Statures Chapter 558.005)
Every construction contract in Florida (except public transportation projects) must include the "notice of claim" statement.

CHAPTER 558, FLORIDA STATUTES, CONTAINS IMPORTANT REQUIREMENTS YOU MUST FOLLOW BEFORE YOU MAY BRING ANY LEGAL ACTION FOR AN ALLEGED CONSTRUCTION DEFECT. SIXTY DAYS BEFORE YOU BRING ANY LEGAL ACTION, YOU MUST DELIVER TO THE OTHER PARTY TO THIS CONTRACT A WRITTEN NOTICE, REFERRING TO CHAPTER 558, OF ANY CONSTRUCTION CONDITIONS YOU ALLEGE ARE DEFECTIVE AND PROVIDE SUCH PERSON THE OPPORTUNITY TO INSPECT THE ALLEGED CONSTRUCTION DEFECTS AND TO CONSIDER MAKING AN OFFER TO REPAIR OR PAY FOR THE ALLEGED CONSTRUCTION DEFECTS. YOU ARE NOT OBLIGATED TO ACCEPT ANY OFFER WHICH MAY BE MADE. THERE ARE STRICT DEADLINES AND PROCEDURES UNDER THIS FLORIDA LAW WHICH MUST BE MET AND FOLLOWED TO PROTECT YOUR INTERESTS.

The contract is still valid if you omit this statement. But the fine for leaving it out is $500 under Florida Statutes § 775.08(3).

Buyer's Right to Cancel (Florida Statutes § 501.031)
Unless the deal was closed at a state fair, at your office or after an express invitation to visit your client at home, residential contracts have to give notice of the buyer's right to cancel.

BUYER'S RIGHT TO CANCEL. This is a home solicitation sale, and if you do not want the goods or services, you may cancel this agreement by providing written notice to the seller in person, by telegram, or by mail. This notice must indicate that you do not want the goods or services and must be delivered or postmarked before midnight of the third business day after you sign this agreement. If you cancel this agreement, the seller may not keep all or part of any cash down payment.

If the deal was closed, for example, over lunch in a restaurant, on the phone, by email, on a golf course or at an architect's office, it's a home solicitation sale. I know that doesn't make sense. But it's Florida law. The notice is required. Omission of the notice is a first degree misdemeanor punishable by up to a year in prison and a $1,000 fine under Florida Statutes § 775.082 and § 775.083.

Florida Construction Lien Notice (Florida Statutes § 713.015)
This notice has to appear in all residential prime contracts valued at $2,500 or more if work is either new construction or improvement of a building with four units or less. The notice has to be in 12-point bold caps and either on the front page of the contract or on a separate page. If the notice is on a separate page, this statement has to be signed by the owner and dated.

NOTICE OF FLORIDA'S CONSTRUCTION LIEN LAW
ACCORDING TO FLORIDA'S CONSTRUCTION LIEN LAW (SECTIONS 713.001-713.37, FLORIDA STATUTES), THOSE WHO WORK ON YOUR PROPERTY OR PROVIDE MATERIALS AND SERVICES AND ARE NOT PAID IN FULL HAVE A RIGHT TO ENFORCE THEIR CLAIM FOR PAYMENT AGAINST YOUR PROPERTY. THIS CLAIM IS KNOWN AS A CONSTRUCTION LIEN. IF YOUR CONTRACTOR OR A SUBCONTRACTOR FAILS TO PAY SUBCONTRACTORS, SUB-SUBCONTRACTORS, OR MATERIAL SUPPLIERS, THOSE PEOPLE WHO ARE OWED MONEY MAY LOOK TO YOUR PROPERTY FOR PAYMENT, EVEN IF YOU HAVE ALREADY PAID YOUR CONTRACTOR IN FULL. IF YOU FAIL TO PAY YOUR CONTRACTOR, YOUR CONTRACTOR MAY ALSO HAVE A LIEN ON YOUR PROPERTY. THIS MEANS IF A LIEN IS FILED YOUR PROPERTY COULD BE SOLD AGAINST YOUR WILL TO PAY FOR LABOR, MATERIALS, OR OTHER SERVICES THAT YOUR CONTRACTOR OR A SUBCONTRACTOR MAY HAVE FAILED TO PAY. TO PROTECT YOURSELF, YOU SHOULD STIPULATE IN THIS CONTRACT THAT BEFORE ANY PAYMENT IS MADE, YOUR CONTRACTOR IS REQUIRED TO PROVIDE YOU WITH A WRITTEN RELEASE OF LIEN FROM ANY PERSON OR COMPANY THAT HAS PROVIDED TO YOU A "NOTICE TO OWNER." FLORIDA'S CONSTRUCTION LIEN LAW IS COMPLEX, AND IT IS RECOMMENDED THAT YOU CONSULT AN ATTORNEY.


Omitting this notice is a non-criminal violation punishable by a fine of up to $500 under Florida Statutes § 775.08(3) and may make it difficult for a prime contractor to enforce lien rights.

Construction Industry Recovery Fund Notice (Florida Statutes § 489.1425)
This notice is required in all residential repair, restoration and improvement contracts valued at over $2,500.

FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND
PAYMENT MAY BE AVAILABLE FROM THE FLORIDA HOMEOWNERS' CONSTRUCTION RECOVERY FUND IF YOU LOSE MONEY ON A PROJECT PERFORMED UNDER CONTRACT, WHERE THE LOSS RESULTS FROM SPECIFIED VIOLATIONS OF FLORIDA LAW BY A LICENSED CONTRACTOR. FOR INFORMATION ABOUT THE RECOVERY FUND AND FILING A CLAIM, CONTACT THE FLORIDA CONSTRUCTION INDUSTRY LICENSING BOARD AT THE FOLLOWING TELEPHONE NUMBER AND ADDRESS:
DIVISION OF PROFESSIONS
CONSTRUCTION INDUSTRY LICENSING BOARD
1940 NORTH MONROE STREET
TALLAHASSEE, FL 32399
PHONE: 850.487.1395
EMAIL: CALL.CENTER@DBPR.STATE.FL.US


Omission of this notice is punishable by a fine of up to $500 for the first offense and up to $1,000 for a second or subsequent offense.

The Home Improvement Sales and Finance Act. (Florida Statutes § 520.73)
If a home improvement contract includes a finance charge, Florida law requires a statement in 10-point bold type directly above the owner's signature.

Notice to Owner. Do not sign this home improvement contract in blank. You are entitled to a copy of the contract at the time you sign. Keep it to protect your legal rights. This home improvement contract may contain a mortgage or otherwise create a lien on your property that could be foreclosed on if you do not pay. Be sure you understand all provisions of the contract before you sign.

Omission of this notice requires a credit of all delinquency fees charged, plus attorney fees and costs.

If your Florida contracts fudge on these notices, you have an excuse. Some of these notices are new. The right to repair notice became effective October 1, 2006. The lien notice law became effective in the present form on July 1, 2007.

This checklist covers only notices required by Florida law. Of course, all Florida contracts have to comply with Federal law – the 3-day right to cancel (12 C.F.R. 226.15 ), Federal Truth in Lending (15 U.S.C. 1601) and insulation disclosures (16 C.F.R. 460). If you do home improvement work in zips between 33010 and 34141, Miami-Dade Municipal Code § 10-33 requires additional disclosures.

Even if you're not concerned about the threat of fines and jail time, there are good reasons to keep your contracts legal under Florida law. Get into a dispute on any job and the attorney for the other side will hammer away at every little flaw and blemish in your contract. You could be left with no way to collect.

Need help sorting all this out? I think every contractor does. The site Construction-Contract.net has a good selection of Florida construction contract downloads. All are free and all comply with current Florida and Federal law.

Wednesday, July 29, 2009

What Connecticut Home Builders and eBay Have in Common

July 1, 2009 was a red letter day for residential contractors in Connecticut. The Nutmeg State adopted a protocol that eBay, Amazon, and others have used for years. These Web vendors make it easy for customers to know who they're dealing with. eBay calls it their "Feedback Profile." Click the link and you'll see ratings and comments about a particular vendor. Starting July 1, Connecticut requires about the same thing – but not on the Web. Connecticut wants a feedback link embedded in residential construction contracts.

Customer feedback makes sense. For Web vendors, organizing Web feedback is both easy and effective. Potential customers get unvarnished opinions from users who (supposedly) have no financial incentive to exaggerate. That's a rare treat in our plugged-in culture. For Connecticut, this is simply more avant-garde legislation. Connecticut has been famous for that since colonial times. Remember, Connecticut is the "Constitution State."

So what does the new law require of builders and remodelers in Connecticut? First, understand that legislators in Hartford are throwing the book at residential contractors who aren't paying attention. A home improvement contract that doesn't comply with Connecticut law can't be enforced against the property owner. With an illegal contract, you have to turn beggar to collect anything. But that's just the beginning. Most violations are class B misdemeanors punishable by a fine of $1,000 or six months in prison, or both.

For the full text of the law, you'll need to see:
Connecticut's Home Improvement Act (CHIA), General Statutes §§ 20-418 to § 20-432
Connecticut's Home Solicitation Sales Act (CHSSA), General Statutes §§ 42-134a to 42-141
Connecticut's Unfair Trade Practices Act (CUTPA), General Statutes §§ 42-110a to 42-110q
Connecticut's New Home Construction Act (CNHCA), General Statutes § 20-417a to § 20-417j

If you aren't acquainted with these abbreviations, I'll summarize:

CHIA applies to every construction job valued at over $200 on any residential property with six units or less, including alteration, remodeling, and repair, such as painting or roofing. Also included: yard work such as pools, fences, walls, walks, driveways and patios.

If CHIA applies to a project, CHSSA also applies. A home improvement contract which does not meet CHSSA qualifies the contractor for a fine of up to $500 or imprisonment for up to 90 days, or both.

Violation of Connecticut's CHIA or CHSSA is also a violation of CUTPA. A willful violation of CUTPA (such as failure to offer or honor the 3-day notice of cancellation) is punishable by a fine of up to $5,000. In addition, an owner who suffers a loss as a result of any unfair trade practice may bring suit to recover actual damages. A court can also award punitive damages and attorney fees to the property owner.

CHIA excludes work done by professionals licensed in Connecticut so long as work done is within the licensed trade description. Licensed professionals include electricians, glaziers, plumbers, fire sprinkler, heating, piping, cooling and sheet metal installers. CNHCA applies only to new home builders -- single-family, two-family or condominium.

Doing the eBay Thing
Whether the job is home improvement or new home construction, the contract is illegal and unenforceable if it fails to disclose the name of every residential construction company the contractor has had an interest in for the last five years. Starting July 1, 2009, CNHCA requires that contractors (1) offer prospective owners a list of customers over the last two years and (2) suggest that the prospect discuss quality issues and timely completion with those references. The construction contract has to (1) advise the customer that others may call to inquire about work of the contractor and (2) offer to withhold the customer's name from others on written request.

In effect, Connecticut requires that residential construction contracts include what Web vendors offer routinely on their Web sites. That's breaking new ground for construction contracts.

