HOW HOMEOWNERS CAN BETTER PROTECT THEMSELVES WITH THEIR MASSACHUSETTS HOME IMPROVEMENT PROJECTS
One of the more difficult things we have to do as construction lawyers is to deal with homeowner claims as to Massachusetts Home Improvement Contracts (Contracts or Contract). For this article, some other definitions. The home improvement contractor will be referred to as the HIC. The desired home improvement will be referred to as Project. And, the various statutes and regulations regulating Contracts will be referred to as HICL.
There are a number of factors leading to these difficulties. This might be the first time the homeowner has had to deal with a ‘legal’ thing (wills and divorces aside). The typical homeowner knows little about construction, whether with regard to the technical aspects or with regard to the contractual aspects. In many of the situations I have seen, the owner did not really have enough money to do the Project. The financing was tied in to the amount of a single proposal, which left no money for change orders and differing site conditions and no money to hire architects and attorneys before the Project got underway. The homeowner might not have as many rights as he or she should have had when proceeding with a poor contract or with no contract at all. And, by the time the problems arrive at the lawyer’s office, many of the things that haven’t been done or which were not done properly can tie our hands as to what we might be able to do (or want to do) to help the homeowner. And, trying to ‘fix things’ when many of the steps suggested in this article were not taken will almost certainly make the legal help that much more expensive.
Now, I am going to have to (gently) rough up some readers (for their own good). You may have a college degree, even advanced college degrees. You may be very smart. You may be very good at your job or profession. You may have a significant income, live in a very nice town, have a fancy car and take exotic vacations. BUT, CONSTRUCTION IS NOT WHAT
YOU DO. Most readers would not try to rebuild the engines or transmissions of their own cars. Why, then, would/should the typical homeowner think that s/he knows all of the things that s/he should know to provide for a properly-designed and properly-constructed house? Mr. Spock might answer: ‘that would be illogical’. And, answer me this. What Vulcan has ever lied to you? Not even once, right?
II. THE FIRST THING TO DO - SOME REQUIRED READING BEFORE YOU START SIGNING CONTRACTS AND SPENDING MONEY AND POSSIBLY GETTING YOURSELF INTO BIG, BIG TROUBLE:
Other than this article, there are two other articles a homeowner wanting maximum protection should read on this website.
The first article is under the ‘Squibs’ section of the website entitled: Squib Number 34: Avoiding or Minimizing Litigation. While this is primarily addressed to commercial construction, the majority of the concepts apply equally to Contracts and Projects. A Project has more in common with a commercial construction project than it does not. The principal differences are in scope, cost and complexity. But, much like with a Project, a commercial owner wants some kind of building built, just the way a homeowner does, and wants it done properly, on time and on budget.
Other than your HIC’s not completing the project without defect or on time or at cost or not at all, one of the greatest problems homeowners have with Contracts is litigation with their HIC, which they are ill-equipped to deal with, particularly because of its costs. Particularly for a homeowner, funding litigation – when they have not done the right things as suggested in this article – can be a nightmare. If a homeowner is involved in a superior court case with multiple factual and/or legal issues and two or three depositions are taken, getting through a trial is likely to cost twenty-five thousand dollars or more. Not doing things correctly often carries with it a premium cost. But, following many or most of the suggestions that follow will minimize the chances you will be in litigation and might lessen those costs at least somewhat should litigation rear its large and ugly head because the issues should be fewer and, hopefully, less expensive.
Secondly, on this website we have an article entitled: “MASSACHUSETTS HOME
IMPROVEMENT SAMPLE CONTRACT WITH COMMENTS”. This presents, with analysis
(some mine, some the State’s), the sample form of Contract the state has prepared for Contracts. Your Contract should look very much like this and, if it doesn’t, you should understand why before you sign it. After you read all three of these related articles, you may think that there may be additional provisions your lawyer should try to add in to this Contract form.
In a very general way, this form of Contract with analysis sets forth what at least some of the things your Contract needs to deal with, establishing statutory bare minimums. That article should be read in conjunction with this article to best understand what you are going to do and why. But, that article will not deal with, necessarily, all of the issues you may need to consider. So, before any contractor or subcontractor even touches your house, you should read all three of these articles, basically understand them and make sure that you have enough information to proceed. If there is an idea or concept you don’t understand, provided you are a Massachusetts resident you can call me and I’ll try to better explain it. I give one free fifteen minute consultation to Massachusetts residents.
