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.