Mike Mandell owned a residential lot
in Paradise Valley, just outside Livingston, Montana. It was a beautiful site for
a home – overlooking the Yellowstone River. Mandell asked the Bozeman firm of Bayliss
Architects to design his new home. Mandell and Bayliss met on the site and struck
a deal: Bayliss would design a 2,000 square foot home that could be built for $170
per square foot. His fee would be 8-10% for architectural design and structural
engineering.
So far, so good. But Mandell had one more request. And this is where
Bayliss got into trouble. Mandell wanted Bayliss to handle construction management.
For an extra 7-10%, Bayliss agreed to act as project manager and general contractor
for the job.
Bayliss made it a “fast track” project,
sending invoices as work progressed. By the time the job was substantially complete,
Mandell had paid Bayliss $394,198. The final invoice added another $138,241:
-
$75,409 owed to subs and suppliers
- $29,250 for architectural services
- The 7-10% construction management fee ($30,000+).
And that’s how Mandell and Bayliss found
their way to the Montana Supreme Court. If Mandell was right, he saved over $100,000.
If Mandell was wrong, Bayliss collected only what Mandell agreed to pay in the first place.
Mandell had nothing to lose. And
he didn’t even have to worry about paying Bayliss’ attorney fees. If there is no
valid contract, Montana courts won’t award attorney fees to the winning party.
No Written Agreement = No Right to Collect
For the next three years, the case dragged
through the Montana courts, finally arriving at the Supreme Court. Last week that
court decided that Bayliss had a valid claim for $29,250 in architectural services
and for $75,409 owed to subs and suppliers. But because there was no written contract,
Bayliss was out his construction management fee (at least $30,000) and had to cover his own attorney fees. That’s a heavy price to pay
for overlooking one little detail, a valid contract. With a written contract, collecting
the full $138,241 would have been easy.Two observations from an attorney who has seen dozens of cases like this.
- Working any job without a valid contract is like skating on thin ice. Expect trouble. In this case, the Paradise Valley home came in well over the initial budget of $170 per SF. Mandell had an axe to grind.
- I'll defend the notices and disclosures required by Montana § 28-2-2201 -- insurance, payment terms, warranty, inspections -- all important subjects that should be covered in residential construction contracts. The law makes sense and should help keep contractors out of court.
Most states have laws similar to Montana
§ 28-2-2201. Don’t step into the trap that caught Bayliss. Construction Contract Writer drafts construction agreements that comply precisely with state and federal
law, no matter where you do business. The trial version is free.