This article concentrates on home construction and construction for the small business owner. The problems, legal or otherwise, encountered by the small- to medium-sized contractors on these projects do not differ much from those of large companies on big jobs. The major exception relates to the cost of protecting and pursuing your rights in relation to the price of the project. What should the not-large contractor look for and plan for in order to avoid, or at least reduce, the potential for costly problems later on? I will discuss some recurrent themes that lead a contractor to being bounced around as if he were the ball bearing in a pinball game and the random hazards that keep popping up in his path.

Assess the owner

There is a saying: “No generality is worth a damn, including this one.” Well, here it goes anyway. It seems that people who acquire great wealth quickly share some common traits. Their homes are measured in 10,000-square-foot units; there is a home movie theater; the massive façade has intricate glass work; and the interior is heavily wired for security, sound systems, lighting, CCTV, etc.

Most owners have great expectations, but these owners often focus much of their attention on the service side of your business. They want upgrades, on-call service, polite crews, mind readers and shared exuberance. They don't want lots of change orders, schedules, a messy site and any “can't do” attitudes.

Typical problem areas and solutions tend to be the following:

1. Payment issues-You need to meet with the owner in person to discuss any questions or concerns.

2. An array of minor changes (adds and deducts)-Prepare weekly summaries with cost and time impacts.

3. An extensive punch list-Preempt the issue by generating your own.

4. Final payment-Do not be shy about protecting your lien rights.

5. Gaps in time of performance-Notify the owner if you are waiting for a permit, inspection, delivery or fabrication of materials.

The letter writer

Your work represents a large cash expenditure rarely encountered by homeowners or small business people. The worry factor leads some owners to micro-inspect the project each evening and then send you a lengthy, single-spaced letter. Responding to these comments and inquiries can be time-consuming. Must you explain or refute each statement? Probably not. You should, however, treat these letters seriously and reply in some way. Otherwise, the owner will have amassed a paper record of his problems and concerns. In the event of future disputes, the owner will have a file of correspondence and memos and if you have nothing responsive in writing, you can easily see how you will look to a judge, jury or arbitrator.

One useful technique is to meet with the owner on a regular basis to discuss how all his concerns are being addressed, following up with a memo of the points discussed and agreements reached. Often, owners misunderstand the division of work among the trades. Be prepared to explain your schedule.

The scofflaw

Literally, one who scoffs at the law. Stop and do not listen. How does this personality manifest itself? “I know you're not licensed here, but I heard you were good.” Or, “Can't you start without the permit?” Or, “I know you don't have the electrical inspection, but my drywaller is ready.” The owner's knowledge of the codes and other legal requirements and his direction to ignore them are not a defense for you.

The estimated completion date

Here, size does not matter. Whether the project is large or small, the owner is most concerned about the cost and the timeframe for when he is going to get his building.

Contractors have to be good at estimating cost if they want to stay in business. Time estimation, however, is another story. The owner asks you for a completion date and you either give him one or you do not. If you are inconsistent or vague on this point, you are being fairly cavalier about one of two important owner concerns.

The law generally says that where no completion date is stated, completion must be accomplished in a reasonable time. This concept eventually translates into exposure of the contractor for delay damages and/or termination.

Delay damages for a homeowner or for a new business are problematic. Typical claims will be for extended construction financing and insurance costs. Other “consequential and incidental” damages might include lost opportunity costs, lost profits and extended costs for living or business arrangements using temporary facilities. Consequential and incidental damages are difficult for the owner to recover.

A more immediate concern is that the owner will terminate the contract for default for untimely completion. The damages for the owner in this circumstance are “direct,” not consequential, and may include excess completion costs, consultant's fees (for doing an inventory of work in place at the time of termination), inspection fees (to check the quality of your work), and possibly construction management fees for overseeing the completion contractor.

Where a completion date is stated, the damages exposures are similar to those discussed. However, there may also be owner claims against you in tort (as opposed to a claim for breach of contract) for negligent misrepresentation of the construction time. For the tort, the owner will need to prove that you did not have a reasonable expectation of timely completion when you signed the contract (e.g., you were already overextended from other jobs) and that the owner relied on your representation to his detriment. Punitive damages are allowable under tort claims.

Protecting yourself against delay claims is fairly simple. Give written notice to the owner when your work is affected by changes (whether or not there is a cost element), coordination with other contractors, late delivery of owner-supplied material, or lack of site access, etc. An experienced owner should understand the effects of these impacts, even if you do not give the owner a precise number of days of delay caused by each delay event. For a homeowner, a more proactive approach may be necessary. In either event, the owner may have an easier time in controlling its delay costs if he knows in advance that he will need to control them. (Termination issues were discussed in a prior article.)

Nothing means a lot

What is not in your contract can be as important as what is. If there is nothing in your contract for portions of the project, it is helpful to list those “nothings.” Some contractors actually have a preprinted checklist of these nothings, which is attached to each of their contracts. As a starting point, subject to your own additions and deletions:

_soil conditions

_subsurface conditions

_dewatering

_asbestos/hazardous materials/mold

_ damage to driveway, shrubs, flower beds and trees

_overtime

_telephone/security systems

_weather protection of building or site

In addition to items not included in the work, consider a second checklist of “provided by owner” items, such as:

_cost of temporary electric

_temporary heat

_site access

_work area access

_ coordination of owner's other contractors/suppliers

_ materials, e.g., lighting fixtures, fans, automatic skylights

Conclusion

Running a small- to medium-sized electrical firm carries all of the concerns of your larger brethren. Many problems are common to the entire industry and require similar responses. In all cases, good customer relations are always beneficial and good communication helps create and maintain those relations.

Your company should have policies in place-well known to your employees-for how to deal with the difficult owner or challenging project. Project records, regular correspondence regarding costs and time, and a firm understanding up front as to what you will be providing are all essential so you do not feel like you are part of a pinball game. EC

ITTIG, of Ittig & Ittig, P.C., in Washington, D.C., specializes in construction law. He can be contacted at 202.387.5508, USBuildlaw@aol.com or www.ittig-ittig.com.