III. THE SECOND THINGS TO DO:
You need to understand what you are trying to accomplish (a home improvement) and how you are going to go about setting up the framework for that home improvement to best assure a successful result with the job being reasonably on time, reasonably on budget and with no litigation.
Now, I am not saying that you will necessarily need all of the bells and whistles which follow if you are dealing with very specific and limited items of construction, such as paving a driveway, installing a fence, planting a lawn or replacing your windows and doors. In each of these cases, you will most likely deal with only one contractor: the contractor performing all of the work and supplying all of the materials.
For the purposes of this article, I am discussing a significant home improvement project such as putting on an addition to your house or a second floor, which construction has a value in excess of one hundred thousand dollars, where you will be dealing with a general contractor and with several subcontractors (contractors working directly for the general contractor.) For the purposes of this article our ‘model’ then will be just that: adding an addition or a second floor to your home. For such Projects, you want (and need) to understand and do most of the following things, which list isn’t intended as being all-inclusive:
1. This is not only your home. Until completed, this is a construction site and project. Before you commence with your Contract, the first thing to understand is that your home will become a construction project and construction site. And, all construction projects are complex when you have a general contractor, an owner and some subcontractors. But, a Contract in many ways is even more complex than a commercial construction project because the ‘owner’ for a Project is almost assuredly very inexperienced in the ways of contracting and contracts and is quite often still trying to provide a home for his/her family throughout construction. Also, for homeowners, their one project will be it: they will be ‘one and done’. Commercial owners are much more likely to have a number of projects through the years, from which they will develop experience and construction savvy. Since your home will be a construction site, unavoidably, there will be some level of mess. Be prepared for this! You’ll probably need a dumpster. You’ll want to be sure your HIC and his subcontractors leave the ‘job’ broom clean every day they work with all materials safely secured.
2. Preliminarily, you should hire an architect or an engineer or both to design your project. Start with the architect. Therefore, it is imperative that before the homeowner commences a Project, s/he have clear plans and specifications. ‘Plans’ or ‘contract drawings’ depict what the construction and construction details will look like. ‘Specifications’ identify by words what actually will be done, including specifically describing what materials will be incorporated into the work. Both are very important but, if I had to pick, I’d rather go with having good specifications without drawings than with good drawings without specifications. Plans are pictures while specifications contain descriptions. Well thought out specifications convey more information than drawings and are less susceptible to multiple meanings than are plans. Ideally, the homeowner will have both. Allowing an HIC to design your project can be a recipe for disaster. First of all, does s/he have the ability to do this? Perhaps a bit simplistic, but design is generally done by architects/engineers and construction is generally done by contractors. (Usually) never the twain shall meet! Also, will s/he ‘design’ the Project in such a way that the homeowner gets a minimal Project (the HIC might make more money with inferior materials and processes) or the best value? Will the HIC’s design set up claims for change orders (extras) down the road? Allowing a contractor to design his own project is like giving the wolf the keys to the henhouse. When one does, it should come as no surprise that the hens begin disappearing!
If the Contract says the contractor will install ten windows, is this sufficient? You be the judge. Is the window made of vinyl or of some other material? Some windows are vinyl over wood. Some windows are vinyl over aluminum. Some windows are just plain vinyl. Some windows are just plain wood. Is the window single pane, double pane or triple pane? Does the window have an ‘E’ rating? What is it? One ad playing often on the TV comments on how poorer quality windows use more vinyl around the actual glass to provide the strength necessary to support the glass, which means that the homeowner gets less actual glass in the window. The same ad says that where better quality and stronger materials are used, the actual ‘window’ frame around the glass can be thinner, allowing more actual glass to be used in the window itself, providing for more light. Does the window come with screens? Does the window come with storm windows? Does the window open in to facilitate window cleaning? Or, is it the kind that you have to go outside and get up on ladders to clean? How long is the window warrantied for? By whom? How long has that company been around? Is the installation itself warrantied? Is the window strong enough to support a window air conditioner? Folks, in terms of window issues, I’m just getting started. Without some form of technical specifications or description, the window supplied might be of poor quality and not worth what you are paying for it. It might not work well and may not hold up over the long haul. You may end up having to replace the windows prematurely, incurring what should have been an unnecessary expense along with the mess of another construction project.
