Select Contractor Design Carefully

March 5, 2004
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GRAND RAPIDS — Under Michigan law, residential builders have to be licensed.

The State Legislature's purpose in passing the law was to ensure that builders that deal with consumers are adequately qualified and follow certain general principles and ethics, explained Melissa Collar, a partner with Warner, Norcross & Judd who specializes in real estate and construction law.

Unlicensed builders do operate in Michigan, but they face the risk of forfeiting the compensation due them if a customer decides not to pay for a building or remodeling job.

That's a harsh reality for a residential builder or alteration contractor that lacks a license, but it's the Michigan Legislature's way of reinforcing the licensure law.

Pursuing legal claims against residential builders is an expensive and time-consuming process, Collar noted.

"But if you really, really want the end product — your home — you're not going to feel satisfied even if you prevail in court. So the better solution is to do a little homework upfront."

Some advance planning and research can save homeowners significant expense, as well as help them avoid legal wrangles.

"Even more importantly to some homeowners is the frustration — the emotional impact on your day-to-day life when somebody is remodeling your home and you're in it, or you can't get into the new home that you're building," Collar pointed out.

She said the first step in the right direction is for the homeowner to schedule a face-to-face meeting with the potential contractor.

From a personality perspective and the standpoint of a working relationship, are the contractor and the homeowner a good fit? Is the contractor cooperative? Is he willing to entertain the homeowner's suggestions and discuss concerns?

"That's the most important thing," Collar said, "because no matter what contract you have in place, if you don't have that relationship, the contract may not be worth the paper it's printed on because you're still going to incur a whole lot of frustration."

Collar further advises homeowners to:

  • Check the public record to verify the contractor has a builder's license.

  • Check the contractor's references.

  • Talk to past and present customers, posing pointed questions about the contractor's strengths and weaknesses.

  • Check out previous projects completed by the company.

  • Visit one of the contractor's current job sites.

  • Make a Better Business Bureau inquiry.

According to records, the Better Business Bureau of Western Michigan Inc. received requests for 30,379 reports in January alone. Out of those, questions about new construction and remodeling projects ranked No. 1 in both the number of inquiries and number of complaints received that month.

From Oct. 1, 2002, to Sept. 30, 2003, the Michigan Department of Labor and Economic Growth received 1,661 complaints against new home construction and remodeling contractors. Of those, 1,634 were "closed," or resolved.

The department assessed $559,702 in fines against builders over the same one-year period.

Before hiring a contractor, Collar suggests looking at a copy of the company's construction contract. Some companies use a standard form contract published by the construction industry.

"A standard form prepared by the construction industry is going to, in most cases, benefit the contractor," she cautioned.

Price is the No. 1 issue for both parties, and price "creepage" is often the foundation for a dispute.

"One way to handle that is to put it in your contract and define when a change order can occur and how it occurs," Collar observed. "If you told them you want a front door and they forgot to include it, they have to pay for that door, not you."

Some disputes arise over insurance issues: Somebody gets hurt during construction or there is damage to the homeowner's property. Whose fault is it, and who pays?

"You want to make sure there's some insurance standing behind your builder that's going to be adequate and that's going to protect you."

Collar recommends a provision in the contract that includes the homeowner in the builder's commercial general liability policy.

It could be worthwhile for homeowners to discuss the provision with their own insurance provider, as well, to assure coverage is adequate, she said.

Project delays are another common source of dispute because time is important to both parties. The homeowner wants a roof over his head; the contractor wants to keep construction on schedule because the project has already been priced out according to anticipated labor costs and material resources.

But the typical contract is drafted in a way that favors the contractor, Collar said, so if the company starts to exceed deadlines it can simply charge the homeowner more money. It's one thing if a labor dispute or an act of war delays completion of the project, she pointed out. It's quite another if the contractor didn't place an order in a timely manner.

As a general rule, contractors like to collect most of their payment when the project is "substantially complete."

"One of the things we put into our contracts is that we don't consider a project to be 'substantially complete' until we get a certificate of occupancy. If people can't live in it, we don't consider it substantially complete."

When homeowners discuss everything with their contractors up front and get it all in writing, there's not going to be any ambiguity, she said.

"If something arises — some damage, a delay or a change in price — we all know who has what risks, and you have a document that gives you a formula for how to resolve those types of issue."

After signing a contract, Collar advises that homeowners:

  • Review all house plans, drawings and other contract documents carefully before actual work begins.

  • Visit the construction site regularly.

  • File the "notice of commencement" on the project as soon as the contractor completes the job.

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