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Question DetailsAsked on 5/10/2017

What can we expect after firing our home renovation contractor?

We hired a reputable contractor in our area (based upon several great reviews on multiple websites) and they over promised and under delivered. Work was supposed to begin on January 3rd, didn't start until January 18th and almost 4 months later, we are still not completely done in a 150 square foot kitchen. HVAC has not been put in completely, in multiple areas, holes in wood floors where the trim does not cover. We have reached out several times and have not been contacted back to finish these items on the punch list.

We owe a final payment upon completion but we are done with this guy and no responses on a couple of easy things! His carpenter has been in contact with us letting us know that the contractor is having financial problems and hasn't paid him in over a month. We'd like the carpenter (about to quit) to finish our job but the contract says we need a 14 day notice.

Since we owe a final payment based "upon completion" and we are firing him, are we "in the clear"?

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3 Answers

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You don't say if this was a fixed scope, firm price written contract job or being done off-the-cuff based on estimates and verbal promises or not, but a few thoughts - which may or may apply directly to your case if you do not have a firm written scope of work (including any applicable change orders or contract amendements) and firm contract price, the lack of which substantially weakens your protections.


You also did not say if there was a specific performance period in the contract - start and finish dates, or start date and number of days to complete or such. If not, that weakens your case, as does not having taken firm legal steps once the contractor failed to abide by those start and completion dates, because allowing him to run past without a formal change order, or written complaint and demand for immediate compliance, can be used by him as an implied consent to the delays.


1) "in the clear" - OK, that is hopeful wishing, as I am sure you are aware. If he is truly having financial problems and is not paying subs, you have a number of potential issues - first that he is likely not going to finish your job because subs are unlikely to keep working for him without cash on the barrelhead, which he likely does not have if in financial trouble.


2) he is also likely to come after you for more money for "overruns"or for early payment of the final payment to try to solve his financial issues - though very commonly those funds will actually be used to satisfy cash demands from other projects further along than yours or more in trouble than yours. VERY few states require escrowing funds or putting them in a trust account job-by-job if at all, plus commonly the contractor has full draw ability on the account so there is nothing to keep him from illegally drawing the funds from your project to pay other bills, or just palin abscond with it.


3) if he does go bankrupt, in a few cases all creditors feel the pain equally, but generally there are provisions where employees get paid salary first, then vendors, then clients get any compensation or refunds coming to them last - meaning if you are "ahead of him" on payments, having paid more than the completed (and building inspector signed off) work was worth, your advance payments may go to paying off people he owes money to - either from him directly, or in bankruptcy.


4) regardless of any payments you have made, until you get a PAID IN FULL invoice or statement from him AND lien releases from him and his suppliers and subcontractors, YOU may end up having to pay them if he did/does not - even if you already paid the contractor those funds for work done. Yes that may be fraud on his part, but not always under the law - and does not help you much if he does commit fraud and divert your funds (though that may athen open his liability insurance companuy up to a claim by you for the funds).


5) If he did not pay his creditors on the job, they can file a lien against your property to get paid. And this can be catastrophic for you potentially - both because you end up paying twice for some work to get the liens released, and also because a lien filing can ruin your credit rating, and cause acceleration of many different types of loans you may have outstanding - regardless of whether they have anything to do with the lien. In the worst case, you lose YOUR house to HIS creditors plus end up with a ruined credit rating and have some or all of your loans (house, car, medical, mortgage, student, etc) declared immediately payable because of the inferred payment default that the liens represent. No - not fair, but hey - we are talking trade associations and lobbyists and lawyers writing the laws here, the legal system is NOT (despite protestations to the contrary) created to be fair or equitable to all.


6) in the first-come, first-served category, in at least some states the first people who file claims againat his Bond (he was bonded and insured, right) have first rights to the bond amount, which $ amount will commonly NOT cover all the jobs he may have on-going at one time. In many or maybe most or all states, he is required to have a bond equal to a certain amount (which may be a lot less than the contract value of the jobs he is working on, or even less than a single project value at times). And even if the law or your contract requires that he be bonded for the value of your project, rarely does it spell out that the bond must be a separate bond for your job only, or that the coverage cannot simultaneously cover multiple obligations - so sometimes the first to file a claim is the only one to recover damages or get the job completed by the bonding company funds before they run out, because the bond value is a fixed amount.


