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.

 

“You’re Fired. Get Off My Property”

Have you heard those words from an owner? Last week I got a call from a contractor who had been told exactly that. He still had tools and equipment on the job. He was owed money. His crew and subs expected to be paid. Now what?

A contractor terminated for good cause could be liable for both the extra cost of finishing the job and the cost of fixing everything the owner didn’t like about the original work.

What would you do?

First, understand there is only one cheap, quick solution in a case like this: a heavy dose of common sense. An owner who orders a contractor off the job has grievances, either real or imagined. Offer to resolve every one of those issues. Then make that offer in writing. Save a copy for your file. An owner who refuses your offer to continue work on the owner’s terms has breached the contract. If the case ends up in court, you’re the one who acted reasonably. Documents in your file will prove that.

If common sense doesn’t help, the law has answers. An owner who orders a contractor off the job without good cause has committed a breach of contract. The contractor is entitled to payment for work completed plus lost profit. But an owner's breach of contract is excused if the contractor was the first to commit a material breach of the agreement. A material breach is a question of fact, usually decided by a jury.

The courts could take years to decide who committed the first material breach. Legal fees in a case like that will be many thousands.

Better Choices

Arbitrate. If your contract requires arbitration, do exactly what your contract requires. If you have agreed to arbitrate, no court will hear the dispute. Mobile mediators and arbitrators are available in nearly every major city. Some will meet on the job site and provide a written decision in a matter of days. That decision is fully enforceable, just like a judgment in court.

Record a lien on the property. Lien rights are entirely separate from contract rights. A recorded lien gives you the right to foreclose. But watch four points: (1) Where a license is required, unlicensed contractors don’t have lien rights. (2) If the construction site is the primary residence of the owner, there are no lien rights if the owner didn’t get the Federal 3-day right to cancel form. (3) Your lien must be recorded promptly after work stops. (4) You have a limited time to bring a foreclosure suit after recording a lien. Wait too long and your lien rights are gone.

Look to your contract. Many construction contracts give either the owner or the contractor or both the right to terminate – either for cause or without cause. If your contract has a termination clause, contract terms will explain who has to do what after termination.

A good contract is your best protection against an unreasonable owner. The best contract drafting tool I know is Construction Contract Writer. The trial version is free.