Home Improvement Surprises in Maryland

Eugene Uzoukwu owned an older home in Baltimore City, Maryland and needed some work done -- a “total renovation”, in Eugene’s words. Kevin Servance agreed to start the job. Kevin wrote up the contract. He would furnish all materials, labor, and permits necessary for a new rubber roof and also remove an existing fire escape. The contract price was $14,000. At the top of the contract, Kevin listed a Maryland Home Improvement Commission license number.

That was a good start. Maryland contractors have to toe the line when writing home improvement contracts. Maryland's Business Regulation Code sets a high bar:

• Section 8-501 lists several pages of notices and disclosures that have to be in home improvement contracts.
• Section 8-617 limits advance payments to one-third of the home improvement contract price.
• Section 8-605 prohibits deviation from the terms of a home improvement contract.
• Sections 8-607 and 8-608 prohibit false promises, misrepresentations and fraud.
• Section 8-620 authorizes the Maryland Home Improvement Commission to collect a civil penalty of $5,000 for violation of Maryland Home Improvement Law.
• Section 8-623 makes violation a misdemeanor punishable by a fine of $1,000 and 6 months in jail.
• Code of Maryland Regulations section 09.08.01.26 requires three more disclosures in home improvement contracts.

Next Came the Surprises

Work proceeded normally until it came time to remove a fire escape from the rear wall of the building. Kevin or his crew tied a line between the fire escape and his truck – without bothering to detach the fire escape from the rear wall. When the truck pulled away, part of the rear wall came down with the fire escape. That was Surprise One.

Eugene estimated the damage to the rear wall at $17,051.61 and filed a complaint against Kevin with the Maryland Home Improvement Commission. Then came Surprise Two. Kevin didn’t have a Maryland contractor’s license. He had listed someone else's license number on the contract.

Kevin pleaded guilty in Baltimore City Circuit Court to acting as a home improvement contractor without a license and got a 6-month sentence. But the circuit court denied Eugene’s claim for restitution on the ground that removing the fire escape was demolition, not home improvement. Eugene appealed. The appellate court had to interpret Maryland’s Business Regulation Code Section 8-601 which defines home improvement.

No Surprise Here

Nearly all states set standards for residential construction contracts. Many states, including Maryland, set higher standards for home improvement contracts. In most states, the definition of home improvement is broad enough to include nearly any type of construction. Only routine maintenance, warranty repairs and new home building are excluded.

In the case of Uzoukwu v. State of Maryland (decided 9/2/2021), the appellate court gave Eugene a second chance to prove his claim. Reversing the circuit court decision, Judge Nazarian suggested the term home improvement “covers all alterations to a home undergoing renovation, including removing unsightly or dangerous parts of a residence”.

If you’re a construction contractor working on an existing residence with four units or less, avoid surprises. You need a contract that meets state standards for home improvement work. Drafting a perfectly valid, fully enforceable contract is easy. Get Construction Contract Writer. The trial version is free.

 

Liens vs. Contracts in Connecticut

Thirty-one states and the District of Columbia require a written contract for residential work. See my blog post Contracting on a Handshake for the list of states. But the obvious question is, “What happens if my job in one of those states doesn’t have a legal contract? Can I still collect?”

Last month, a Connecticut court answered that question – at least for Connecticut contractors. Here are the details.

Linda Tanuis needed new shingles on her house and garage in Bethlehem CT. Villwell Builders of Waterbury agreed to do the work for $19,152. Linda signed Villwell’s contract and work started. Everything went as expected until Villwell discovered a problem. An extra 35 sheets of plywood would be needed. Villwell noted on the contract “adding 35 sheets of plywood $3,000.” Linda initialed the change.

Villwell did good work – keeping Linda informed as the job progressed. When done, Linda paid Villwell the full $19,152. But then Linda got the bill for an extra 35 sheets of plywood. She refused to pay – not even the $3,000 noted on the contract. With no other choice, Villwell filed a mechanics lien for $8,126.