Is customer feedback an appropriate topic for construction contracts? I'm not sure. But until Hartford repeals CHIA, CHSSA, CUTPA and CNHCA, your residential contracts have to comply. Click here for a good selection of sample contracts for new construction, home improvement and residential repair. All meet requirements of the new Connecticut law.

Thursday, June 11, 2009

"Legal in All 50 States"

Go browsing on the Web for construction contracts and you'll see braggadocio about some boilerplate contract being "legal in all 50 states."

Claims like this show up on Web sites run by savvy people with good credentials but who should know better. If you've skimmed over any of the earlier entries in this blog archive, you know how foolish it is to claim any construction contract is "legal in all 50 states."

Every state has the right to set unique requirements for construction contracts. And nearly all have.

You can take this to the bank: There's no home improvement contract that's legal in all 50 states. I'll go one step further: There's no contract for residential construction that's legal in all 50 states. You won't even find a contract for commercial construction that's legal in most states. That's not the way it works.

Construction contract law varies from state to state the same way income tax law varies from state to state. Imagine the reaction if you tried to file a New York or Texas income tax return with the Montana Department of Revenue. You'd probably be breaking the law in two states.

It's the same with construction contracts. Nearly all states require specific disclosures, set unique limits or void certain types of clauses in construction contracts. No two states are alike. And most states impose heavy penalties for doing construction work under a contract that doesn't meet state code. Fines up to $1,000 are common, as is the threat of jail time.

Even if you aren't concerned about fines and jail time, consider the impact if you get into a dispute before collecting final payment. The attorney for your client won't be impressed with your "legal in all 50 states" contract. More likely, you'll discover that the contract is either partially or totally unenforceable under state law. Game over! You lose. Run, don't walk, to the nearest exit. You're not going to collect another dime on that contract. If opposing counsel is charitable, you'll escape discipline from the state board. Persist and you'll get an invitation to do the perp walk at a state hearing.

When you see the claim, "legal in all 50 states," I recommend thinking "probably not legal in any state." The latter is far more likely than the former.

So how do you judge if some boilerplate contract is legal? If you're paying the $10 to $150 that most vendors change for a download, you've got the right to know: Is it really legal in my state?

I can recommend a Web site. It's free. Construction-Contract.net has a good selection of state-specific home improvement, residential and commercial construction contracts. Even better, the site lists laws in each state that set minimums for construction contracts. Before buying any boilerplate contract or contract package, compare what the law requires in your state with what the vendor is offering. If the vendor's contract comes up short, save your money.

Monday, June 8, 2009

Oregon's New Construction Contract Law

Legislators in Salem dropped a list of new statutes on Oregon contractors in 2008. Like many other states, Oregon has jumped with both feet into writing residential construction contracts. And, like other states, Oregon imposes stiff penalties on contractors who aren’t paying attention. Most of the new requirements are simple disclosures designed to educate the buyer (home owner) before agreeing to anything.

If the value of a residential job exceeds $1,000, you'll need to supply a notice about construction liens. If the value exceeds $2,000, the contract has to include both a Consumer Protection Notice and a Notice of Procedure. All three of these notices have to be signed by both the contractor and the owner. The contractor has to keep a file copy for two years. The fine for failure to comply is up to $5,000. These three disclosure forms are available from the Oregon Construction Contractors Board at the CCB site. Unfortunately, these disclosures are just the beginning.

Oregon Administrative Rule 812-012-0110 requires that residential contracts explain property owner rights and terms of the contract. Most of what's required is strictly routine -- names and numbers. But some of what has to be in the contract is pretty much off the wall -- a description of the right to file a complaint. The same rule requires a checkbox in the contract disclosing whether arbitration is required to settle disputes. These disclosures are part of the contract. So no separate signature is required. Finally, for residential work, the owner has to receive notice of the right to cancel, using either the federal right of rescission form or an equivalent Oregon form.

More disclosures are required if the project is a new residence (rather than home improvement). As of July 2008, the contractor has to offer a written warranty against defects in material and workmanship. The owner has to acknowledge receipt of that offer and indicate either acceptance or rejection. No separate signature is required because this offer has to be part of the basic contract. Finally, you have to provide a Moisture Intrusion and Water Damage Maintenance Schedule and get the form signed by both the contractor and the owner.

If you haven't been counting, a total of seven disclosures are required, each with many parts. Obviously, it's easy for an Oregon contractor to make a mistake. And more than a few have. In the last three months of 2008, nearly 600 Oregon contractors were fined by Oregon's Construction Contractors Board. The average fine was about $1,000. Another 218 warnings were issued. Licenses were pulled on 204 contractors. In all, more than 2% of all licensed contractors in Oregon were cited by the CCB. And that was in just three months! Many of these fines were the result of a simple mistake – such as failure to attach a Consumer Protection Notice.

Oregon's seven disclosures add at least four pages to the shortest, simplest home improvement contract you can imagine. I wonder if disclosures aren't subject to the law of diminishing returns. Every additional disclosure form deflates the shock value of disclosures already made. If there's a practical limit to how much disclosure is too much, Oregon may be getting close.

But don't get me wrong. I like disclosures. The more the buyer knows, the better informed the decision. True, the new Oregon rules create a mine field for Oregon residential contractors. You have to be careful. But with one exception, Oregon has resisted the temptation to tip the fairness scale against contractors. That's what Pennsylvania and Texas do -- flatly outlawing some contract clauses or demanding others. Oregon doesn't do that. At least not yet.

The one exception: Oregon Revised Statutes Section 87.037 denies lien rights to prime contractors who do work valued at over $2,000 without a written contract. Think about that. No right to collect on the contract and no lien rights. It's heavy stuff. If you expect to get paid, you better have a written contract.