Here’s a practical tip. The greatest cost in building construction is the labor involved to perform it. So, let’s take a home roof, for example. The roofer can install 20 year shingles. Or, he can install 50 year shingles. The same amount of labor (and cost) will be expended to do either. If you looked into it, you would see that the disparity in the materials cost between a 20 year shingle and a 50 year shingle is relatively insignificant when compared with the total cost of the job. But, using the better shingles will give you a better roof. The roof will last longer and this will be an issue that you won’t have to deal with again for a very long time. And, the use of the better quality materials will add to the value of the house should you sell it at some point in time, particularly if there is a transferable warranty. So, when you are instructing your HIC bidders who will be giving you proposals, ask them to give you two different prices. One would be with using average materials. The second would be with using really good – better - materials. In a lot of cases, the cost difference isn’t that much, particularly when compared with the increased value of the product.
3. You need to have a lawyer oversee the drafting of the Contract. Assuming you do most of the various things identified in this article and in the two referenced articles, this should only be a matter of between five and ten hours, assuming the HIC does what s/he is supposed to and isn’t a bear to negotiate with. For, under the HICL, the HIC has the responsibility for preparing the first draft of the Contract. Your lawyer can make sure that what you are being asked to sign covers all of the bases (and perhaps puts in a few bases of your own.)
4. If you are going to put up an addition or second floor and/or perform construction work having a value in excess of one hundred thousand dollars, if you can’t afford to hire both an architect and an attorney, you can’t afford the Project. PERIOD. This isn’t as expensive as you might think. You can interview two or three architects and get quotes for developing your plans and specifications. Assuming all of the right things have been done and are in place, your attorney’s review shouldn’t cost more than a few thousand dollars. That may sound like a lot of money now but will pale in comparison with what the legal costs would be to defend you in court in a suit by the contractor. I’m not trying to generate business for my firm in saying this. Because homeowners almost never do the things that are suggested in this article, they are a lot more difficult to represent than are contractors. Getting sufficient financing to cover these two cost items in addition to the contractor’s cost is a necessity. Better to learn that now before a very bad experience teaches you these lessons later when you will be less equipped to deal with them.
5. Borrow enough money to have a reasonably significant construction contingency. A contingency for these purposes is financing for more than the amount of the initial Contract value to cover necessary changes to the construction – things that have to be done differently with greater expense or adding to the construction new items. It is a rare construction project that does not have some change orders which increase the price. And, renovation work to an existing building is the most difficult construction there is. New construction is simpler because everything is being done all at the same time. In a renovation project, new construction must match existing construction, which may be lacking things such as-built drawings (drawings describing the final result of prior construction) to adequately describe existing construction, may have been built under an obsolete and superseded building code and which existing construction has physically ‘settled’ to some extent. My experience has been that a leading cause for lack of success with Projects is that there simply wasn’t enough money to build them, to cover change orders for extra work and to deal with ‘differing site conditions’ – problems with a building’s having settled or encountering unforeseen subsurface conditions.
6. Get multiple proposals for the work. Keep in mind that giving the job to the low bidder may ultimately turn out to be more expensive than giving the job to the high bidder, who may be charging more because he is a better contractor or because he has included in his estimate some things the low bidder didn’t think of. In public construction, it is customary to get at least three bids.
7. Check your contractor’s past project references before you sign the contract. Before you sign a contract, ask your proposed contractor to provide you with specific references as to similar jobs he or she has previously recently done. For our model, we would want some references to other owners who have added a second floor or addition to their house. And, contact them and see if they are happy with the job that was done. Ask some questions: Was the contractor responsive? Did he finish when he said he would? Are you happy with the quality of the construction, including the quality of the materials used? Did you have a lot of change orders? You will at least want to drive by one or more of these projects and see what they look like. If the contractor won’t give you references, find somebody else. More experienced contractors might be safer to hire than ‘new’ contractors if only because they have an established body of work. Also, there’s a better chance that they know what they are doing.
We all know in today’s day and age that a lot of information is available on the internet.