Notice the words mechanics lien in that last sentence. Why didn’t counsel for Villwell sue for the extra $3,000 as an approved change order? I don’t know. But I can guess. Connecticut is one of the 31 states that require a written contract for residential work. To be legal, the written contract for home improvement jobs in Connecticut has to:

• Be dated and signed by both owner and contractor.
• Include the contractor’s address and registration number.
• Describe (in bold type) the owner's cancellation rights.
• Show a start and completion date.
• Require that any change in contract terms be in writing, dated and signed.
• Disclose the name of every similar company the owner has had an interest in for in the last five years.

Counsel for Villwell must have known the contract with Linda wasn’t that good. Filing for a mechanics lien was a safer bet. Courts routinely enforce lien rights, even if there is no written contract.

Some background: Every state gives contractors a mechanics lien for the value of labor and materials used to improve property. No written contract is required. It’s enough if improvements were made with consent of the owner. Once filed, a mechanics lien is like a mortgage. Until discharged (paid), the lien holder has a secured interest in the property. Lien rights don’t allow recovery of the full contract price (including OH&P). But by filing for a mechanics lien, counsel for Villwell hoped to recover the value of extra labor and materials.

Can the Contractor Collect?

The court in Tanius v. Villwell Builders had to decide: If the contract is bad, does that also void mechanics lien rights? Connecticut General Statutes § 20-429(f) helps answer the question.

Nothing in this section shall preclude a contractor who has complied with subparagraphs (A)(i), (ii), (vi), (vii) and (viii) . . . from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner . . .

To summarize: A Connecticut home improvement contractor still has lien rights if the contract:

(i) is in writing,

(ii) is signed by the owner and the contractor,

(vi) contains (in bold) a notice of the owner's cancellation rights,

(vii) contains a starting date and completion date, and

(viii) is entered into by a registered salesman or registered contractor.

In the Villwell contract, (1) the contractor's registration number was missing, (2) the cancellation notice wasn’t in bold, and (3) there was no start date or completion date. So the court cancelled the contractor’s lien for $8,126. Villwell collected nothing. Too bad. Villwell did good work. Only their contract was bad.

The Bottom Line

To be candid, not all of the 31 states and DC follow the Connecticut rule. But all 31 states have some penalty for contractors who ignore the law. Don’t gamble on lame contracts. Construction Contract Writer drafts letter-perfect agreements every time, no matter the state and no matter the type of job. The trial version is free.

Contractor Without a Contract

Nearly all public works projects are done on terms set by the public agency. The contractor has little or no say in the matter. It’s only on smaller residential and commercial jobs that contractors get to shape the agreement – offer terms likely to save the day if the job goes bad.

It should be obvious: Contractors with an opportunity to write their own agreements should jump at the chance. Yet, some don’t. Here’s an example:

Jennifer English needed some improvements to her home in Wallingford, Connecticut. Jonathan Ohr of Major League Builders agreed to do the work for a flat $50,000. There was no written agreement. According to Judge Abrams, “Mr. Ohr was not in the practice of entering into written contracts with his home improvement customers.” You can probably guess what happened next. The case is English v. Ohr, 2018 Conn. Super. LEXIS 5898.

With $46,800 paid and work still to be done, Ms. English locked her contractor off the site. The court didn’t explain what went wrong on the job. But the judge agreed that: (1) Mr. Ohr could have completed the job if he had access to the site. (2) By denying access, Ms. English committed an anticipatory breach of the verbal agreement.

Normally, that would entitle the contractor to damages and probably attorney fees. But remember, there was no written contract for this job. And that was a problem. Connecticut is one of the 31 states and the District of Columbia that require a written contract for residential work: AR, AZ, CA, CT, DC, DE, HI, IL, IN, KY, LA, MA, MD, ME, MI, MS, ND, NH, NJ, NV, NY, OH, OR, PA, RI, TN, TX, VA, VT, WI, WV and WY.

It Gets Worse

Under Connecticut’s Home Improvement Act, doing work without a contract is an unfair trade practice. That authorized Judge Abrams to award punitive damages against both Mr. Ohr and Major League Builders. The judge didn’t do that. But the court’s opinion leaves no doubt about who was at fault in this dispute. If Ohr had a signed contract:

[T]he parties would have had a concrete memorialization of the scope of the project that would not have allowed for inconsistent expectations. As a result, the project could have been completed without significant incident and this litigation avoided.

