In all my years as both a contractor as well as an owner hiring contractors to build or remodel my own homes, I am thankful to say that I have never ended up in court or even had to threaten a lawsuit. However, I frequently heard from other contractors that they had been “stiffed” (i.e., not paid) for work completed. And I have heard about my share of building and remodeling nightmares from unhappy homeowners. Conflicts are often the result of different expectations on the parts of the two parties rather than bad intentions – so good communication up front is the best way to avoid disputes.
If there is a significant problem with the job that you feel is not getting resolved quickly, it’s important to document the problem early and thoroughly. Take lots of photos, document any relevant product information (e.g., which adhesive was used to bond the tiles to which material), and write as detailed a description of the problem as you can. Since you will probably not know what conditions are most relevant, record as much as you can about the temperature, weather, and other factors when the work was done. For example, were the roof trusses lying on the ground in a messy pile in the rain for a week before installation? Without this sort of documentation, it will be difficult for you to prove that the problem resulted from substandard workmanship.
Even with documentation, it will be difficult to prove that the work was “defective,” rather than just of poor quality. This usually involves hiring expensive expert witnesses to testify against other hired guns paid to say the opposite. Read more on Documentation.
Try To Work It Out
I can’t say that I’ve been 100% satisfied with every job I’ve contracted out, but I have managed to work things out with the tradesperson or contractor. There’s a strong incentive to do this: calling your lawyer is expensive – you can almost hear the clock ticking and the dollars adding up. And going all the way to court typically costs $30,000 and up, so it’s rarely a practical or economical approach to settling disputes in residential construction. In addition to the money, it’s a slow, painful, and generally miserable process.
One positive consequence of the pain and cost associated with lawsuits is that most lawsuits are settled out of court. At some point, you make the calculation that it is better to accept a compromise than to spend tens of thousands of dollars in the hope that you will win the jackpot – most of which goes to your lawyer anyway. In some cases, you may be able to collect attorney’s fees if you prevail, but most people have better things to do with their time than attend depositions and hearings. While people tend to sue because they are angry and want to make the other party pay, it’s best to think of a lawsuit as a business activity — money invested in the hope of a good return. You’ll usually conclude that it’s a lousy investment.
Which brings me to the dispute resolution clause. If things get to the point where you simply can’t work out a compromise or mutually acceptable solution, there are three main options: mediation, arbitration, or litigation. If things are going so badly that you are considering litigation, it’s best to talk to a lawyer about your options, including firing the contractor for breach of contract. The three main approaches to dispute resolution are discussed below:
Mediation is an informal and non-binding process oriented toward working out an agreeable compromise. Things said in the session are confidential and cannot be used against you in court. It’s best to work with a mediator with experience in residential construction. A contract can call for mediation first, and specify that if that fails, the dispute goes to binding arbitration or civil court. While mediation often fails to reach its goal, it may be worth a try as it is quick and inexpensive, compared to the alternatives.
Binding Arbitration vs. Litigation
Arbitration is the method of dispute resolution specified in most residential construction contracts. In general, this is faster and less expensive than civil litigation. However, it can still take several months and cost thousands of dollars in legal fees. A lawsuit, by contrast, will usually drag on for one to two years or more and cost tens of thousands of dollars.
Most people are represented by a lawyer in an arbitration hearing. The decision of the arbitrator is binding and the right to appeal is very limited. Often arbitrators have expertise in construction and they are more likely to split the difference than a judge and jury. It’s important that the contract clause regarding arbitration be consistent with state law. Some arbitration clauses specify that the proceedings will be administered by the American Arbitration Association, a good source of information on the process. A simple arbitration clause may state that:
Any claim or dispute arising out of or relating to this contract, or breach thereof, shall be decided by binding arbitration in accordance with state law, and judgement on the award rendered by the arbitrator(s) may be entered into any court having jurisdiction thereof.
View the Dispute Resolution clause in our Model Construction Agreement.
Small Claims Court
Each state has its own procedures and dollar limits for small claims court – ranging from $2,500 to $15,000 in a couple of states. For many states, the maximum amount of damages ranges from $5,000 to $10,000. In general, the parties represent themselves in small claims court in a fairly informal hearing. They may get a little coaching from a lawyer in how best to prepare for the hearing, but paying a lawyer to represent you would not be worth it for the amount of money involved. Also the proceedings are informal, making it very feasible to represent yourself. In most states, you can appeal a judgement in small claims court under certain conditions within 30 days of the original hearing.
Collecting The Money
Even if you win a case in arbitration or court, you still have to collect the money. If the other party does not pay up, you may need to have your lawyer pursue collection actions such as garnishing wages or a bank account. What if the contractor has declared bankruptcy by then, or started a new company under another name, or moved to another state or just wants to be difficult? Yet more reasons to try to resolve things peacefully.
Bottom line. Arbitration or litigation should always be your last resort. As is often said, the only people who really benefit from most lawsuits are the lawyers. Most experts recommend arbitration over civil litigation in residential construction disputes. Either way, your contract should contain a disputes clause describing how disputes should be handled if all else fails. Read more on resolving construction disputes.
TERMINATING THE CONTRACT
Most contracts give both the owner and contractor the right to terminate the contract if the other party does meet their obligations — a so-called “breach of contract”. In general, the breach must be serious for a contract to be legally terminated.
A serious breach (“material breach” in legalese) by the owner might be missing a major payment. A material breach by the contractor might be consistently poor workmanship or long, unjustified delays in the project. What exactly constitutes a material breach rather than a minor breach is a matter of judgement — the sort of thing that lawyers get paid a lot to argue about.
It’s always best, and cheapest, to work things out through negotiation and compromise. If all else fails, then you may need to take steps to fire the contractor. Your contract probably has a Termination clause outlining the procedure to follow.
In general, you should notify the contractor in writing describing the specific problem and how it needs to be fixed, and give a reasonable deadline for correcting the problem. Our Model Contract gives 48 hours, but you may need to adjust this depending on the specific type of problem. You will be in stronger legal position if you give the contractor a reasonable opportunity to remedy the problem.
If the contractor fails to correct the problem under the deadline, you can terminate the contract, but will still be responsible for payment for work completed properly. It’s best to speak with a lawyer before taking this step so you do not expose yourself to construction liens or other legal action taken by the contractor.
Also be aware that you are burning bridges with the contractor, which you might regret if there are callbacks or warranty issues that need attention months after the project is completed.