I can recommend a safe path through the maze Oregon has laid out. Construction-Contract.net has a good selection of residential contracts that comply with Oregon law. All download at no charge.

If you're serious about writing contracts that comply with Oregon law, have a look at OregonConstructionContract.Com.

Wednesday, May 27, 2009

End of the Texas RCC

The much-maligned Texas Residential Construction Commission Act (TRCCA) is about to fade into the sunset if activists in Texas get their way. TRCCA took root in 2004. The legislated purpose was to (1) promote quality construction by registering home builders, (2) serve as a resource for home owners and (3) offer neutral technical review of alleged construction defects. Sounds good so far.

But the Texas Sunset Advisory Commission has reported that TRCCA isn't working as planned and recommended abolishing the Commission. The national press has picked up on the issue, referring to Texas as "the worst state in the nation when it comes to protecting buyers of new homes." Those are strong words -- and will be the subject of this article.

First, an important clarification. TRCCA covers both new homes and nearly every home improvement project valued at $10,000 or more.

The rap on TRCCA is that the claim process takes too long (5 months) and doesn't resolve enough disputes (only 12%). Worse, TRCCA doesn't give anyone authority to enforce decisions that go against Texas builders (or Texas home owners). Texas can't suspend the license of a truly egregious builder because Texas doesn't license contractors.

The benefit of TRCCA is the follow-up every claim receives. At a cost of $250 to the home owner, a state-appointed inspector visits the site, writes a report and makes a recommendation. If the claim involves a structural defect, the inspector will be a licensed engineer. If the construction defect is a threat to health and safety, the builder has to fix the problem ASAP. If not fixed promptly, the home owner can have another contractor do the work and add the cost to the claim. If the inspector finds in favor of the home owner, the inspector's fee can be charged to the builder. The inspector's decision has to be based on the warranty and building code in effect and must recommend a method of repair.

About half of the TRCCA reports confirm a defect that has to be repaired. The inspector's report becomes evidence if suit or arbitration follows. Either the home owner or the builder can appeal the inspector's decision to a review panel. The panel has to reach a decision in 30 days.

TRCCA also created a mandatory residential warranty that can't be waived. This warranty is not a trivial document – over 100 pages of standards that define in detail what constitutes quality construction. This warranty is used by TRCCA inspectors when deciding what constitutes a defect and what doesn't. Duration of the TRCCA warranty is 1 year on workmanship and materials, 2 years on plumbing, electrical and HVAC, and 10 years on structural components. This is the most comprehensive and detailed residential warranty I've seen. No other state comes close.

TRCCA is stacked on top of remedies home owners had before 2004. If TRCCA doesn't resolve a claim, the dispute drops into the Texas Residential Construction Liability Act of 1989. TRCLA gives builders the right to inspect and repair after a claim of defect. There's a heavy incentive for builders to make a reasonable offer of settlement – and sweeten the deal by throwing in attorney fees and the cost of temporary re-settlement if the owner has to relocate during repairs.

If the builder's offer isn't "reasonable," the home owner can claim: (1) the cost of repairs, (2) the cost of replacing or repairing anything damaged as a result of the construction defect, (3) engineering and consulting fees (4) temporary housing during the repair period, (5) loss of market value after the defect is repaired, (6) attorney fees.

If the cost of repairs is extensive, the builder can elect to re-purchase the home at the original purchase price plus closing costs plus attorney fees plus expert witness fees plus the cost of any improvements plus the cost of moving. In essence, it's a money-back guarantee.

But Texas doesn't stop there. TRCCA and TRCLA are stacked on top of remedies provided by the Texas Deceptive Trade Practices Act (DTPA). This is where home owners with construction defect claims want to be. DTPA dates from 1973 and gives buyers of construction services a private right to collect triple damages plus attorney fees for misrepresentation or breach of warranty.

Taken together, TRCCA, TRCLA and DTPA offer Texas home owners a triple canopy of protection, including independent third-party inspection, a 100-page written warranty, money-back guarantee and triple damages.

Even trivial errors by a Texas contractor can earn heavy penalties:
--- Omitting the contract notice required by Texas Property Code § 41.007(a) is a violation of DTPA and qualifies an owner to collect triple damages plus attorney fees.
--- TRCCA voids any arbitration clause in a contract which fails to make specific disclosures in 10-point bold type.
--- Omission of disclosures required by TRCCA makes the contract unenforceable.
--- TRCLA gives an owner the right to recover $500 from a contractor if the contract omits a specific statement.

Is Texas the worst state in the nation when it comes to protecting buyers of new homes? Exactly not, in my opinion.

Can a residential contractor still make a living in Texas? Of course. One place to start is at the site TexasConstructionContract.com. You'll find a good tool for drafting contracts with any bias you select. All comply with Texas law.

Monday, April 27, 2009

California Business and Professions Code § 7159

If you're a licensed B1 contractor in California, you probably know all about Cal B&P 7159. It's caused more than a little grief for more than a few California contractors, some of them now former California contractors. Cal B&P 7159 is Sacramento's effort to rewrite every contract for home improvement, remodeling and repair work throughout the state – adding about eight pages to even the shortest agreement.

If there was an award for legislative ineptitude, California would be among the prime contenders. Their $billion budget deficits put California in a class by itself. But this legislature that can't shoot straight has no trouble targeting home improvement contractors. Cal B&P 7159 is the result.