In essence, the lawsuit was Ohr’s fault. So Ohr was ordered to pay the reasonable attorney fees of Ms. English.

Notice how absence of a written contract on the English job changed everything:

• According to Judge Abrams, there was no true agreement on what the job required.
• Ohr didn’t collect the last $3,200 due under his oral agreement.
• Ohr didn’t have the protection any good contract would have provided.
• Ohr had to pay both his own attorney fees and the fees of Ms. English.

Jonathan Ohr isn’t the only contractor to do business on a handshake. If that’s how you operate, have a look at Construction Contract Writer. Before you start any job, use CCW to write a construction contract that’s perfectly legal in any state where you build or remodel. The trial version is free.

Do I Really Have to Give the 3-day Notice?

Arguments for skipping the 3-day notice go something like this.

“I get paid in full when the job is done. I’m not a lender. So why do my jobs need a federal truth-in-lending notice? That notice just bulks up my contracts. Makes it harder to get a signature. Anyhow, my clients know what they want. And that’s NOT waiting three days for me to get started.”

Every home improvement specialist knows about the 3-day notice – an owner’s right to cancel a home improvement contract during the first three days after the agreement is signed. What may not be so clear is how important that notice can be.

I’ve written about the 3-day notice at least 5 times on these pages:

February 2010 -- 3-Day Right to Cancel – Contractors Beware

June 2012 -- Waiving the 3-Day Right to Cancel
April 2013 -- The 3-Day Right to Cancel: A Contractor’s Checklist
March 2014 -- Home Solicitation Sales
November 2017 -- Bad Faith 3-Day Rescission

But I still get asked, “Why bother with the 3-day notice?”

That’s a good question, especially if you understand where the 3-day notice came from. It’s part of the federal Truth-in-Lending Act, a law written to regulate lenders, primarily banks. How did it happen that contractors get the same treatment as mortgage lenders? Most contractors expect to be paid on completion and most don’t arrange financing for their clients. Contractors like that are not lenders in any sense of the word.

A Little History

When T-I-L was written (1968), many assumed contractors would not be affected. Not so the Federal Reserve Board. The Fed has rule-making authority under T-I-L and wanted contractors covered by the law. They wrote regulations, including Regulation Z, that required home improvement contractors to give the same 3-day notice that mortgage lenders give when making a loan. The 3-day notice had to be part of the construction contract even when a lender is required to give their own notice as part of the loan agreement.

Several years after the Fed wrote Regulation Z, A group of home improvement contractors filed suit against the Fed, seeking a declaratory judgment that contractors weren’t covered by T-I-L and didn't have to give the 3-day notice. In district court, the contractors won. The court ruled the Fed Governors had exceeded their authority. In the opinion of the district court, T-I-L was not intended to cover future statutory liens such as mechanics liens. All states grant mechanics liens to tradespeople. But those liens don’t arise until well after completion and may never happen. So the district court enjoined the Fed from enforcing Reg Z against contractors. No more 3-day notice.

Naturally, the Fed appealed. The case was Freed Co. v. Board of Governors, decided in 1973. The appellate court reversed the district court, finding clear congressional intent in T-I-L to protect consumers from loss of their home under security interests granted by state lien law. Once again, the 3-day notice was required on most residential jobs.

The Freed case stands today. It’s never been challenged. And until it is, no attorney is going to advise a client to skip the 3-day notice when doing work on an owner’s primary residence.

But be aware. The 3-day notice isn’t needed on all residential jobs. And there are perfectly legal ways to start work on a job the same day a contract is signed. Construction Contract Writer helps you decide what's right for each job. The trial version is free.

Changes in Construction Contract Law – First Half of 2018

So far this year, eighteen states have changed how construction contractors have to do business. Some changes are trivial. Others will affect most contractors in the state. Here’s a state-by-state run-down on the most significant changes.

Wisconsin – The statute of repose for construction has been reduced from 10 years to seven years. Every state sets a limit for making claims against a contractor. That limit is six years in WI. But the claim period for construction defects doesn’t start running until the defect is discovered. That could be many years. The statute of repose now bars all claims seven years after substantial completion. Wisconsin Statutes § 893.89, effective April 18, 2018

West Virginia – Now requires that agreements for jobs over $10,000 cover 15 specific terms – start and completion dates, change orders, etc. A written contract is required with both the owner and your subs. The license Board is authorized to request a copy of the contract for any such job and has authority to discipline any contractor who fails to respond. West Virginia Code of State Rules § 28-4-4, effective April 16, 2018.

