Effective July 1, 2009, the state of Pennsylvania will require a written contract for nearly every construction task in or around a residence — even minor repair work like repainting or reroofing. If the value of work exceeds $500 and the contractor expects to get paid, he or she will need a written contract.
Under Pennsylvania’s Home Improvement Consumer Protection Act (HICPA), the written agreement has to include all the usual facts, plus a few you might not expect to see in a small job contract: the attorney general’s phone number, the contractor’s street address (a P.O. box won’t do), specific start and completion dates, a description of the materials to be used and a set of specifications, the contractor’s property damage and liability insurance limits ($50,000 minimum), and a list of all subcontractors, including phone number and street address.
Under HICPA, if disputes are to be settled by arbitration, the arbitration clause has to be in 12-point bold caps and must specify whether documents will be confidential and whether the arbitrator’s decision is final. If the contract price exceeds $1,000, the down payment can’t exceed a third of the total price plus the cost of any special order materials — which have to be listed in the contract. Time-and-material contracts (cost-plus agreements) are unlawful under HICPA because the contract has to show a contract price, not an hourly rate.
HICPA also makes the entire contract unenforceable by the contractor if any of 10 formerly common clauses appear in the document. The poisonous 10 include hold-harmless clauses and any terms that would award attorney fees to the contractor.
A National Trend
If you live elsewhere and think that what’s happening in Pennsylvania doesn’t affect you, consider that several states, including New Jersey, New York, Florida, and Texas, now give the homeowner the right to sue for triple damages plus attorney fees — and even expose the remodeler to criminal penalty — if the contractor omits certain state-mandated disclosures. That’s heavy stuff for a simple clerical error, but it’s the law. It also means that a contractor using an obsolete form can’t collect under the agreement and may have no lien rights.
It’s part of a recent trend in which state legislators, trying to protect homeowners from unscrupulous contractors and dissatisfied with the courts’ interpretation of the federal Consumer Protection Act in construction cases, have begun to pass laws that micro-manage home-improvement contracts. The good news is that there are loopholes in these laws — ways to turn the bias back in your favor and limit your risk.
For starters, understand that HICPA and other state laws give you a leg up in the negotiating process: If your client suggests using an AIA form or some other boilerplate contract, explain that the document offered is unlawful and that using an unlawful contract would be considered an unfair or deceptive practice. Instead, offer your own contract; this will allow you to take control of the job at the outset.
Even under HICPA — one of the more severe state laws — it’s easy to write agreements that protect your interests. The following suggestions comply with Pennsylvania law and the law in most of the other 49 states. (For a summary of what your state prohibits and requires in construction contracts, go to construction-contract.net.)
Let Your Estimate Define the Scope of Work
When you bid the plans and specs, you’re agreeing to complete work as defined in those plans and specs — even if your estimate omits something that turns out to be essential to the job.
Here’s a safer protocol: The contract price should cover only what’s in your estimate. Anything omitted from your estimate isn’t part of the job. For example, don’t agree to install “a new shingle roof and replace deteriorated flashing” simply because the plans you’re bidding say so. That turns your contracting business into an insurance company, and you’ll end up paying for surprises. Instead, let your estimate show “2,000 SF of shingles and 100 LF of flashing.” If more material is needed, indicate that there will be an extra charge. That’s completely fair and perfectly legal under HICPA and other state laws.
How can you make sure the estimate defines the work? Easy — simply identify the estimate as part of the contract and add a few words: “The estimate defines the work required, no matter what appears in the plans and specs.”
