Sunday, March 12, 2017
You may have heard the name Titilayo Akinyoyenu. "Tomi Akins,” as he’s known, is a Washington DC pharmacist facing federal charges of selling meds online to some 38,000 people without legitimate prescriptions. According to the US attorney, Tomi’s online sales netted $8.3 million. But the federal charges aren’t Tomi’s only problem. He got more bad news last week – in a dispute with his construction contractor. Here’s the story.
Back in 2011 Tomi signed a contract with Keswick Homes to build a $1,500,000 home on a one-acre lot in the Avenel neighborhood in Montgomery County, Maryland. The contract price was later increased by several written change orders. Before Tomi moved in, Keswick presented a bill for an additional $477,000 for site work -- engineering, soil testing, imported soil, a storm water-management system and 400 feet of 8’ to 16’ high retaining wall. Tomi refused to pay, claiming he never signed a change order for that work. Section § 10-505(3) of Maryland’s Custom Home Protection Act requires that new home contracts:
Expressly state that any and all changes that are to be made to the contract shall be recorded as "change orders" that specify the change in the work ordered and the effect of the change on the price of the house;
Keswick’s contract did that. But an addendum to the contract treated site work as an allowance. Keswick was to “manage, coordinate, and process payments to contractors upon completion of their work” and “submit accounting of all paid invoices at final draw with allowance to be adjusted to final cost at final change order.” In essence, the change order for site work was for an amount to be determined on completion. Did that comply with Maryland law?
The trial court ruled that it did. The jury awarded Keswick the full $477,000. Tomi appealed, contending a change order for work to be determined at price not stated was a violation of Maryland’s Custom Home Protection Act.
Last week the appellate court (2017 Md. App. LEXIS 233) agreed with Tomi. The change order for site work was void. But the appellate court didn't stop there. Under Maryland law, a void change order does not make the contract unenforceable absent proof that the owners were actually injured by the violation. In this case, Tomi didn’t prove an injury. “Consequently, the owners were not entitled to a judgment in their favor on the builder's claims. Instead, the court was entitled to submit the builder's claims to the jury, which found against the owners.”
So Keswick will collect the $477,000. The appellate court also reversed the trial court’s denial of attorney fees. Keswick is entitled to claim reimbursement for their $266,520 in attorney fees. As we said, it was a bad week for Tomi Akins.
So Can I Ignore Maryland Law on Change Orders?Not recommended. Keswick won the case – but at a high price. Getting a signed change order is always easier than explaining why you didn’t get a signed order. But, you ask, “How can I quote a price on site work when I don’t know what’s needed?” That’s easy. And it works in all states that require a contract price in dollars and cents. Quote a Guaranteed Maximum Price (GMP) for the change order and then agree to split any savings with the owner. That’s essentially the same as a cost-plus contract but complies fully with state law. If you need help drafting a GPM contract, have a look at Construction Contract Writer. The trial version is free.