Virginia – Contracts by unlicensed contractors are now unenforceable. Virginia Code Annotated § 54.1-1115, effective April 30, 2018. The consumer information disclosure statement required in contracts has been revised. 18 Virginia Administrative Code § 50-22-RBC, effective January 1, 2018. The list of prohibited acts for all contractors has been revised. 18 Virginia Administrative Code § 50-22-260, effective January 1, 2018..

Tennessee – Has added to the list of actions by home improvement contractors that constitute consumer fraud. Tennessee Code Annotated § 39-14-154(b), effective July 1, 2018.

South Dakota – No matter what the contract says, South Dakota Codified Laws § 5-26-6 requires that money due subs and suppliers on state public works projects begins accruing interest at the rate of 10% per year 30 days after the prime contractor has been paid. Effective July 1, 2018.

Nebraska -- If insurance will cover at least part of the cost of a residential repair project, the Insured Homeowners Protection Act, § 44-8601 to 44-8608: (1) Requires new contract disclosures in 14-point caps, (2) Restricts any assignment of rights by the insured, (3) Requires an itemized description and price for the work to be done, and (4) Voids the agreement if the contractor violates any provision of the Act. Effective July 19, 2018.

Maryland -- Maryland Business Regulation Code § 8-620 gives the Maryland Home Improvement Commission authority to impose civil penalties of up to $5,000 for each violation of the code, whether or not the offender is licensed. Effective July 1, 2018.

Kentucky – Courts in most states won’t enforce a “pay-when-paid” clause in subcontracts because the clause defeats lien rights. With a “pay-when-paid” clause, subs have no right to collect if the prime contractor isn’t paid. A recent court decision indicates that Kentucky courts will enforce pay-when-paid clauses in subcontracts.

California – Big changes are coming for California solar contractors. Solar energy projects will have to include a “Solar Energy System Disclosure Document” as part of the contract. The aim is to standardize and simplify disclosures required for all residential solar projects. The Contractors State License Board is required by law to release a prototype disclosure statement by July 1, 2018. As of this writing, that hasn’t happened.

No matter where you build, clients expect you to know and comply with the law. Construction Contract Writer covers all these changes and many more. Regular updates are quick and automatic. CCW is the best way to be sure your contracts comply fully with the law of your state, no matter how the law changes. The trial version is free.

The No-Contract Contract

Construction contract law can be more than a little complex. Every state has different requirements – notices, disclosures, warranties, waiting periods, penalties. The list grows longer every year as consumer protection laws multiply. What’s a contractor to do?

I’m going to have a suggestion a little later. But first I’ll offer an example of what not to do.

Noelle Tognella of Portland, ME asked Jon Talty of Talty Construction for a quote on home improvements. Jon drafted a proposal -- electrical, plumbing, drywall, tile, carpentry -- and quoted a cost. And that’s when the problems started.

Maine construction contract law for residential jobs isn’t simple. The contract has to set estimated start and completion dates, include a warranty statement, a statement on dispute resolution, a statement on change orders and has to inform the owner about the Maine Attorney General's website. Jon’s contract didn’t have any of that. No problem! That’s because nobody bothered to sign Jon’s proposal, not Noelle, not Jon. So there wasn’t any contract. Perfect. If there’s no contract, Jon hasn’t done anything wrong. Right?

Not quite. As I’ve said more than once in this space, when the job goes bad, you better have a good contract. And you can guess what happened next on this job.

Noelle thought the job was taking too long. She found fault with the quality of Jon’s work. And Jon’s invoices didn’t include the detail she wanted. The “no-contract” contract was changed several times to reflect higher costs and to clarify what work was covered. None of these modifications were signed by both Noelle and Jon.

By November 2016, Noelle had paid Jon $40,000, including $9,000 for work she claimed Jon had not yet completed. She asked for $9,000 back and terminated their non-agreement agreement. When Jon didn’t pay the $9,000, Noelle filed suit.