Type in your contractor’s name and see what comes up. Also, there are services such as ‘Angie’s List’, which rate local contractors. You may have to become a member to get these services but it is inexpensive to join. My own experience has been that I am not impressed with ‘Better Business Bureau’ ratings as something used to evaluate a company. My sense is that I have seen on more than one occasion an ‘A’ rating given by the BBB to a contractor which didn’t match the homeowner’s actual experience, sometimes by a lot.
8. If your contractor is not a corporation or a limited liability company (LLC), this is more than some evidence of poor thinking, bad judgment or improper planning on his part. When one works as a corporation or LLC, typically, the owners and officers and shareholders and members are not personally liable for their corporation’s or LLC’s debts. A contractor who is not a corporation or LLC but is a ‘d/b/a’ is risking his own and his family’s personal assets for every job he does because he doesn’t have that extra level of protection that he could have if he worked as a corporation or as an LLC. That doesn’t make any sense to me and it shouldn’t make any sense to you. Construction contracting is, by nature, a dangerous activity where many people get injured and even killed. Property damage of one kind or another is common with construction activities.
Checking published fees for the purposes of writing this article originally, it cost $275 as a fee to the State to form a corporation in Massachusetts and $125 to file the required annual report. If four hundred dollars is an insurmountable amount of money for a contractor to avoid losing his house, you would be well advised to consider looking elsewhere. Frankly, this may be evidence of bad judgment. In fairness, it might be some evidence that the owner is a ‘character’ or of the ‘old school’. But, if this individual can’t properly look after his own interests, isn’t that some evidence of the fact that he might not be able to take good care of your interests?
9. The homeowner might consider buying some of the materials for the job himself/herself. There are several advantages in doing this. For one thing, a contractor bidding a job generally marks up actual material costs with overhead and profit. So, if the cost of a certain kind of material is one hundred dollars, the contractor might charge
you one hundred fifteen dollars. The mark-up provides no added value for the homeowner.
By buying some of the materials directly, especially more expensive materials, fixtures and equipment and for long lead items (you have to wait for the materials, fixtures and equipment to be constructed because they are not off the shelf items), you’ll have the advantage of having the materials available for when the construction requires them. Also, for a fixed price contract, if you buy key materials yourself, you might get higher quality fixtures and materials than you would have gotten had the contractor bought the materials. You can take the 15% you saved (the contractor’s mark-up) and use that to buy better materials and fixtures. Also, by your buying and paying for the materials directly, there might be some cash discount that you could take advantage of. Using a Home Depot card saves card members five percent of their purchase. Also, it’s clear that the warranty for these materials runs directly to the homeowner, not to the contractor, when the homeowner directly purchases them. And, at least for these materials, the homeowner doesn’t risk the possibility of a mechanic’s lien against his/her property by the supplier of these materials if they were bought through a subcontractor or through the general contractor and didn’t get paid.
10. Do not let the bank prepare your Contract with the HIC. That’s a recipe for disaster. In reality, this ‘construction contract’ is probably more of a draw agreement with the bank than anything else. For this transaction, the bank is principally looking after its own interests, not yours. For that, you need your own lawyer.
11. Try to put into your Contract a provision that you will be entitled to a reasonable attorneys’ fee if you are forced to sue to enforce the Contract. These are enforceable in Massachusetts. The HIC might insist that this provision cover any suit he needs to file to enforce the Contract, something the homeowner should resist. Without such a provision, in the event the homeowner has to sue the HIC with regard to the Contract and Project, s/he typically will get an award from the court of either $1.25 or $1.50 for attorneys’ fees if s/he wins the case. This is not a misprint!
12. Before the general contractor and each subcontractor commences work at the Project, get from each an insurance certificate naming you as an additional named insured. You should have evidence, at minimum, that each such company has the following insurances: comprehensive general liability (CGL); an auto policy for its vehicles; and, workmens’ compensation. The agent who provides you with your home insurance can probably advise you as to what coverages you need and in what amounts. If you can’t obtain this information from your own insurance agent, give me a call and I can probably put you in contact with some construction savvy insurance agents in your area who can.
