A successful home improvement contract achieves completion on time, within budget, and at the quality level the owner and contractor mutually anticipate. These benchmarks of success identify the potential business hazards which are inevitably present in all substantial home improvement contracts, particularly where any of the following elements occur:
- The contract values exceed $50,000.00;
- The work requires the engagement and coordination of multiple trades;
- The construction can menace the comfortable occupancy of the owners during construction; and
- The work may pose a reasonable likelihood of the necessity for contract modifications during the project because of the occurrence of unforeseen circumstances.
Owners Inexperienced in sophisticated construction are particularly at risk in design/build contracts. The owner is deprived of the opportunity of control in the independent activities of design and construction. Absent sophisticated contract provisions, the owner soon realizes that money is at risk and the design/build contractor has the luxury of “grading his/her own paper.”
Even well-intentioned honest contractors risk conflict with owners where the contract lacks controls fostering mutual cooperation and administration of changes. Changes affect both money and performance time.
In contrast to the conflicts and crises which often arise in high-value home improvement contracts, public construction is often spared that tension. Public construction has developedsophisticated contractual and managerial tools which anticipate and prevent conflict. Usefully, many of the tools that are found in the public construction environment can be, and should be, utilized to the degree practical and cost effective in personal home improvement construction of projects having high value.
Recipe for Success:
- Experienced Attorney: An owner should have the protection of legal representation by an attorney experienced in construction law. That experience includes, not only familiarity with useful construction contracts, but also the language and expectations which prevail in the construction industry.
- Contract Topics: The contracts should address mutually beneficial issues, such as: dispute resolution, conditions for progress payment of work, an objective schedule of the values attributable to the work components of the project so that payment expectations and burdens are mutually understood, management of contract changes so that both the addition, subtraction of work, money and time are controlled. This list is far from exhaustive.
- Progress Schedule: The contract should also contain a mutually agreeable progress schedule so that both owner and contractor know clearly when the project starts, how the work components are managed, the logical sequence of work, the interrelationship with work activities, and when portions and totality of work will be completed.
- Enforcement: The enforcement of the time provisions of a contract, where a completion date is sensitive, can be enforced with a liquidated damages clause which assess the contractor with financial burden if the project completion is late. Also, a parallel provision can provide a bonus to the contractor for completing the project on time or early.
- Pre-Construction Pricing: Where contract work is designed by a design professional (e.g. architect and/or engineer and/or interior designer), the owner has the benefit, if the design plans are thorough, to competitively shop the construction cost. Bidding should be managed by a sophisticated attorney. Additionally, where the project is of high value, an owner may be well advised to have an independent assessment of the constructability of the design. That will confirm to the owner that the design and specifications of the work are achievable within the owner’s budget and time constraints. Renovations to older historic properties present very high risk of delay and additional cost.
- Managing Changes: For particular kinds of contracts, there should be provisions addressing the formula upon which additional work can be valued for contract modification purposes.
- Work Quality: Finally, the contract should provide a sound and respectful mechanism for assessing the quality of work as progress is made and requests for compensation are submitted by the contractor
States have varying controls which regulate home improvement contractors. New Jersey, for example, has very strong consumer regulation which is intended to provide a baseline regulation for the integrity of contracts, licensing of contractors, and mandating construction contract standards, including the requirement of commercial general liability insurance. The penalties for violations of these administrative controls range from full refunds to treble damages and assessment of attorney’s fees.
Owners should appreciate that contractors do not carry insurance which protect an owner from sub-standard work. The sole scope of general liability insurance, as a general rule, merely protects against personal injury or property damage resulting from the work.
Success in a Construction Project is Not an Accident. The best and least expensive medicine is preventative care.
Talk to your savvy construction lawyer when you are ready to step from dream to reality.