Maine construction contract law sets a forfeiture of "not less than $100 nor more than $1,000" for each defect in a construction contract. Jon insisted he shouldn’t have to pay. No contract existed. He never contracted to do the work. The proposal he offered was never signed by Noelle.

In short, is having no agreement at all better for Maine contractors than having a defective construction contract?

How Would You Decide the Case?

The Maine court confirmed that Noelle was entitled to a refund for work not completed. And then the court answered the contract question. The “course of conduct between the parties” was evidence of an intent to form a contract. That an agreement was never signed did not protect Jon from requirements of Maine contract law. Jon was found to have committed at least ten violations of Maine law and was assessed a civil forfeiture of $200 per violation. Last month, the appellate court upheld the decision of the trial court.

I agree with the court. Maine contractors have two splendid reasons to draft (and sign) valid construction contracts. First, good contracts add protection if the job goes bad. Second, valid contracts avoid the civil forfeitures written into Maine law.

So here’s a tip for any contractor: No matter where you build, you won’t find a better tool for drafting letter-perfect construction contracts than Construction Contract Writer. The trial version is free.

Bad Faith 3-Day Rescission

Every contractor knows about the 3-day notice required on residential jobs. Owners get three days to back out of any deal. Starting work sooner than three business days after signing is like giving an owner a loaded cannon. I’ll explain.

The federal three-day right to cancel is called the Reg-Z Notice. Some states also require a state 3-day notice. Most states waive their 3-day notice if you give the federal Reg-Z notice. Other states require their 3-day notice even if you give the federal Reg-Z notice. And there are exceptions – such as for emergencies – under both state and federal law. This isn’t simple. And it’s an issue in nearly every residential construction contract.

Don’t even think about omitting the required 3-day notice (or notices) from a residential contract. If your client wants to start work right away and has a reason, that’s fine. Your owner can waive the 3-day notice. But the waiver has to be done just right – in the owner’s handwriting, in the owner’s own words and covering specific key points. At your option, Construction Contract Writer can include a page that coaches your client through the waiver process.

Now back to that loaded cannon. Here’s an example:

The owner signs your contract. Work starts the next day. The owner sits back perfectly content as work progresses, even for several days or weeks, never letting out a squawk. When work is done, you present a final invoice. That’s when the owner opens fire.

Too bad. I’m not paying. I got your 3-day notice. But you didn’t give me the three days. So the law says I can rescind. That’s what I’m doing. I rescind. Here’s your signed cancellation notice. Now write me a check for what I paid and stay off my property.

Don’t laugh. It happens.

As in a Pennsylvania case decided last week, Waldron Electric v. Caseber. According to the court, Casebar agreed to have Waldron install surge and lightning protection. Waldron had the good sense to offer a valid Pennsylvania home improvement contract for signature. Casebar signed with no waiver of the 3-days. Waldron finished the job the same day. That was Saturday. The following Monday, a notice of cancellation arrived by certified mail at Waldron’s office. Casebar demanded a full refund -- and got it. Then Casebar ordered Waldron off his property. You decide if that was bad faith rescission.

The court didn’t use those words in giving judgment to Waldron. Instead, the court concluded: Because there was an otherwise valid Pennsylvania contract, nothing prevented the trial court from awarding Waldron reasonable value for his services – even without waiting the 3 days to start work. "We recognize that this . . . may provide contractors an incentive to complete work before the three-day rescission period ends . . . The result, however, is compelled by the statutory language.”

Pennsylvania law saved Waldron. If you do work anywhere else, be careful. The law in your state may not be so forgiving to contractors. On every residential job, get a valid contract. Construction Contract Writer will do that. The trial version is free. Then either wait three days or get a waiver.

Please don’t misunderstand my point. I’m not dissing the 3-day right to rescind. It’s just about eliminated high-pressure selling tactics for home improvement work. But the right to rescind can do damage too. With a little care, any contractor can keep this dangerous weapon out of the hands of clients.

 

Guaranteed Maximum Price Contracting

If you’ve never met a GMP contract, let me provide an introduction. GMP is a handy tool put to good use by many contractors.

