Sunday, September 15, 2013

What to Do When Subcontractors and Suppliers Ask the Owner for Payment

Stacks of One Hundred Dollar Bills with Small House.
When owners discover that their contractor has not paid subcontractors and suppliers, anxiety immediately sets in.  Contractors who are not adept at running their businesses end up with cash flow problems and operate on credit.  The situation then catches up with them and they stop making payments.  Suddenly the owner finds himself being contacted by subcontractors and suppliers who are demanding payment. 

The law in Massachusetts is clear; a subcontractor or supplier can only collect against an owner if it records a properly perfected mechanic’s lien.  Then he can only expect payment to the extent that money is owed to the contractor at the time the lien is filed.  That said, the owner has the right to finish the job.  If there are no funds left, the subcontractor or supplier can only go after the general contractor for payment.

Mechanic’s liens are complicated.  They consist of two documents: a Notice of Contract and Statement of Account.  After filing these documents, the sub or supplier must file suit within 90 days, or the lien is no longer valid.  Contractors and construction companies frequently fail to properly perfect or record their liens.  If this occurs, they may be dismissed.

Generally, in MA, liens must be filed within 90 days of when the general contractor or someone working through him was last at the job.  If an owner pays subs during the period that others can still record liens, he “pays them at his peril.”  For that reason, the owner should record a Notice of Termination with the Registry of Deeds.  That starts the clock running and all liens must be filed within 90 days of the recording.

At that point, the owner has a decision to make.  Should he file a motion to dismiss the lien because no money is owed to the general contractor, or negotiate with the sub or supplier and pay them something to dissolve the lien?  Unfortunately, the answer is, it depends.

In order to have a lien dissolved, your lawyer has to file an application to dissolve the lien with the court, and schedule a hearing.  The whole process may take ten hours or more of your attorney’s time.  As with any matter before a judge, there is no guarantee that the decision will go your way, even if the facts are on your side.

If the sub or supplier will agree to a smaller amount to pay the general contractor’s debt, it may be worth it to pay and have him sign a release.  This may be a preferable and perhaps the only option if the subcontractor still has work to do, or if additional supplies are needed from the same supplier.  It is generally more expensive to hire someone new to come in and complete work that has been started by someone else.

On the other hand, the amount owed may be so large that it is more economical to fight it out in court.  If money is still owed to the general contractor, then that amount will be distributed pro rata to the subs who have filed properly perfected liens.  Unless one can get all of the subcontractors to agree, it is better to obtain a court order decreeing the amount owed and how it should be distributed.

It is extremely stressful for an owner when subcontractors and suppliers start knocking on his door. Given the complexity of the situation, it is advisable for an owner to contact a construction attorney to determine how to best resolve the matter.


Thursday, August 15, 2013

What to do When Your Contractor Doesn't Pay Subcontractors and Suppliers

Recently I was contacted by some homeowners when their contractor told them that he had run into financial troubles and would not be completing their renovation work.  They quickly discovered that he had not paid numerous subcontractors and suppliers and left them holding the ball.  Over the years, I have seen this scenario many times.  Contractors who are not adept at running their businesses “rob Peter to pay Paul.”  At times, it is simply mismanagement of their finances, but sometimes it is intentional and criminal.
How can a homeowner avoid getting caught in this kind of situation?  At its worst, I had a client who discovered that fourteen of the sixteen subs were never paid.  The homeowner pays his general contractor in good faith and then faces the prospect of having to pay twice for the same work and materials.  There are some ways that a homeowner can protect himself.