13. Have no oral agreements with your contractor as to the scope and price of the work for your Project. PERIOD. All such agreements should be in writing. Your lawyer can assist you not only with the basic Contract form but in developing a form for extra (change order) work. Also, remember that if you have any ‘agreements’ of any kind (written or oral) with your HIC before you sign your Contract, in the ordinary course, if they are not specifically included in your written Contract, they no longer exist. This is due to a legal doctrine known as the ‘parole evidence rule’, which is tied in to the fact that courts will only enforce the final manifestation of the parties’ intent, which is the signed Contract.
14. When significant payments are to be made to the HIC, have someone with technical knowledge working for you review the adequacy of construction covered by the billing (requisition). You don’t want to rely on whoever verifies ‘draws’ for the bank. Those individuals work for the bank, not for you. Homeowners are not generally familiar with the concept of ‘front end loading’, which describes a process where the contractor is attempting to get paid for more work at any particular period – usually earlier in the job - than it has actually performed. One problem with this is that by the end of the job, when a maximum effort may be required by the general contractor and subcontractors to get the Project done, there may not be enough money left in the remaining Contract monies to cover the cost of the remaining construction. And, it’s a fact of life in the construction game that even on fixed price contracts, when there isn’t that much more money to be made by the general contractor on a job, the general contractor sometimes loses interest in the job, even if there isn’t much money left because he front end loaded (overbilled) the job.
15. Before construction commences, break down the entire contract and agree on a ‘schedule of values’, meaning identifying for each item of construction that will be performed what its maximum value is. This helps in keeping the general contractor from over-requisitioning for any particular item of work.
16. As part of each requisition, get notarized, signed lien waivers from the general contractor and from each of the subcontractors. Among other things, this will alert the homeowner to any payment problems existing on the job in terms of subcontractors not getting paid and, possibly, as to any claims for additional compensation the general contractor and the subcontractors might have at any particular point in the Project, which would be flushed out by a well-written lien waiver form. You want the lien waivers notarized because some general contractors have been known to fill these out for subcontractors and you don’t want to have anyone claiming down the road ‘that’s not my signature’.
17. Make sure that there are clear warranty provisions in your contract. One year is a typical length of time for a warranty for general construction work. During this time, you are typically entitled to the contractor’s coming out and making adjustments and making repairs to items of the construction which aren’t quite right at no charge to you. There are usually more lengthy warranties on various aspects of the construction. Roof shingles, for example, are typically warrantied through the factory for a period of time of between twenty years and fifty years. Home boilers should also have a longer warranty period.
18. Before you release the final payment to the contractor, make sure you have all of the written warranties which go with the new work. Final lien waivers/releases. If the HIC is supplying a piece of significant equipment – an AC compressor or emergency generator, as examples – make sure you get all of the owner manuals and maintenance manuals (‘O&M Manuals’) which come with that equipment. In addition, get final notarized lien waivers and releases from the general contractor and from each of the subcontractors as a condition for final payment.
Dear reader. There are only the two of us here right now. Just you and I. You, sitting outside the computer, possibly with a long, cold drink in a sweating glass, staring in. Me, sitting inside the computer (where it is very cramped and quite hot), looking out with no drink at all. (Risk of electrocution otherwise, you see.) No one else will have to know.
Come on now, admit it. Much of what you read above was Greek to you. And, you don’t happen to speak Greek! All the more reason to involve with your Project those who do! Capisce?
IV. TYPICAL PROBLEMS I ENCOUNTER WHEN THE PREVIOUS STEPS HAVE NOT BEEN FOLLOWED:
Here is where I typically get involved with these disputes. The homeowner tells me that the job is near its end in terms of time and in terms of money. Yet, there is still a substantial list of work items that have not been done at all or done correctly. There are claimed damages for portions of the property which the contractor damaged, possibly by driving a piece of equipment over a lawn, over a septic system or even over a wall. No one thought to get insurance certificates before the work started and the homeowner has no idea if the HIC and his subcontractors have insurance or don’t. Perhaps the ‘contract’ was drawn up by the bank providing financing, primarily only addressing draw issues and which may have only minimally Contract issues. Such Contract as there is contains no reference to plans and specifications and does not clearly identify the total scope of work or even what the total price of the construction will be. The Contract may not accurately describe what materials will be used during the construction or the quality of the materials. The Contract may not have stated when the job will be commenced and when it will be completed. Some of the change orders were oral. The owner may have taken some of the work away from the general contractor without justification (which might be a breach of contract on the owner’s part). There may have been various trade-offs between the owner and the HIC in terms of adding and subtracting work items during the length of the construction Project, which ‘deals’ aren’t in writing. To add to the confusion, the homeowners purchased some of the materials covered by the ‘Contract’ and may have even performed some of the work items themselves or through another contractor (again, another possible breach of contract on the owner’s part.) The Contract may not have been signed by the HIC. The owner may have orally terminated the general contractor. One or more parties have filed mechanics’ liens and the general contractor is threatening litigation. In addition, the homeowner did not get lien waivers from subcontractors when payments were made to the general contractor and several of the subcontractors are claiming that they have not been properly paid and demand that the homeowner pay them before any further work is done.
