Consulting with one of our construction lawyers at Cannon Law, P.C. can save you time and money. Before signing a contract, we can help you reach agreement on important issues that should be included in the contract and point out potentially harmful language in any language proposed by the other party. Work stoppages, delayed occupancy, and increasing interest on construction loans are some of the problems that arise when there is disagreement over a construction project.
It takes experience and education to know how to navigate through the process of resolving a construction dispute. The construction lawyers at Cannon Law, P.C. have the skill and experience with construction disputes to draft precise contracts, help you avoid paying twice when facing a claim of lien on funds and, should you find yourself facing a law suit, guide you through the process with good advice and strong representation.
If you are considering a construction project or find yourself in a construction dispute, contact Bill Cannon or Mike McConnell today for help with your construction law questions.
Tips to Avoid Construction Disputes
A construction dispute can have severe consequences. A contractor that is not paid on a timely basis may be unable to meet obligations to suppliers and subcontractors and they may refuse to provide additional goods and services for the project. An owner may have to make extended payments on a construction loan or be unable to occupy the building when anticipated. In our experience, many construction disputes can be avoided by addressing the following issues before construction starts and as issues arise during construction.
- Have a detailed written contract. A written proposal or purchase order may be legally sufficient but it often lacks the detail necessary to avoid common disputes.
- Use correct names. Be sure that the contractor’s correct legal name and the owners of the property reflected in the Register of Deeds office are used on the contract. The North Carolina Secretary of State’s office permits an online search for a contractor or owners if the party is an entity required to be registered with the Secretary of State and not an individual. While the use of a trade name or incorrect name can sometimes be overcome, this is an issue that is best addressed before the contract is signed.
- “Cost plus” contracts should specify what costs are included. Disputes often arise in cost plus contracts when items are included as costs that were unexpected by the owner. Our firm has experience drafting cost plus contracts with specific references to cost items so that the chances for dispute are minimized.
- Know the difference between an estimate and a fixed price. A number of construction disputes arise because the property owner interpreted an estimate as a firm price. Any construction contract containing an estimate should be very careful to spell out that the estimate is not a guarantee of a final price and is subject to change. A “not to exceed” contract should be very clear in stating that the not to exceed price is the maximum amount that will be paid by the property owner.
- Use written documentation for change orders. Disputes over change orders are a common cause of construction litigation. A change order should describe the precise change that is requested, the party making the request, the cost of the change order (if known) along with any impact that the change order will have on the contract price paid by the property owner and the date of completion. Of course, any change order should be signed by all parties to the contract. If an architect is involved in the project be sure to have the architect sign off on the change order as well. Click here for a simple change order form that can assist you in documenting change orders.
- Getting ahead of draws. Although a lender may make periodic inspections of the construction project to insure that progress is being made in accordance with a draw schedule, neither the property owner nor the contractor should rely solely on the lender’s inspection to insure that draws paid are roughly equivalent to the work completed. If a contractor completes substantially more work than that paid for, it is often a sign that change orders have not been property discussed and documented or that there is an underlying lack of communication regarding what payment is due. Getting ahead of draws by the contractor can result in the contractor going for long period of time without payment if a dispute arises. As for the property owner, allowing a contractor to get substantially ahead of draw payments due increases the likelihood of work stoppages or a lien being filed because of time constraints. In drawing up the construction contract, it is important to be in communication with the lender to insure that the lender’s draw schedule is consistent with that set forth in the contract.
- Failure to specify allowances. Too many construction contracts include vague references to allowances for appliances, cabinets, carpeting, etc. Any allowances should be very specific as to the amount of the allowance, the effect on the contract price and the specific items that are included in such allowances. Allowances should also be realistic. Be sure to include any changes in allowances in a written change order.
- Use realistic dates. At the beginning of a construction project, the parties are typically excited about the project and eagerly anticipating completion. However, when delays inevitably occur in a construction project, the good will and optimism present at the beginning of the project may quickly disappear and a dispute can arise over the completion date for phases or for the entire project. It is critical to use dates that are realistic in order to avoid such disputes. Also, be sure that all subcontractors understand the importance of sticking to a schedule that will permit the project to be completed in accordance with the contract terms.
- Failure to keep good records. Record keeping is important even in simple fixed price contracts. Once a dispute arises, questions often develop regarding who worked when and for how long and what materials were ordered and used on the project. It is much more difficult to go back and attempt to find scraps of paper to support your position. Keep good records from the beginning of the project. Have a folder or large envelope where receipts, correspondence and all other documents related to the project can be readily available in the event of a dispute.
- Beware of arbitration clauses. Arbitration can be a useful means of resolving construction disputes. However, there are many factors that we take into account in drafting a contract in deciding whether or not to recommend an arbitration clause. These may include the size of the project, the location of the parties, the complexity of the project, and the venue where a dispute might go to trial in the absence of arbitration. Even if you decide that an arbitration clause is appropriate there are additional factors to consider. For example, while AAA provides excellent arbitration support, AAA arbitrations can be significantly more expensive than alternative means of dispute resolution. When you agree to arbitration, you usually waive your right to a trial by jury and all the protection that such a trial affords. This is a decision that should be carefully reached after consultation with an attorney.