1.       Make sure your contractor is properly registered and insured.
2.       Ask references if the contractor was reliable, came to the work site regularly and followed the payment schedule. 
3.       Be wary of contractors whose bids are substantially lower.  They may request more change orders in order to jack up the contract price to what it “should” cost.
4.       Start with a good contract and link payments to the completion of milestones.  Have a clause in your contract that allows you to cancel if your contractor fails to pay subs and suppliers.
5.       Make the payment schedule detailed and spread evenly throughout the project (for example, 10% upon pouring the foundation, 10% upon completion of the framing, 10% upon completion of the rough inspection).
6.       Avoid an overly large deposit.  In Massachusetts, the deposit cannot exceed 33 1/3% or the cost of special materials; whichever is greater.
7.       Require lien waivers in the contract as subcontractors complete their work and are paid.
8.       Be wary of contractors who ask for payments in advance of the payment schedule.
9.       Make sure that materials have actually been ordered by your contractor.
10.   Make sure the payments do not get ahead of the work.
11.   Periodically ask subs and suppliers if they are being paid as required.
12.   If you are not able to be onsite to check the progress of the job, hire an owner’s construction manager to monitor the work for you.

If you sense a red flag, do not ignore it.  Confront your contractor and find out why payments are not being made.   If you are not satisfied that the job is being run properly, reserve the right to terminate your contractor and hire someone else to finish the job.

One of the homeowners who was abandoned by his contractor found himself in an excellent position.  He had enough money left to finish the job with another contractor and did not suffer any damages.  Even the best home improvement contractors have found themselves in a cash flow bind.  The honorable ones will be forthright about it and address the issue.  Be wary of the contractors who may abandon the job.

My next post:  What to do when the subs and suppliers ask you for payment.

Sunday, June 09, 2013

Safety Checklist for Homeowners

In Massachusetts, homeowners are not held responsible for complying with safety regulations in construction.  They can sandblast paint that may contain lead, walk on their roofs without protection and operate in blissful ignorance of the laws regarding safety.  If homeowners hire contractors who do not follow safety rules, they are not responsible for that either.  The risk of noncompliance falls on the contractor.  If a homeowner creates an unsafe condition, of course he/she may be liable if someone gets hurt, but the homeowner does not have to police the contractor.  In fact, since many safety regulations make the cost of doing a job more expensive, there is an incentive for homeowners to hire contractors who do not follow the rules!  Today my friend and colleague, Mark Paskell posted a story about a roofer in Connecticut who died after falling off a roof  http://www.thecontractorcoachingpartnership.com/Blog-Contractor-Coaching--Construction-Business-Coach-EPA-RRP-Lead-Rule/bid/65475/roofer-killed-in-fall-from-roof-in-westport-ct-osha-investigates?source=Blog_Email_[Roofer%20killed%20in%20fal].  You do not want to have that occur during your job.


Here is a checklist for homeowners to use when hiring a contractor:
  1. Make sure your contractor has worker's compensation insurance to protect his employees, and call the insurance company to ensure that it is still in effect.
  2. If the contractor is a sole practitioner, make sure he has health and/or disability insurance.  Sole practitioners do not have to have worker's compensation insurance in Massachusetts.  Check with your home insurance to see if they will protect you if someone gets hurt on the job.
  3. If the contractor is handling any kind of hazardous waste, make sure the he is complying with the proper procedure for removal and disposal of the materials (this protects both of you).
  4. If you hire a roofer, make sure that your roofer is using proper fall protection.
  5. If your house is pre-1978 and has not been tested for lead, familiarize yourself with the Renovation, Repair and Painting Rule (RRP) and confirm that your contractor will be following the lead-safe procedures
  6. Cooperate with your contractor by staying out of the construction site without asking whether it is safe to enter.
  7. Keep pets and children away from the work.
  8. Ask workers to leave the premises broom-clean at the end of the day; no one wants to step on or drive over nails.
  9. Follow safety procedures yourself, even though they are not required.
  10. Do not hire contractors who do not comply with the law!
As a homeowner, you have a responsibility to see to it that safety rules are follow when doing work on your home.  Even if the law does not require it, you should try to make the work safe for your family, the workers and your neighbors.

Monday, April 25, 2011

Worker's Compensation Information Available Online At the Massachusetts Department of Labor Website

Mark Paskell first posted this at his blog, 
http://www.thecontractorcoachingpartnership.com/Blog-Contractor-Coaching--Construction-Business-Coach-EPA-RRP-Lead-Rule/, but I think it is so important that I wanted to post here as well.  Make sure all of your contractors have worker's compensation policies if they have employees.  If not, you may be held accountable if someone gets injured on the job.  Bravo to the government of MA for making this information available to the public.

