More contractors are giving serious consideration to how their contracts can mitigate risk when mold or lead paint rear their heads. Duggan says “let sleeping dogs lie” and don’t introduce a problem contractually that might not exist. Phillips calls this approach Russian roulette, although he concedes that mold is “tricky” because insurers no longer cover its remediation.
He thinks contractors should be more concerned with adjusting their contracts to stay current with changing building codes. “Roofers aren’t engineers or architects,” Phillips says, so they must explicitly state that they are installing to manufacturers’ specifications. Hall points out that Texas doesn’t license contractors or inspect roofing jobs, so the best way for contractors to prove their legitimacy and protect themselves from product failure is to align themselves with well-known suppliers and the American Roofing Manufacturers Association. “In fact, we use that as a selling point,” he says.
THE DREADED JURY Federal law requires that home improvement contractors affirm a customer’s right to cancel within a certain number of days after signing. But contractors also put teeth in their contracts by penalizing customers for late cancellations. America’s Best Home Remodelers’ contract states that any customer who cancels outside of the rescission period must pay 40% of the job, although Duggan admits that this demand requires “a lot of poker playing” because customers need to be convinced that the products have already been ordered. Rescission clauses go hand in hand with clauses that protect contractors from customers who don’t pay at specific stages of a project. Matus Windows charges deadbeat customers 1.5% of the balance per month until unpaid costs are met. Attorney Phillips says that one deterrent is to include language stating that contractors can recover attorneys’ fees if they have to sue a homeowner for nonpayment. Philip Siegel, another attorney at the same law firm, encourages contractors to assert in their contracts that they are entitled to stop work if they haven’t been paid.
Whether companies can recoup what they’re owed, though, is another matter. “We have a case right now that we believe is a slam-dunk that we’ll win, but I know we’re not going to get anything out of it,” says Templin of Win-Dor. The case involves a customer who owes Win-Dor $10,000 of a $15,000 project, and Templin says his company was caught between a rock and a hard place because “halfway through this job, I knew we weren’t going to get paid. But if we walked away, we would have been liable.”
Contractors feel, perhaps justifiably, that contractual protection has its limits. “If you sue, you’ll lose,” claims Matus, echoing the cynicism of other contractors. Even Phillips says that when contractors yield to customers’ extracontractual demands, “it reflects deficiencies in the legal system.” Being proven right isn’t much comfort either, as Joe Hall Roofing found when it shelled out $36,000 in attorneys’ fees just to get released from a case.
Customers must give Regal Home Improvement, in Richmond, Va., 60 days to fix a problem before they sue, says company president Arthur Mullian. But such fiats sometimes fall on deaf ears, as America’s Best Home Remodelers discovered after it installed a $26,000 sunroom and the family threatened to sue 18 months later because the concrete foundation cracked. Duggan brought an arbiter, a lawyer, and the manufacturer to the customer’s home, and said he could make repairs for less than $5,000. But his attorney advised Duggan to settle.
Duggan subsequently learned that he wouldn’t have been liable had his contract stated that there was no guarantee against concrete cracking. “So I went back to my office, wrote a $10,000 check, and had my concrete contract rewritten” — minus any warranty, Duggan says. “We don’t make the product, and if the manufacturer doesn’t offer a no-crack warranty, why should we?”
—John Caulfield is based in N.J. and frequently covers home improvement.