A California contractor put it to me this way: "I'm a contractor. I'm not a lawyer. I shouldn't have to hire a lawyer before taking on a kitchen or bath job. I value my reputation as a builder and have nothing but satisfied clients. That's the best any contractor can do. But those guys at the state license board are looking for a way to pull my B1 ticket. Until that happens, I'm going to go on doing business on a handshake – and keep my fingers crossed."

I can empathize – on two grounds. First, nothing the California legislature has done will add to the list of good, reputable, honest home improvement contractors. Second, I'm a California attorney and I agree completely – the crew for a kitchen or bath job shouldn't require a lawyer.

My impression is that many – perhaps most – California residential contractors simply ignore the law, like my friend who's keeping his fingers crossed. Their feeling: "The law is simply too complex and asks too much. Only a few dozen contractors get their license suspended each month. My chance of skating by is pretty good."

True. But there's another perspective. Suppose your homeowner client turns out to be a real nutcase. Or, suppose your client is a perfect angel but runs short of cash before the job is done. What then? Most likely, your dispute will end up on the desk of two attorneys, yours and your client's.

When a job goes bad, your contract better be good.

Anything less and your client’s attorney is going to turn you every which way but loose. Doing home improvement work without a letter-perfect contract is like driving without a license. Nothing bad happens until something goes wrong. Then it can go very wrong.

If you don't like the idea of finishing jobs and not getting paid, my advice is simple. Get your client's signature on an enforceable contract before breaking ground. There's a good selection of California home improvement contracts at http://construction-contract.net/list.php?state=CA. All are free downloads. And all comply with Cal B&P 7159

If you're serious about drafting contracts that meet requirements of California law – and also want to tilt contract bias in your favor -- I can recommend California Construction Contract Writer.

Thursday, April 9, 2009

Massachusetts Home Improvement: The Spirit of '76

The Commonwealth has been marching to its own drummer since Revolutionary times. So it was probably inevitable that Massachusetts would go its own way in handling grievances against home improvement contractors.

Massachusetts Office of Consumer Affairs and Business Regulation (OCABR) runs a home improvement arbitration program designed to keep construction defect claims out of Massachusetts courts.

The Massachusetts program is generally acknowledged to have done what the politicians in Boston intended. OCABR arbitration is quick (typically 90 days or less), cheap (about half the cost of AAA arbitration) and not overtly biased. An arbitrator appointed by the state visits the site, listens to both sides and writes a decision. A counterclaim, such as by the contractor, is allowed. So arbitration should be able to resolve all issues that grew out of a home improvement project.

So what's so bad about OCABR arbitration? As it turns out, there's plenty. It's another case of a state weighing in against construction contractors. I'll explain.

First, arbitration is automatic for home owners. All a home owner has to do is fill out a form. Not so for contractors. A contractor can't initiate arbitration without consent of the home owner (either at the time of application or via a waiver in the original contract).

Second, Massachusetts arbitration is an exclusive remedy until the arbitrator's decision is final. Theoretically, contractors can still sue to collect, such as in small claims court, or could file for arbitration under rules of the American Arbitration Association. But few courts and no private arbitrator will touch a suit for collection once OCABR arbitration has started. So contractors are left with no remedy in court and no private arbitration until a home owner's case is decided in OCABR arbitration.

Third, the entire premise of OCABR arbitration is one-sided. The unspoken threat is that a contractor's registration could be revoked. Homeowners in arbitration don't run the risk losing anything more than their time and trouble. As a result of arbitration, a contractor can be deprived of the right to make a living in Massachusetts. That's heavy stuff.

Finally, a homeowner who wins in arbitration and doesn't collect can recover from the Residential Contractors Guarantee Fund. The Fund then has a claim against the contractor. Massachusetts makes no guarantee when a contractor wins in OCABR arbitration.

If you feel uncomfortable about what Massachusetts does to home improvement contractors, there are good ways to push back. I'll name a few.

First, get pro-active. Be sure your contracts include a Massachusetts arbitration clause signed by the homeowner. That gives you the same access to OCABR arbitration that the homeowner enjoys.

Be sure your contracts are letter-perfect under Massachusetts law. If a job goes bad, you need a contract that's good as gold. If there's a defect anywhere in the contract, the attorney for the other side is sure to find the flaw and hammer away relentlessly. Under Massachusetts law, the contractor, not the home owner, is responsible for every defect in a home improvement contract. Sign a boilerplate agreement, such as an A.I.A. form, and you're a sitting duck.

To be valid, a Massachusetts home improvement contract needs eighteen distinct disclosures: (1) Your name and street address (not a mail drop) and phone numbers, (2) Your SSAN (or federal employer ID), (3) Your Massachusetts Home Improvement Contractor Registration number and expiration date, (4) The name of the salesperson, if other than the contractor, (5) The date when work will start and when work will be substantially complete, (6) A detailed description of the work to be done and the materials to be used, (7) An advance payment of no more than one-third of the contract price plus any special orders, (8) A payment schedule which shows the amount due by job phase, (9) A list of building permits required, (10) A statement that it's normally the obligation of a contractor to pull the permit, (11) A statement that homeowners who secure permits for work on their own homes don't qualify for recovery from the Residential Contractors Guaranty Fund, (12) Seven more short statements covering subjects from the phone number of the Director of Home Improvement Contractor Registration to warranties to mechanics' liens.

Omit any of these disclosures in the contract and you risk (1) suspension of registration, (2) a fine up to $2,000, and (3) imprisonment for up to one year. Doing business on a defective home improvement contract is also an unfair or deceptive act under Massachusetts law and gives the owner the right to seek triple damages and attorney fees.

The OCABR offers a home improvement contract on the Web that touches all the bases.

Unfortunately, that contract doesn't comply with federal law and exposes you to heavy fines.

