Write a New Contract for All Changes
Changes are inevitable in construction. Most boilerplate construction contracts require that changes be done on a time-and-material basis, usually with little or no markup. That won’t work if a state law like HICPA makes cost-plus home-improvement contracts an unfair or deceptive act or practice. Instead, changes require mutual agreement and a signed change order.
Your contract should spell out that, if necessary, contract negotiation starts again any time an owner or the inspector wants a change in the scope of work, and that both required and discretionary changes will be done on your schedule and at your price.
It’s actually a “prohibited act” under HICPA to agree to any material change without a written contract modification. So when you get a request for changes, fire up your contract-writing software and create a new contract covering just the change the owner wants — at the price you need to charge.
Control the Payment Schedule
Although HICPA limits the down payment to a third of the contract price on jobs of $1,000 or more, it says nothing about progress payments. You’re free to draw up a front-loaded progress-payment schedule that keeps receipts well ahead of expenses.
Allow for Attorney Fees To Be Collected
HICPA makes any contract totally unenforceable against the owner if “the contractor shall be awarded attorney fees and costs.” Yet the law doesn’t void a contract clause that awards attorney fees to “the prevailing party.” That seems to be okay under HICPA, even if the contractor is the prevailing party. This is an important distinction.
The possibility of an award of attorney fees is a heavy incentive to settle most disputes. With no risk of being charged attorney fees, and with a chance of collecting attorney fees under the Unfair Trade Practice Act, a devious owner could threaten to litigate even the smallest issues. I believe that eventually Pennsylvania courts will come down on the side of contractors, for a very practical reason: Courts are too congested already. The threat of an award of attorney fees keeps most disputes out of court.
Make the Owner Liable for Unknown Conditions
Until you open up a wall, there’s no way to be sure what’s in the cavity. And as you know, nearly all surprises on a remodel increase costs. So it’s prudent to include a “differing site conditions” clause in every contract. Nothing in HICPA requires that contractors absorb the loss when something doesn’t go as planned.
Nearly all contracts for large construction projects include a differing site conditions clause. The U.S. version is Federal Acquisition Regulation Section 52.236-2. If it turns out that something isn’t what the owner represented or what the contractor could reasonably expect, a differing site conditions clause provides extra pay for extra work. Both the owner and contractor benefit: The owner gets a bid based on what can be reasonably expected, not the worst case; and the contractor is protected if costs escalate due to surprises.
Make the Owner Share Liability for Delay
HICPA classifies failure to complete work on time as “home improvement fraud” if the contractor doesn’t comply with a demand for a refund. On contracts for $2,000 or less, failure to complete work on time is a first-degree misdemeanor (five years in jail). Contracts over $2,000 earn a third-degree felony charge (seven years).
I don’t believe the legislature’s plan is to populate Rockview State Prison with tardy home-improvement contractors, but regardless, it’s easy to avoid these penalties. HICPA doesn’t define excusable delay, so simply define the term very broadly. Then incorporate a “worst case” construction schedule in your contract. That takes the pressure off.
Be aware that there’s a bigger issue lurking here. HICPA comes down hard on contractors who have trouble staying on schedule. That’s fine. But what about homeowners who delay the job or who don’t make payments on time? Turnabout is fair play, in my opinion. Nothing in HICPA restricts charging the owner for delay. Pennsylvania courts routinely enforce contract clauses that make the owner liable for delay of the work. Your contracts should support delay claims.
Gary Moselle is a California attorney specializing in state-specific construction contracts.