Rocket Lawyer Contract in Maryland

Laura and Daniel Holland wanted a custom home built on their Pocomoke City, Maryland dairy farm. They selected an architect to draw plans for a 3,912 SF residence. After several rounds of negotiations and changes, Don Littleton of Wicked Professional Services Inc. (WPS) agreed to build the house for $700,250.  Don emailed Ms. Holland a construction contract created from a template on RocketLawyer.com. The Hollands signed the agreement. Work was to be completed by May 16, 2018. 

If you know anything about Maryland construction contracts, you can see trouble coming.

To comply with Maryland’s Custom Home Protection Act (MCHPA), the agreement needs a long list of notices and disclosures:

• A draw schedule signed by the buyer and builder;
• A list of the primary subs;
• A notice that all changes have to be documented with change orders;
• A statement in bold type disclosing whether the builder is covered by Maryland’s home warranty program;
• A notice that the builder has to disclose the names of subs and suppliers after receiving each progress payment;
• A notice that the builder is required to provide waivers of lien from all applicable subs and suppliers after final payment to each sub and supplier;
• A notice about buyer's risk under Maryland’s mechanics' lien laws.

Omitting any of these notices in a Maryland custom home contract is an “unfair or deceptive trade practice" and makes the builder liable for losses due to the violation – including attorney fees. In the words of the trial court, the WPS contract based on a Rocket Lawyer template was "legally deficient and woefully inadequate."

The court evaluated the agreement as a "standard general contractor contract" as "accepted in the industry with a management fee tacked onto the end." The agreement was "not sufficient to establish the contract in the nature of a construction management or a cost-plus contract as is generally recognized." The management fee was "inconsistent with a general contractor arrangement generally and with the subject contract specifically" and was poorly defined. The contract did not specify when the fee was earned or how it would be paid. The court ruled Don’s addition covering the management fee to be vague and unenforceable.

Now What?

If the job had gone as planned, WPS might have earned their $58,125 fee. But the job had problems.  More than a year after scheduled completion, work still wasn’t done. Worse, the job was nearly $400,000 over budget. Project cost had ballooned from $700,250 to $1,075,102.

As pointed out many times in this space, when the job goes bad, you better have a good contract. WPS didn’t. The Maryland trial court denied WPS’ claim for $352,647 in damages. WPS would not be reimbursed for $218,347 they had paid to subs and suppliers on the Holland job.

Instead, the trial court awarded the Hollands $58,066 in damages, principally the cost to complete work. Last month an appellate court affirmed the award of the trial court but remanded the case to the trial court for a ruling on attorney fees. For any violation of the MCHPA, the Hollands can collect reasonable attorney fees.

Notice This

In the words of the trial judge, “this was an unusual construction contract dispute because there were no complaints about the quality of the workmanship.” The problem was the contract – a bungled attempt to blend elements of cost-plus and fixed price agreements.

Don’t make the same mistake. Start every job with a contract as professional as the work you plan. Construction Contract Writer drafts letter-perfect contracts for any job and any site – whether fixed price or cost-plus. The trial version is free.

 

More Trouble for Tomi Akins

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.