- An initial cost estimate in dollars and cents.
- A statement that the actual cost can’t exceed 10% more than the initial estimate.
- The maximum cost in dollars including the 10%.
- A statement that the cost won’t exceed the maximum without a written change order.
- A statement that costs will be based on “the actual cost of labor at a specified hourly rate and the actual costs of materials and use of equipment, plus an agreed-upon percentage of the total actual costs or a fixed amount, over and above the actual costs, to cover the contractor's fee and overhead.”
Thursday, November 20, 2014
Muddy Water in Pennsylvania
Home improvement projects in Pennsylvania got more complex last month. I’ll explain what changed. But first, a little background.
Pennsylvania’s Home Improvement Consumer Protection Act (HICPA) became law on July 1, 2009. The law had teeth. Home improvement contractors had to register with the Attorney General. Every job over $500 required a detailed written contract with 13 notices and disclosures. Time and material contracts were illegal. A contract that didn’t comply with HICPA was “void and unenforceable against the owner.” That means contractors had no right to collect. Violation of the Act was consumer fraud and carried heavy penalties.
That was 2009. Next came the changes.
July 7, 2011. Big box retailers balked at writing HICPA contracts with all those notices and disclosures. So they leaned on the legislature and got an exception to the Act.
January 18, 2012. A Pennsylvania district court was the first to interpret the Act. The ruling: An oral time and materials home improvement contract was not enforceable against the owner. The contractor’s claim for payment on a room addition job was dismissed. Gelacek v. Lunz Construction.
August 28, 2012. A Pennsylvania superior court saw it a different way. True, a home improvement contractor with a defective contract can’t collect the contract price. But that contractor can collect the value of work completed – time and materials. Durst v. Milroy General Contracting.
July 21, 2014. Pennsylvania’s Supreme Court agreed with the Durst v. Milroy court. A defective home improvement contract is no defense when a contractor sues to collect for work completed -- the value of time and materials. Shafer Elec. & Constr. v. Mantia.
So is there any advantage in writing home improvement contracts that comply with HICPA? Clearly, yes. It’s much easier to prove the amount due on a contract than to prove the value of work completed. And collecting overhead and profit or for breach of contract may be impossible with no valid agreement.
October 22, 2014. Another amendment to HICPA. From now on, time and material (cost-plus) contracts are OK – sort of. And this is where it gets a little complex. To be valid, the time and material contract has to include:
In my opinion, the October 22 amendment makes complex what should be simple. Skip the initial estimate. Skip the 10%. Don’t muddy the water with extra statements. Time and material home improvement contracts are perfectly legal for home improvement work in Pennsylvania and every other state if the agreement includes a guaranteed maximum price (GMP). To see how GMP time and material contracts can work on your projects, have a look at Construction Contract Writer. The trial version is free.