NUMBER ONE REASON CONTRACTORS GET SUED AND HOW TO PROTECT YOUR COMPANY

1. Number one reason contractors get sued:

• Payment Disputes: This could be in the context of commercial or residential projects; public or private contracts.
• Typical scenario: Contractor does work, usually good work, client is happy.  Client makes changes, contractor fails to get the client’s approval to a change order showing it is OK that the price has increased because of the client’s changes.  Contractor bills client at the end of job and the amount is much more than the client thought and then there is a large balance left.  If contractor goes after the client for money due, then contractor usually gets slapped with a construction defect lawsuit.

2. Best way to minimize the impact of any lawsuits:

Documenting the work at every step:

• Starts with a good contract with the Owner and each and every subcontractor: spell out the exact scope of work, incorporate the plans and specifications. Have an attorney draft or review;
• Good written communication with the design and project engineers/ architects
• Put the changes in writing (Change Order) and get approval from client;
• Follow engineers’ plans and specifications, any deviations need a written approval from the engineer;
• Have written daily fields report to document what happened in the project every day of the work;
• Send out preliminary notices as a matter of course; and
• Finally, take photos regularly and document the dates of the photos to show the progress of the job.

3. Another important advice:

• Stay away from verbal agreements. Any minor agreement on the job, should be memorialized in an e-mail, example:  “this is to confirm that…., if  you do not agree please let me know immediately.”
• If you get confirmation in a text, get them printed, (there are apps that do that) or get screen shots and print them.

4. Final Advice:

Establish a good working relationship with an attorney before you get into trouble, have the attorney review your contracts and get you set up with forms you can use every day.  This will keep you away from a lawsuit or at least minimize the costs and save you tens or hundreds of thousands of dollars in legal costs as well as disruption of your business and impact on your business and personal life.

The above information is provided as a guideline and is not meant as a substitute for an attorney’s advice. No attorney Client relationship is created through the dissemination of this information. Please consult with an attorney for any legal issues and problems.