Back in July of 2010, I explained why home improvement contractors in six states (CA, IL, MA, NV, PA and TN) use GMP contracts. In those states, time & material contracts aren't legal for most residential work and can't be enforced. That makes GMP contracts an obvious choice. What I didn’t explain back in 2010 was how to write a GMP contract. So here goes.

Think of GMP as a hybrid T&M contract. You invoice for time and materials but also have a guaranteed maximum price. A deal like that meets state requirements, no matter where you build.

Here’s how to draft a good GMP contract, step-by-step:

1. Define the contract price. That’s your cost plus a fee. Your fee could be a percentage of all other costs or a lump sum or a set amount per week or month.
2. Define your cost. That’s usually labor, materials, subcontracts, equipment, supervision and overhead. Make your definitions tight enough so there’s no room for quibbling. More about this later.
3. Decide what records you’ll provide with each invoice. A spreadsheet with receipts and timecard backup is best.
4. Set a guaranteed maximum price in dollars and cents – usually about 25% more than what you would bid on a fixed price basis.
5. Finally, decide how any savings will be split. Fifty-fifty is a good starting point for negotiations. If actual job cost is less than the GMP, savings are split between owner and contractor by this formula.

As with any contract, careful drafting will head off most disputes. Here are the hot spots in any T&M contract:

• What’s included? The answer: Everything reasonably necessary to finish the job. Subpart 31.201-3 of the Federal Acquisition Regulations has the best definition I know for “reasonable” in a construction setting.
• Labor cost includes wages plus taxes, insurance and benefits based on payroll. If you want, list hourly costs for each trade and specialty. Is overtime allowed? At what rate?
• Material and subcontract costs are what you pay after any discount. Remember, under a GMP contract, you have an incentive to keep costs down.
• Equipment costs should include your rental expense and a billing rate for any contractor-owned equipment on the job.
• Supervision expense should include only time a supervisor spends on the job site.
• Overhead expense is usually an estimate expressed as a cost per week or month.

You still have to write change orders – modifying the GMP – for any significant change in scope of work. You still need a weekly or monthly draw schedule based on your costs. And you still could lose money on the job if costs exceed the GMP.

Not every job or client is right for GMP contracting. But if you use Construction Contract Writer, it’s easy to offer alternate contracts – both a GMP and a fixed price contract. Let the owner decide what’s best. An owner who has confidence in your work and understands the advantage of risk-sharing will probably choose the GMP deal.

 

Is This How You Do Business?

Chris Chase runs Chase Building Movers, Inc. in Wells, Maine. Chase specializes in timber frame barn moving and restoration. In May of 2011, Chris responded to an ad Ken and Nancy Lavin placed on Craig’s List. The Lavins needed a contractor to repair a timber-frame barn behind their home. On May 5, 2011, Chris met with Nancy Lavin on site to discuss the project.

Rot was plainly visible on the barn’s north wall. Chris pulled off several rotted shingles to get a closer look. He drew a rough sketch of the barn footprint and made a note, "Replace 6” x 6” sill with p.t." and "Replace studs as needed."

Chris offered to do the work at $45 per hour, his standard rate. Nancy agreed to provide the materials. Chris didn’t say anything about a written contract but agreed to start work when the barn was cleaned out and when Nancy had a building permit. That didn’t happen for over a year.

In October 2012, Nancy went to the Wells town hall to get her permit. She described the job as: "Replace 37 linear feet of existing garage wall and sill plates to match original. Total of 370 Sq. Ft." The value of the work was pegged at $10,000.

Chris had a crew working on site from October 18 to October 26, 2012. Nancy was there nearly every day and took pictures. After work started, Chris discovered that the sill under the west wall was also rotted. According to Chris, Nancy gave her OK to repair the west wall. Again, there was no written agreement for extra work.

By the following Monday, work was substantially complete. Chris presented Nancy with a bill for $8,460 -- 188 hours of work at $45 per hour. Nancy was surprised at the size of the bill. She wrote Chris a check for $5,000 and refused to pay any more. That left $3,460 unpaid.