7) also about the "in-the-clear" issue - even though your final payment states "upon completion" there are two catches to that - first, he can claim (though likely not in your case with the undone work you describe) that there is "substantial completion" so he may argue that he should receive the majority of the payment for having done the majority of the work. Unfortunately, the courts follow this train of logic and commonly allow contractors to not finish all the last details, but still receive payment for the fair value of the completed work.


Your legal argument in that case is that if say the remaining portion of the work is $5000 (let's hypothesize that everything but the A/C is fully completed, say) - you can argue that while that portion of the work was $5000 under his contract (if you agree with his numbers or had a unit-priced job scope), that it will actually take more $ than that to get a new contractor on board to finish the work. If the remaining work involves multiple trades, you can also argue that it may well cost MUCH more to get a new General Contractor on board to put together the necessary contractors and materials and finish the work, and that the new contractor will likely put a significant premium on both the expedited nature of the work, the small amount left to be done, and having to take responsibility for building department inspections completed and all work (his and the previous contractor's) approved. You also may have the argument that you took the lowest bidder, hence any other contractor's charges will inevitably be higher than in the contract.


=====


Bottom line - especially assuming from the description that this was a multiple $10,000's worth of work or maybe much more, you need an attorney to help you through proper termination of the contractor (which if improperly done does not legally release him from the job, or may cost you your Bond coverage) and to handle negotiations with the contractor, the bonding company, maybe his insurance company if property damages or general liability or fraud come into it, possibly with suppliers and subcontractors filing or threatening to file liens on your property, and possibly to deal with the general contractor's attorney and maybe bankruptcy or liquidation proceeding - and possibly both business and personal types on that.


I definitely would NOT take any steps to "fire" the contractor, negotite with or directly pay any subs or suppliers, or make any payments without getting your attorney (and no Angies List does not rate or review attorneys) in the loop and in control of the situation.


And while there is a strong temptation to comply with a request by him to make final payment now so he can pay suppliers and subs to get the job done, but that is a black hole situation for a couple of reasons. FIrst, any funds he pays to them will likely be applied to past-due invoices, not to completion - so you could be out the money and have no progress on the work. It also takes away your last substantial hold over him - the completion payment. There are ways to handle that through escrow if absolutely necessary - where firm committed amounts are listed and signed for by each applicable supplier and sub to complete their work, those amounts being held by an escrow company and released as payments credited to the GC with direct pass-through to the suppliers/subs pre-authorized by him so he never actually "sees" the money when it is paid out (except for maybe an agreed-upon adminstration or overhead percentage if in contract). It is known by the suppliers/subs to be there safe and available in escrow (same as between buyer and seller in a house purchase), and is paid to the suppliers/subs as each finishes his obligation to the job. Messy but not all that uncommon - many project funding lenders do this by escrowing their loan and only paying it out during work progress, payable to the GC and the supplier or sub both, so both have to co-sign and co-cash it. However, the escrow companies do not like getting caught in the middle, so generally require all counter-parties (GC, supplier or sub, and project owner) to sign off on each payment before it is made, so makes for a lot of paperwork and some hundreds to dsometimes $1000+ in escrow fees.


And of course, getting lien releases from each applicable party concurrent with final payment will also be a priority for your attorney - which also commonly is done through escrow with the payments not being released until the lien release is concurrently handed over to the escrow agent. And warranties and owner's manuals and invoice copies and such needed to register and validate and product/appliance warranties.


And on "firing" the GC - you would not be firing him - you would be transferring the job responsibility to the Bonding company, or terminating for cause - and your attorney would pay attention to any contract provisions regarding that, like the 14 days you mentioned maybe.

Answered 1 year ago by LCD

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I do really appreciate your throuough answer to my question. It is difficult to type everything in 1000 characters. This project did have a scope with an fixed amount of just under $11,000. As work was completed, we paid for it according to his payment schedule. We have yet to pay the final sum of $1,000 because we haven't heard back from the contractor in 2 months as he has not finished everything on the scope.