Here is a brief excerpt from the Massachusetts Department of Labor website;                                      State of Massachusetts

Patrick - Murray Administration Launches Free Web-Based Tool

Will help Public Verify if Businesses have Workers Compensation Insurance Policy

Boston, MA - The Executive Office of Labor and Workforce Development (EOLWD) today announced the launch of the Massachusetts Online Proof of Coverage Application (POC), a free web-based tool that will assist the public in verifying whether a particular business has a current workers’ compensation insurance policy.  
While the POC application is not designed to detect fraud, it may also assist EOLWD’s Department of Industrial Accidents’ investigations in determining whether fraud exists.  
Employers are required by law in Massachusetts to carry workers compensation insurance to assist workers in the event that they are injured on the job. While the vast majority of Massachusetts businesses carry a policy, those who are not in compliance shift the burden onto those business that do. As a result, over $53 million has been paid out of the Workers’ Compensation Trust Fund over the past 10 years to pay for injury claims of workers who were employed by businesses that were not in compliance. DIA works closely with businesses through payment plans and more aggressive enforcement measures to make sure they are compliant.

Tuesday, May 25, 2010

The Lead-Based Paint Renovation, Repair and Painting Law Goes Went Into Effect on April 22, 2010

Homeowners who are considering doing a renovation must know that if their homes were built prior to 1978, their contractors are required to follow certain procedures if they are going to disturb more than 6 interior square feet of paint or 20 exterior square feet of paint.  This law requires that the general contractor must become certified with the Environmental Protection Agency (EPA), and that the contractor himself take an eight-hour class in order to become a certified renovator and learn lead-safe practices that contain lead dust.

Although the EPA claims that it will be doing a publicity campaign to inform homeowners about the Renovation, Repair and Painting Rule (RRP Rule), I have heard very little about it outside of construction circles.  So, I feel that it is important for me as a construction lawyer to educate the public about this rule.

First of all, the preparation and education needed to comply with the law are going to cost the contractors more money.  This will be reflected in an increase in the cost of jobs.  The contractors must pay at least $300.00 to certify with the EPA, $200-$300 on average for the certified renovator training, the costs of training their workers and/or subcontractors, and additional costs for materials (plastic, protective suiting, masks, duct tape) and very expensive HEPA vacuums.  

Homeowners who ask contractors to circumvent these practices and operate in violation of the law are doing these contractors an extreme disservice.  This law is in place to protect homeowners and their families (and more particularly, pregnant women and children under six) and the contractors from potentially toxic lead dust.  Lead poisoning is a real problem with potentially tragic results, and following the lead-safe practices has been shown to significantly reduce the exposure to lead for all involved.

Please understand that your contractor is doing the right thing by giving you a lead-paint brochure and following the rules.  He could also face significant fines ($37,500.00 per infraction, per day) for failing to comply with this law.  So, please do not blame the messenger.  Respect your contractor and do not ask him to break the law.  

Saturday, January 16, 2010

Exterior Remodeling Offers the Best Value for Home Improvement Projects

If you're trying to decide on a renovation project, here's one way to make your decision:

Friday, December 11, 2009

Green Houses are Booming

Statistics keep supporting the fact that green construction is up, even though the construction industry has been hit hard by the economy. If you aren't learning about green construction, you should be.

http://content.usatoday.com/communities/greenhouse/post/2009/12/green-home-sector-booms-despite-housing-slump/1

Challenge to Massachusetts Contractors

Send me your residential renovation or new construction contracts (residential or commercial). After signing an engagement letter, I will review your contracts for free! If I don't find five things that might hurt your business, I will donate $50.00 to charity. If I do, you agree to donate $50.00 to charity. That's it. No strings attached. You do have to let me explain my recommendations to you; preferably in person.