Can’t I Just Fire My Contractor?

This blog is for contractors. So I try to respond to questions I get from contractors. But I get questions from owners too. The most common is “Can’t I just fire my contractor – order him off my property?”

I had a question like that last week. The owner was disgusted when his home improvement contractor damaged the existing electrical system, didn’t show up for days and didn’t return calls. “Can’t I just fire this guy?”

A contractor working under a written agreement is not like an ordinary employee. Rights and obligations are laid out in the contract. With a few exceptions, ordering a contractor off the property is a breach of contract. The owner is going to be liable for damages. Case in point:

Mike and Cori Jones had moisture problems in the basement of their Iowa home. They signed a contract with Standard Water Control Systems to solve the problem. While working in the basement, one of Standard’s employees cut through concrete with a jackhammer, accidentally slicing into encased water and sewer lines. Standard continued work, finishing 95% of what they had agreed to complete. But there was water damage from flooding. The next day, Jones ordered Standard off the property – permanently. Standard sent a bill for $5,400, the balance owed on the job. Jones refused to pay because of the damage and because work wasn’t finished. Jones had another contractor finish the job and repair the damage. Standard filed suit to foreclose their mechanics lien and for breach of contract. Jones filed an answer and asked for damages. That was October 2013.

Last week an Iowa court (2016 Iowa App. LEXIS 899) decided the case. (1) Standard’s contract excused the accidental damage. Jones got nothing for the repair work. (2) Standard had a valid lien for $5,400 plus 12% interest. (3). Standard was awarded $43,835.25 in attorney fees from Jones, though the trial court is going to reconsider details of that award.

So when can you simply fire (terminate) a contractor?

• If the contractor committed a material breach of contract. A material breach is anything that defeats the purpose of the agreement.
• If the contract allows termination, either at will or for cause. Any contract can do that.
• If the contractor refuses to comply with the building code or state law.
• If the contractor pulls off the job. A flat refusal to do more work is grounds for termination. But be careful. A contractor who isn’t paid can stop work. That’s no breach. Neither is stopping work after an owner has breached the contract.

It’s not a material breach if:

• Giving a discount would solve the problem, or
• The contractor has made a good faith promise to perform, or
• Most of the work has already been done as agreed.

Insubordination alone isn’t a material breach. Neither is leaving the job idle for a while or accidental damage to the owner’s property or failure to supply the 3-day Reg Z notice or refusing to negotiate changes.

Judges usually decide what is a material breach and what isn’t. If the facts are in dispute, breach will be a question for the jury – and could require years in court to resolve. If it’s a close question, don’t put yourself in the position of Mike and Cori Jones.

There’s nearly always a better choice. If your state has a construction dispute resolution service or a department of consumer protection, get the state involved. If contractors have to register or are licensed in your state, request an administrative review by the license board. If nothing else works, get a private construction mediator to help. Or complain to your state attorney general. No matter the resources available, prepare your case carefully. Take pictures, get statements and the opinion of experts. Preserve notes and correspondence. Facts win cases.

A final point: Any contract can give an owner the right to terminate the agreement; either for cause or for any reason you want. Construction Contract Writer makes that easy. The trial version is free.

 

Why Contractors Like ADR

Construction disputes usually start with a surprise – something nobody considered. A good contract anticipates the most likely surprises. But no contract is perfect. Occasionally you’re going to have a dispute.

If you write the contract, you decide how disputes will be settled – either in court or by arbitration. If your contract requires arbitration, usually called alternative dispute resolution or ADR, the arbitrator’s decision will be final. There’s no right to sue. That can be an advantage. Arbitration is usually faster and cheaper than litigation. Many arbitration cases are decided on written statements alone. Statistics show that merchants usually win and property owners usually lose in arbitration. That makes arbitration a good choice for construction contractors. An arbitration clause in your contract adds leverage when an owner (or the owner’s attorney) threatens to sue.

But There’s a Problem.

Eleven states void any arbitration agreement in a residential construction contract that omits disclosures required by state law:

• California -- Business & Professions Code § 719
• Illinois – Title 815 Illinois Compiled Statutes § 513/15.1
• Maryland -- Code of Maryland Regulations § 09.08.01.25.
• Massachusetts -- General Laws 142A, § 4.
• Missouri -- Revised Statutes § 435.460
• Nebraska -- Revised Statutes § 25-2602.02.
• Oregon -- Administrative Rules § 812-012-0110-1-f.
• Pennsylvania – Title 73 Pennsylvania Statutes Section 517.7
• South Carolina -- Code Annotated § 15-48-10(a).
• Texas -- Property Code § 420.003.
• Vermont -- Title 12 Vermont Statutes Annotated § 5652

The disclosure statement required is different in every state: the exact words, all upper case, underlined, signed or above the signature line, etc. Without the precise disclosure required by state law, your agreement to arbitrate isn’t going to be enforced. That’s a trap for the unwary. Don’t get caught.

What’s in an Arbitration Clause?

No state or federal court will touch a dispute about a contract that includes an arbitration clause – an agreement to settle disputes using private ADR rather than public courts. Your arbitration clause should identify who will do the arbitration (such as the American Arbitration Association or Construction Dispute Resolution Service) and the arbitration rules that apply.

Federal law and policy favor arbitration. State limits and restrictions on arbitration, such as in the eleven states listed above, have been invalidated when the subject of the contract included interstate commerce. And nearly all construction includes materials from out of state. Still, the easiest and cheapest way to get into arbitration (and stay out of court), is to comply with your state law.

Construction Contract Writer makes that easy. If your preference is arbitration and if you do work in one of the eleven states listed above, get the trial download. It’s free.