- Consult a lawyer early. In just about every situation, it is less expensive to consult an attorney before a problem arises than after you are in the middle of a dispute. We can help you anticipate problems with your construction project and draft construction documents that minimize the possibility of such disputes. At the very least, consult an attorney before signing construction documents or before agreeing to anything unusual that you have been asked to do during the construction process.
Construction Law Questions
North Carolina law allows the presiding judge in any suit regarding construction liens to award a reasonable attorney’s fee to the Plaintiff who obtains a judgment of at least 50% of the monetary amount sought or a Defendant or Third Party Defendant against whom a judgment is rendered for less than 50% of the amount claimed. The 50% threshold can be altered by an offer of judgment made under Rule 68 of the North Carolina Rules of Civil Procedure. The judge is not required to award attorney’s fees and there must be a finding that there was an unreasonable refusal by the losing party to fully resolve the matter which constituted the basis of the suit or the basis of the defense.
No. Any inspections by the lender are for the purpose of determining if there is adequate progress on the construction project and adequate security for advances made under the construction loan. You should regularly inspect the work done by your contractor to insure that it is in compliance with the construction contract and any draw schedules contained in the contract.
In order to terminate a contract with a contractor the contractor must have committed a material breach of the contract, and the property owner must not be in breach of the contract at that time. A property owner is advised to give notice of the breach and provide for a time to cure the breach before declaring that the contract is terminated. Of course, the contract between the property owner and the contractor may provide explicit conditions for when the contract may be terminated as well as the procedure for termination. Before terminating a contract it is strongly recommended that a property owner seek legal advice as contract termination can have serious legal consequences.
No, an enforceable contract for a construction project can be oral provided that all of the legal requirements of a contract (identification of parties, consideration, description of work to be done, price to be paid, etc.) can be proven. However, reliance upon an oral agreement is not advised. A written contract substantially reduces the chances of a dispute between the parties and can also provide for the manner in which any disputes are resolved.
Not necessarily, the American Institute of Architects and other organizations have prepared standard contracts that are commonly used in the construction industry. Often these contracts contain references to other documents that may not be provided to you at the time you enter into the contract. Contractors and property owners are strongly advised to consult with an attorney before entering into any construction contract.
Always obtain a lien affidavit/waiver from your contractor at the time of any payment stating that all subcontractors (including suppliers of material used to improve the property) have been paid in full and that the contractor waives all lien rights for work done up to that point in time. If you receive a notice from a subcontractor of a claim of lien, do not pay any funds to the contractor until you have met with an attorney to determine your rights.
Under North Carolina law, any person or firm or corporation who for a fixed price, commission, fee or wage undertakes to bid upon or to construct or who undertakes to superintend or manage, on his own behalf or for any person, firm or corporation that is not licensed as a general contractor, the construction of any building, highway, public utilities, grading or any improvement or structure where the cost of the undertaking is $30,000 or more, or undertakes to erect a North Carolina labeled manufactured modular building meeting the North Carolina state building code must be licensed by the North Carolina Licensing Board for General Contractors. It is important to note that a partnership, corporation or LLC must be separately licensed from the individual person serving as the qualifier for such business. A contractor’s failure to comply with North Carolina licensing requirements will prevent the contractor from enforcing the provisions of the contract or collecting fees due.
The costs to be included in a cost plus contract are a matter for agreement between the parties. A cost plus contract should be in writing and specify precisely the costs included.
A punch list is a term commonly used in the construction industry to refer to a list of minor work remaining to be done on the contract after the project is substantially completed. Punch list items do not normally refer to items that affect the structural integrity of the project nor do punch list items typically include any items that would prevent the owner from receiving a certificate of occupancy.
In North Carolina, a contractor’s lien on the owner’s property must be filed within 120 days after the last furnishing of labor or materials at the site of the improvement. In order to perfect the contractor’s claim of lien on real property a suit must be filed within 180 days after the last furnishing of labor or materials at the site of the improvement in order to enforce the lien. A subcontractor may establish a lien on funds by serving the property owner a document known as a Notice of Claim of Lien Upon Funds. Other than the applicable statute of limitations for breach of contract, there are no deadlines for filing the Notice of Claim of Lien Upon Funds. A subcontractor may also file a subrogation lien on real property if the property owner pays funds to the contractor and failed to withhold funds for the subcontractor after receiving a notice of a claim of lien upon funds. This lien must be filed within 120 days after the contractor last furnished labor or materials to the site and a lawsuit to enforce this lien must be filed within 180 days after the contractor last furnished labor or materials to the site. A subcontractor may also file a subrogation lien against the owner’s property. This lien must be filed within 120 days after the contractor last furnished labor or materials to the site and the suit to enforce it must be filed within 180 days after the contractor last furnished labor or materials to the site.