Better Massachusetts contracts, including home improvement contracts with a contractor-bias, are available at no charge at http://construction-contract.net/list.php?state=MA

Tuesday, March 31, 2009

A New Dawn for Georgia Contractors: Warranty

Not many residential contractors in Georgia are good at writing warranties for their work. Builders usually think of warranties as bad news: Nothing good ever came from a warranty. Better to ignore the issue and hope clients never give it a thought.

That's about to change. Georgia Code Section 43-41-7 (the Written Warranty Act) now requires that residential contractors deliver a written warranty before starting work on any job valued at over $2,500 (see footnote 1). The Georgia legislature left it to the State Licensing Board for Residential and General Contractors to decide what has to be in that warranty. The Board's regulation (see footnote 2) went into effect on August 4, 2008.

There are two ways to look at this. First, the Written Warranty Act is just another burden contractors have to carry (or find a way to avoid). Second, you could decide that the Written Warranty Act is an opportunity likely to make or save you time and money. I think it's the latter and will explain why.

When you buy a car or a set of tires or get your car serviced, you get a warranty as part of the deal. That warranty draws a line in the sand – identifying exactly what's covered and what isn't, reducing the margin for dispute. Car dealers and appliance manufacturers wouldn't even consider doing business without a written warranty – for their own protection. Licensed residential contractors need warranty protection even more than appliance dealers. Your risk of loss is greater. A good contract with favorable warranty terms will lay off that risk.

And the Written Warranty Act makes it easy. The only iron-clad warranty rules: (1) It has to be in writing. (2) Has to explain what's covered and what's excluded. (3) Has to identify duration of the warranty. (4) Has to describe claim procedures and (5) response options. (6) And has to assign any manufacturer warranties. What your warranty says on those six points is entirely your call. Nothing in Section 553-7-.01 ties your hands. You can cover or exclude anything and for any period so long as you touch all six bases.

There's a certain symmetry to this new law. For several years, Georgia's Right to Repair Act (see footnote 3) has protected residential contractors from suit over claimed construction defects. Before filing suit, the home owner has to work through a 90-day settlement procedure. To get that protection, all you need do is insert a one-paragraph notice in the construction contract.

So now the scales are in balance: Obligations of the homeowner under the Right to Repair Act weigh against obligations of the contractor under the Written Warranty Act. In a way, it makes perfect sense.

If you need help drafting warranties for your jobs, the Web site Construction-Contract.net has a good selection of sample contracts for residential work, each with a warranty and Right to Repair notice that comply with Georgia law.

The download is free and available in PDF (Adobe Acrobat), RTF (MS Word or WordPad) and CCF (Construction Contract Writer) formats.

1 Official Code of Georgia Annotated 43-41-7. Written warranties required
A licensed residential contractor and any affiliated entities shall offer a written warranty in connection with each contract to construct, or superintend or manage the construction of, any single family residence where the total value of the work or activity or the compensation to be received by the contractor for such activity or work exceeds $2,500.00. The residential contractor division shall establish the minimum requirements of such warranty. The parties to the warranty may agree to submit any or all disputes arising under the warranty to arbitration. Such agreement to arbitrate shall be enforceable as provided in Part 1 of Article 1 of Chapter 9 of Title 9, the "Georgia Arbitration Code."

2 Compiled Rules and Regulations of the State of Georgia Section 553-7-.01 Written Warranty.
(1) Definitions:
(a) “Covered contract” shall mean any contract to construct, or superintend or manage the construction of, any single family residence where the total value of the work or activity or the compensation to be received by the contractor for such activity or work exceeds $2,500.00.
(b) “Single family residence” shall be deemed and construed to mean a “one or two family residence” as defined in the current edition of the state minimum standard International Residential Code (IRC).
(2) A licensed residential contractor and any affiliated entities shall offer a written warranty in connection with each covered contract.
(3) A licensed residential contractor that enters into a covered contract shall provide a written warranty which describes, at a minimum:
(a) Covered work and activities;
(b) Covered exclusions;
(c) Standards for evaluating work and activities, which standards shall be those set forth in the current edition of the Residential Construction Performance Guidelines as published by the National Association of Home Builders;
(d) The term of the warranty, including commencement date(s) or event(s);
(e) Claim procedures;
(f) Contractor response options (such as repair, replace or compensate);
(g) Assignable manufacturer warranties.
(4) Prior to the execution of a covered contract, a licensed residential contractor shall attach a complete copy of the written warranty (or an identical blank standard form of it) to the covered contract or otherwise make same available for review.

3 Official Code of Georgia Annotated Sections 8-2-35 to 8-2-41

Thursday, March 19, 2009

Illinois Home Repair and Remodeling Act

Cory and Angela Bogard needed more space in their Casey, Illinois home. In the fall of 2004, Dan Smith of Dan R. Smith Building Services offered to put a 26' x 20' addition on the Bogards' living-room for "$20,000 or less". Cory and Angela accepted Dan's offer and he started work the following month. By February, Dan had pocketed $15,000 in progress payments and was nearly done. His final bill was $10,515, bringing the total cost of the job to $25,515. That was a little over budget. But at $49 per square foot, Cory and Angela got a pretty good deal. Unfortunately for Dan, that wasn't the end of it.

The Bogards weren't satisfied. They refused to pay, claiming more work was needed. Dan didn't agree. Months passed. It was too late for Dan to file a mechanics' lien. By October, Dan still didn't have his $10,515. So he filed suit.

Dan's fate was now on the desk of two Illinois attorneys, both looking for ways to blast the other side.