Lavin vs. Chase Building Movers

Ken and Nancy sued, claiming breach of contract, breach of warranty, fraud, and violation of Maine’s Home Construction Contract Act. The Act requires a written agreement with 14 separate notices and disclosures. All changes to the contract must be in writing. Chris admitted at trial that he violated Maine’s HCCA. Under Maine’s Unfair Trade Practices Act, any violation of the HCCA is prima facie evidence of fraud. That gave Ken and Nancy the right to collect damages plus attorney's fees and costs. The cost to Chris could be many thousands of dollars – all because Chris didn’t bother to get a signed contract.

The case came to trial on April 12, 2017. Expert testimony convinced judge Douglas that work on the barn was structurally sound and substantially complete. He awarded Chris $2,520 of the $3,460 Chase Building Movers claimed and denied all claims of the Lavins. Chris wasn’t charged any of the $1,000 civil penalty that comes with violation of Maine’s HCCA.

Chris got off easy. Still, it took nearly five years to collect. Chris paid attorney's fees for much of that time, including the two-day trial. In the end, Chris got paid less than 90% of what he expected. 

No contractor wants results like that.

If you’re still working without written contracts, understand that times have changed. Modern consumer protection law in nearly all states puts residential contractors at a disadvantage. Without a signed agreement, you’re wide open to what happened to Chase Building Movers.

With Construction Contract Writer, it’s easy to draft contracts perfectly legal in any state and for any type of construction. 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.

 

Directions to the Montana Supreme Court

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+).

Mandell refused to pay that last invoice. He had an excuse. Montana Code § 28-2-2201 requires that all residential construction contracts be in writing and include several notices and disclosures. Bayliss never offered a construction contract for the job and Mandell didn’t sign any. They had only an oral agreement. Under Montana law, an oral agreement for residential construction is void. Mandell claimed he didn’t owe either the $75,409 due subs and suppliers or the construction management fee. Mandell filed suit to prove he was right. That was October 2013.

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. 

1. 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. 
2. 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.

 

Short vs. Long Construction Contracts

Pick up a contract for any good-sized commercial or industrial project and you’ll be holding 50 to 100 pages. I’ve never seen a contract for a significant public works project shorter than 50 pages. Even the most popular A.I.A. model contract (A201) is 40 pages.

Why so long? That’s easy. Both sides are trying to avoid surprises – and lawsuits. One-size-fits-all construction contracts pave the way to the courthouse steps. A good contract resolves disputes before they happen. Cover all the issues precisely in your contract. If the unexpected happens, let your contract do the talking.

“OK”, you say. “But I’ve been doing business for years on a 2-pager and never had a problem.” I don’t doubt that. But it’s like driving on bald tires. Not recommended.

I’ll let Ed Stewart of Admiral Construction in Cocoa, FL explain why he uses long contracts:

Years ago, for my 14 hours of continuing ed. for Florida contractors, I took a course on construction law taught by a construction attorney. The attorney asked the class of about 75 contractors, “How many have 2 or more pages in your contract?” Just about all hands went up. Then he said, “As I count up, drop your hand when I get to your number of pages.” At 12, my hand was 2nd to last. At 15, my hand was still up, the only one in the class. He asked me, “How many pages?” I said, "Just finished writing an 18-page contract." The class laughed. Someone shouted "Who in the hell is going to sign an 18-page contract?" The attorney's reply was, "All you guys that have under 10 pages are setting yourself up for a major lawsuit. The contractor that has 18 pages is probably well protected." The attorney asked to see me after class. When class was over, the attorney asked me, “Why so many pages?” I said "Craftsman Contract Writer". He said that was an excellent choice, well worth the purchase price. To date, Contract Writer has saved me many times, although I add more detail to my contracts. Just finished an 18-page contract, and a few weeks before, a 28-pager. So far, I’ve never had a contract turned down for being too long.

Contracts on Steroids

No matter how you feel about short vs. long contracts, include everything state law requires. For home improvement work, a two-page contract you found on the Web is a poor choice. In California, for example, every home improvement contract needs 32 distinct notices and disclosures – a minimum of 14 pages. There’s no (legal) way to avoid that.

Finally, if your contracts are short because you’ve run out of things to say, have a look at Construction Contract Writer. You’ll find dozens of good ways to protect yourself – grouped into 24 categories, from defining scope of the work to completion and final payment. Just answer the questions to write contracts – either short or long – that fit your jobs precisely.