A situation occurred where they broke our glass door, we waited over 50 days for replacement and sent our displeasure about how the door has not been installed. The contractor left the glass door in our front lawn leaning against our house without saying anything. We took that as a "F U, we are done here" and haven't heard back since.


In looking at the Calendar, we had a kitchen install target date of January 23rd, this didn't actually happen until the 2nd week of March. "Finishing operations determined thereafter" is how the calendar ends...we have seen them numerous times finishing various items but not in full.


At the end of the day, we owe $1,000 and maybe a bit more for a couple of little add-ons so fortunately this isn't a $100k+ job we've been jacked around on. We just want to get the finishing touches done as this project on our 120 square foot kitchen started 4 months ago and are trying to determine the proper way to end this relationsip as the work just isn't getting done!

Answered 1 year ago by boomzdaddy

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Votes

Well, with only $1000 to go and sounding like you are paid up per contract, whether to get an attorney depends on your judgement - but with at least a rumor of the contractor going bankrupt, you are at probably high to very high risk of liens being filed by subcontractors and maybe suppliers who the GC has not paid - so I would still recommend getting an attorney on board.


After consultation with attorney (and more effective if ti comes on lawyer's letterhead) would be a certified mail return receipt signature required letter to the GC stating the work items that need completion and demanding completion immediately, and failing that within X days (a reasonable amount of time to complete the work - maybe a week or so max it sounds like) you will be filing a claim against his Bond.


Then if the work does not get done in that time, (again better response if it comes from your attorney) file a claim with the bonding company, stating the situation and deadlines missed and copy of the contract AND any approved change orders - be up-front with them about any changes requested by or approved by you, which adds to the contract price. That "call" on the bond means the bonding company then either pressures the GC to finish the work per scope, they get another contractor (subject to your reasonable approval of contractor) to finish the work (you could suggest the carpenter if finish carpentry is all that is left to be done - though sounds like HVAC work to be done too so letting them get a GC in would probably be better), or negotiating with you on an amount of contract $ reduction to drop it where it is and you then get your own contractor to finish the job - that is usually their preference but most dangerous for you.


Risks with each of above possibilities - with all cases you have the lien release issue to be resolved before final payment is made by you or you sign any release of the GC from the contract


1) if they bully the GC into finishing the job, your work quality may be poor, and if he going bankrupt he still might not do the work - which would then take you to item 2) or 3).


2) them getting a new contractor to finish the work requires some legalese documentation that the new contractor is assuming the responsibility for finishing the contract per contract terms and scope, AND has to be made responsible for all punchlist items and getting building inspections approved complete - including issuance of a modified Certificate of Occupancy if required in your area for your extent of remodel (generally not for a kitchen remodel but is required in some areas if there are any structural, plumbing or HVAC mods made.


3) paying you off to let the job drop as it is of course runs risk you are not aware of all that is undone or improperly done so YOU would be on the hook for inspection issues, plus puts YOU on the hook for any overruns in getting another contractor on your own to finish the job.


Another thing to discuss with the lawyer - though without specific provisions in the contract probably the best you could hope to recoup would be legal expense reimbursement - is delay damages.


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This case emphasizes the importance of getting well-rated and reviewed contractors, but that even if you check him out well, there are a LOT of instances where a "good" contractor gets into contracts and then fails to perform or goes bankrupt - may be because he bit off more than he could chew on a larger job and lost his shirt on it, he was awarded more jobs than he expected and has too much work on his platter, he has been underbidding so is running out of funds, perhaps he is too tolerant of clients not paying or paying late so he runs out of operating cash, could be due to medical condition or death (his or critical sub or employee) preventing him from doing the work, drug or alcohol use degrading his performance, significant fire or theft or flooding event wiping out his equipment and he does not have the money to immediately replace it to continue work, etc, etc.


Every contract should be written with the possibility in mind that either party may become unable to perform under the contract, and have provisions in it and requirements for bonding and insurance and licensing to protect the client, and to protect the contractor periodic payments and possibly escrowed construction funds and credit check of the client.

Answered 1 year ago by LCD




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