The Bogard's attorney had high caliber ammunition, courtesy of the lawmakers in Springfield. The labels were HRRA, CFA and HRFA. If you make a living in residential construction in Illinois, you need to know these acronyms:

HRRA -- Home Repair and Remodeling Act
CFA -- Consumer Fraud and Deceptive Business Practices Act
HRFA -- Home Repair Fraud Act

HRRA requires a written contract for just about every residential remodeling or repair job over $1,000. The builder and the homeowner have to sign and date the contract and a brochure, 'Home Repair, Know Your Consumer Rights'. That was Dan's problem. No contract, no brochure and no way to collect. The court didn't award Dan a dime for his trouble, leaving him $10,515 short on the Bogard job. But it could have been worse, as I'll explain.

The enforcement teeth for HRRA are in Illinois' Consumer Fraud and Deceptive Business Practices Act (CFA). Operating a home improvement business under an assumed name can earn a $2,500 fine and a year in prison. Dan had no problem there. He was doing business under his own name, Dan R. Smith Building Services. But failure to complete work on time gives owners the right under CFA to demand a full refund. What if the Bogards had demanded a refund a week or two after Dan pulled off the job? Under CFA, Dan would have had 10 days to return the $15,000 in progress payments to that point. The penalty under CFA for failure to make a full refund: Suspension of the right to do business and a fine of up to $50,000.

Illinois' Home Repair Fraud Act (HRFA) threatens contractors with up to a year in jail and a $2,500 fine for making false promises, misrepresenting a material fact about the job, charging more than four times fair market value for any work, making false excuses for non-performance, failing to employ qualified personnel or violating the building code. Wow!

But, as I said, Dan got off easy. He got tripped up by HRRA and lost ten grand. A mistake under CFA can be (much) more expensive. Consider the case of Joe and Chris Taylor. They agreed to pay Father and Sons Inc. $40,000 for an addition to their home in LaGrange Highlands. The job went bad and ended up in arbitration. On a $40,000 job, the Taylors got an award under CFA of $40,000 for design defects, $22,006 for consultants, $75,000 for attorney fees, $1,400 for arbitration expenses and a discharge of all mechanics liens filed by Father and Sons Inc.

The moral of these stories: When a job goes bad, your paperwork better be good. If it isn't, you've written a blank check that's going to be cashed by an attorney for the other side.

Do yourself (and your bank account) a favor. Push back against consumer protection laws that back contractors into a corner. You're liable for everything that's either in or omitted from your contracts. Why not draft agreements that bend the bias in your favor? There's nothing illegal about that.

If your client suggests using an A.I.A. form or some other boilerplate contract, explain that the document offered is unlawful for home improvement work in Illinois. Using an unlawful contract would be a deceptive act under HRRA and CFA and could land you in jail. Instead, offer an agreement that you drafted and that complies with Illinois law.

The Web site http://construction-contract.net/list.php?state=IL has a good selection of Illinois contracts that favor Illinois contractors. The download is free and available in PDF (Adobe Acrobat), RTF (MS Word or WordPad), and CCF (Construction Contract Writer) formats.

If you make a living as an Illinois contractor, have a look at this site.

Sunday, March 15, 2009

Pennsylvania's Home Improvement Consumer Protection Act

Pennsylvania has joined New York, Illinois, New Jersey, Texas, Florida, California and other states in micro-managing construction contracts for home improvement work. Pennsylvania's Home Improvement Consumer Protection Act (HICPA) is intended to protect owners when negotiating home improvement jobs. But HICPA's list of contract requirements is like a ridge board made from utility grade lumber: long but with plenty of loopholes. It's easy to move contract bias back to favor home improvement contractors. That's the subject of this blog.

HICPA (effective July 1, 2009) requires a written contract for nearly every construction task in or around a residence -- even minor repair work such as re-painting or re-roofing. If the value of work is more than $500 and if you expect to get paid, you need a written contract.

The agreement has to include all the usual facts plus a few you wouldn't expect to see in a construction contract:
The attorney general's phone number -- 800-441-2555,
The contractor's street address -- not a P.O. Box,
Specific start and completion dates,
A description of the materials to be used and a set of specifications,
The contractor's property damage and liability insurance limits ($50,000 minimum),
A list of subcontractors, each with a phone number and street address (no P.O. Box).

If disputes are to be settled by arbitration, the arbitration clause has to be in 12-point bold caps and must specify (1) whether documents will be confidential and (2) whether the arbitrator's decision is final.

If the contract price exceeds $1,000, the down payment can't exceed 1/3 of the total price plus the cost of any special order materials – which have to be listed in the contract.

Time and material contracts (cost-plus agreements) are unlawful under HICPA because the contract has to show a contract price, not an hourly rate.

HICPA makes the entire contract unenforceable by the contractor if any of ten (formerly) common clauses appear in the document. The poisonous ten include hold harmless clauses and terms that award attorney fees to the contractor.

Using a contract that doesn't comply with HICPA is an "unfair or deceptive act or practice" under Pennsylvania's Unfair Trade Practices and Consumer Protection Law. Even a trivial omission gives an owner the right to seek triple damages plus costs and attorney fees. If you have to threaten suit or arbitration to collect, the owner's attorney is sure to scour every word in your contract looking for anything that doesn't comply with HICPA.

Obviously: Contractors beware!

But don't hang up your tool belt just yet. Home improvement contracting in Pennsylvania doesn't have to be a minefield for the unwary. There are still good ways to limit risk and control the outcome of your jobs.

