Disclaimer: Nothing in this blog should be interpreted as a substitute for professional advice from an attorney practicing in your community. Only local counsel can appreciate the business and legal environment under which a construction contract is drafted, negotiated and executed. Gary W. Moselle represents Craftsman Book Company, publisher of Construction Contract Writer.
Craftsman Book Company
As of this writing, governors of five states have issued “stay at home” orders. How many more states will do the same is anyone's guess. So far, each of these orders is different. But all prohibit going to work – except for essential services. On that basis, nearly all construction jobs in these states will stop. What should you do? Who pays? At what cost?
This isn’t simple, as I’ll explain.
The obvious issue is project completion dates. Sixteen states (AZ, CA, CT, DC, HI, IN, MA, MD, ME, ND, NV, NY, PA, TN, VA, VT) require a scheduled completion date on residential construction contracts. Any schedule is out the window when a job is shut down by a pandemic. I’m going to assume that courts and license boards in these sixteen states will do the intelligent thing – extend contract completion dates by at least the duration of the shutdown.
Two states take a different approach.
- West Virginia § 142-5-3.1.2 requires either a completion date or a statement that there is no estimated completion date in home improvement contracts. If the contract has a completion date, West Virginia § 142-5-3.1.12 excuses late completion if delay is beyond control of the contractor. Obvious example: a government-mandated shutdown.
- New York General Business Law § 771 requires that home construction, improvement and repair contracts state whether time is of the essence. That can be poison, as I explained in January. When time is of the essence, most courts will consider any delay in completion to be a breach of contract. There is no excuse.
No state requires a completion date in commercial construction contracts or subcontracts. But many public works and commercial contracts include a completion date – with charges assessed for delay. These same agreements usually include a force majeure clause to extend the completion date for exceptionally bad weather, war, strikes, lockouts, etc. A good force majeure clause requires an executed change order for any delay beyond control of the contractor. Examples: pandemic or a government shutdown.
Shutdowns are expensive. Your crews are out of work and may not be available for recall. The site and materials have to be secured. Labor and material costs may be higher when work resumes. Meanwhile, overhead expense goes on as usual:
- Direct overhead -- temporary utilities, supervision, equipment, some insurance
- Indirect overhead -- general management, estimating, selling, accounting, bookkeeping, business licenses, taxes, professional and clerical fees.
Is it reasonable that a contractor cover all these costs? Or is government-mandated delay extra work for which extra pay is required? A pandemic isn't the fault of anyone. Common sense requires sharing the burden of government shutdown between owner and contractor.
If your job is shut down by government order, notify the owner immediately – in writing:
- Work is suspended. You’ll do what you can to preserve and protect the job site.
- Suspension by government order is excusable delay for which you are not responsible.
- Pledge to resume work when the order is lifted.
- Cite costs that will increase during any protracted delay.
Include with your notice a draft change order for signature by the owner:
- Amend the completion date. For each day of suspension, the completion date should be moved back 1.3 calendar days.
- Make it clear that government delay is extra work for which you are entitled to extra compensation.
Protect yourself on all future jobs. Work under contracts that:
- Require the owner to execute a change order for excusable delay.
- Make it clear that government-mandated shutdowns are excusable delay.
- Require reimbursement for both inflated costs and higher overhead expense after an excusable delay.
Want to see how good contracts protect your business in times like these? Construction Contract Writer does all this right now. Have a look at the navigator section Delay Claims. The trial version is free.
Construction Management Contracting in Montana
Dr. Gary Jystad practiced family medicine and surgery for over 50 years in Montana. In 1991, he built a log home on Flathead Lake in Rollins, MT, the “dream home” of his wife Mary Ellen. A tragic fire in 2016 devastated the main building, leaving the garage and guest house damaged but not destroyed.
In February 2017, Dr. Jystad signed a contract with Flathead Management Partners (FMP) to oversee reconstruction. FMP agreed to “coordinate and facilitate” remediation and “work at the exclusive direction of Dr. Jystad”. FMP didn’t plan to do any work with FMP crews. Continue reading
Bad Faith Contracting
Dominick Vivona has a home in a wooded area near Greenwich, Connecticut. In June of 2017, he set out to build a treehouse for his kids. Vivona sketched a design and found an experienced carpenter, Walter Reyes, to do the work for $6,000.
Reyes drew plans for the job, pulled the permit and bought most of the materials. Reyes wanted to be paid 35% on the second day of work, 30% on the fourth day of work and 35% when the job was finished. None of this was in writing.
If you read my blog post last month, you know where this case is headed. Last month I described how a Connecticut contractor couldn’t collect the final $8,000 on a roofing job because the written contract was lame. In fact, the agreement was so bad that the contractor had his mechanics lien rights wiped out. Continue reading
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?” Continue reading
Do you know roofing?
We have an excellent, detailed manual on how to install and estimate all types of roofing materials on all types of roof. It’s been selling well for 25 years and is used as a textbook in construction schools throughout the country.
But it was written 25 years ago and some of the materials and methods are no longer used, and many new and better materials have come on the market and are in common use today.
We need a person who is up-to-date on the latest roofing materials and installation methods, who can show us what obsolete text to remove from the book and provide details, installation methods and tips on newer roofing types.
You don’t need to be a good writer; we have editors who will make it pretty. You just need to be able to describe the work as though you were showing someone, step-by-step, how to do it.
It could be very profitable for you, and it will cost you nothing but your time.
Email firstname.lastname@example.org to learn more.
Who Pays for Mistakes
You’ve been here before. Every contractor has.
Something doesn’t pass inspection. It’s clearly wrong. Work has to be torn out and re-done. The question is, “Who pays?” Was it the fault of the prime? Or the sub? Or the architect or engineer? Continue reading
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: Continue reading
Nothing I’ve seen causes contractors more legal headaches than change orders. If you’ve dipped into the pages of this blog over the last ten years, you’ve seen how changes in the work can spoil nearly any job. A New York case decided last month illustrates the point. Here’s what happened.
Lanmark Group, a New York prime contractor, won the bid to do nearly $15 million in improvements to the Vince Lombardi School in Brooklyn. Lanmark awarded the masonry part of the job to Graciano Corp. at a subcontract price of $5,320,000.
It didn’t go well. Continue reading