By this stage of the Contract and Project, correcting all of these problems will not be possible and will most likely be very expensive in terms of legal fees. Yet, the legal fees and architect fees necessary to make sure that there was a properly-designed Project and a proper Contract would have added up to far less than the legal fees to try to deal with all of these problems and might have prevented many of these problems from occurring. And, at the end of the day, the homeowner may still have a Project that is incomplete or that has various damage, which Project will not pass muster with local building inspectors when the homeowner attempts to get a permanent occupancy permit. There may be children living in the home and the home may not really be safe for them because of holes in the walls, holes in the floor and uncovered/unprotected construction materials left on the job with environmental and tripping hazards.
At this point in time, the homeowner is financially tapped out, doesn’t have money to correct/complete construction issues, pay liening subcontractors and doesn’t have the money to pay a lawyer to litigate with anyone the several issues and, possibly, the various legal cases that will follow. The perceived savings in not hiring architects and lawyers earlier in the process have now been proven to be non-existent, their absence having contributed to the Project’s being unsuccessful and a nightmare for the homeowner and his/her family.
This is not where you, the homeowner, wants to be! This is where you are less likely to be if you have followed many of the above steps.
If you ever call me to discuss a problem – the first fifteen minute phone call is without charge but the meter starts promptly thereafter – I’m likely to say/ask the following four things:
A. Did you research home improvement contract issues before you signed the contract with your home improvement contractor?
B. Did you generally follow the suggestions in this article?
C. Briefly, what is the nature of your problem in terms of what the problems are and how much money is involved? (Hiring lawyers for inconsequential problems – less than ten thousand dollars – makes little sense.)
D. What the initial retainer I’ll require to go forward. After all, up to this point, what other lawyer has helped you at all? I’ve already prepared for you, on my own nickel, information how to best protect yourself throughout the home improvement contract process and as to how to avoid or at least minimize problems. If you don’t follow these suggestions, then what we may have is a mess. And, as they say, an ounce of prevention is worth a pound of cure.
One of the most important things to know about home improvement contracts is that when they lead to litigation, very few homeowners have the resources to pay for it. If for this reason only, it is important for you to prepare yourself for the things to do and not to do when embarking on your Massachusetts home improvement Contract and Project.
Jonathan P. Sauer
This article is not intended to be specific legal advice and should not be taken as such. Rather, it is intended for general educational and discussion purposes only. Questions of your legal rights and obligations under your contracts and under the law are best addressed to legal professionals examining your specific written documents and factual and legal situations. Sauer & Sauer, concentrating its legal practice on only construction and surety law issues, sees as part of its mission the provision of information and education to the material suppliers, subcontractors, general contractors, owners and sureties it daily serves, which will hopefully assist them in the more successful conduct of their business. Articles and forms are available on a wide number of construction and surety subjects at www.sauerconstructionlaw.com. We periodically send out ‘Squibs’ on various construction and surety law subjects. If you are not currently on the emailing list and wish to be, please contact us and we’ll put you on it. As I spend a great deal of my time writing articles such as this one for no compensation at all and where I will provide one free fifteen minute telephone consultation to a new potential client, please be advised that there are no other free initial consultations or meetings of any kind. We only work at an hourly rate and, for homeowners, not under a contingency fee. If we have a meeting, please bring all of your pertinent papers. And, a check.
“Knowledge is Money in Your Pocket!” (It Really Is!)