First, understand that HICPA gives contractors a leg up in the negotiating process. If your client suggests using an A.I.A. form or some other boilerplate contract, explain that the document offered is unlawful for home improvement work in Pennsylvania. Using an unlawful contract would be an unfair or deceptive act or practice. Instead, offer a form that complies fully with Pennsylvania law. This is important: HICPA holds the contractor liable for non-compliance, no matter who actually drafted the agreement. Don't disappoint the lawmakers in Harrisburg. Write the contract for every one of your home improvement jobs.

Next, take full advantage of loopholes in HICPA. Here are seven good ways to tip contract bias back in your favor.

Collect for changes in the work. Changes are almost inevitable in construction. Most boilerplate construction contracts require that changes be done on a time and material basis -- usually with little or no markup. That doesn't work any more. HICPA makes cost-plus home improvement contracts an unfair or deceptive act or practice. Now, changes require mutual agreement and a signed change order. Every contractor knows what that means. Contract negotiation starts again any time an owner or the inspector wants a change in the scope of work. Both required changes and discretionary changes should be done on your schedule and at your price.

My advice: It's a "prohibited act" under HICPA Section 9 to agree to any material change without a written contract modification. So when you get a request for changes, fire up your contract-writing software. Write a new contract covering just the change the owner wants – and at exactly the price you want to charge.

Let your estimate define the job. When you bid the plans and specs, you're agreeing to complete work as defined in those plans and specs – even if your estimate omits something essential to the job. Bidding the plans is routine on the largest construction projects. PennDOT won't even look at a contractor's estimate. But it doesn't have to be that way. Contractors take unnecessary risk when they guarantee completion as planned, no matter what's in the estimate.

Here's a safer protocol: The contract price should cover only what's in your estimate. Anything omitted from your estimate isn't part of the job. For example, don't agree to install "a new shingle roof and replace deteriorated flashing." That turns your contracting business into an insurance company. All mistakes and surprises come out of your pocket. Instead, let details in your estimate define the job. Suppose your estimate (proposal) shows 2,000 SF of shingles and 100 LF of flashing. If more material is needed, there will be an extra charge. That's completely fair and perfectly legal under HICPA. How can you make the estimate define the work? Easy: Simply identify the estimate as part of the contract and add a few words, "The estimate defines the work required, no matter what appears in the plans and specs."

Control the payment schedule. HICPA limits the down payment to 1/3 of the contract price on jobs of $1,000 or more. But HICPA says nothing about progress payments. You're free to draw up a front-loaded progress payment schedule that keeps receipts well ahead of expenses.

Collect attorney fees if suit or arbitration is required. HICPA Section 7(e)(8) makes any contract totally unenforceable against the owner if "the contractor shall be awarded attorney fees and costs." Interpreting those words strictly, HICPA doesn't void a contract clause which awards attorney fees to "the prevailing party." That seems OK under HICPA, even if the contractor is the prevailing party. This is an important distinction.

The possibility of an award of attorney fees is a heavy incentive to settle most disputes. With no risk of being charged attorney fees, and with a chance of collecting attorney fees under the Unfair Trade Practice Act, a devious owner could threaten to litigate even the smallest issues. Eventually, Pennsylvania courts will resolve the issue: Can HICPA contracts include an award of attorney fees to the prevailing party? Until that happens, what should your contracts say? Remember, attorney fees are one of HICPA's ten poisonous clauses.

I believe courts will come down on the side of contractors this time, and for a very practical reason. Courts are too congested already. The threat of an award of attorney fees keeps most disputes out of court – freeing up court calendars for more productive work.

Make the owner liable for surprises on the job. Until you open up a wall, there's no way to be sure what's in a wall cavity. Nearly all surprises on a home improvement job will increase costs. Almost none will reduce costs. So it's prudent to include a "differing site conditions" clause in every one of your contracts. Nothing in HICPA requires that contractors absorb the loss when something doesn't go as planned.

Nearly all contracts for large construction projects include a differing site conditions clause. The U.S. version is Federal Acquisition Regulation Section 52.236-2. If it turns out that something isn't what the owner represented or what the contractor could reasonably expect, a differing site conditions clause provides extra pay for extra work. Both the owner and contractor benefit from a differing site conditions clause. The owner gets a bid based on what can be reasonably expected, not the worst case. The contractor is protected if costs escalate due to surprises.

Make the owner liable for delay. HICPA Section 8(a)(2) classifies failure to complete work on time as "home improvement fraud" if the contractor doesn't comply with a demand for a refund. On contracts for $2,000 or less, failure to complete work on time is a first degree misdemeanor (five years in jail). Contracts over $2,000 earn a charge as a third degree felony (seven years).

I don't believe the legislature's plan is to populate Rockview State Prison with tardy home improvement contractors. But I know it's easy to avoid these penalties. Simply include plenty of protection in your contract. HICPA doesn't define excusable delay. So define excusable delay very broadly. Then incorporate a "worst case" construction schedule in your contract. That takes the pressure off.

Be aware that there's a bigger issue lurking here. HICPA comes down hard on contractors who have trouble staying on schedule. Fine. But what about homeowners who delay the job or who don't make payments on time? Turnabout is fair play, in my opinion. Nothing in HICPA restricts charging the owner for delay. Pennsylvania courts routinely enforce contract clauses which make the owner liable for delay of the work. Your contracts should support delay claims.

Limit warranty claims. HICPA is also silent on warranties. That means you're free to follow your conscience when drafting home improvement contracts. Pennsylvania courts imply warranties of habitability and good construction. But your contract can limit the scope or duration of warranty or disclaim those warranties entirely. You'll need help drafting a disclaimer of warranty or putting limits on warranty claims.

The site PennsylvaniaConstructionContract.com has a good tool for drafting HICPA-compliant contracts with bias favoring contractors in all seven of the categories mentioned.