Ongoing Construction Contracts
Now that the construction job is underway, you as the owner, hope things progress smoothly & on-time. Unfortunately, that's not always the case!Misunderstandings & disagreements are common. Frequently, arguments we hear are: the contractor is delaying or not sending forces to the job site or that the work is below par. From the contractor's end we hear: the owner is never satisfied, makes unreasonable demands or repeatedly changes the project.
If you set out an appropriate schedule of progress payments in your contract and conditioned payment on your satisfaction (and the architect), then you'll have added protection that you're actually getting what you paid for. In other words, the job is being done in a workmanlike manner per plans, specifications and in compliance with all applicable codes. If things are progressing well, then you will want to close-off liability to mechanic's liens as you make each progress payment. How to do this?
The Civil Code actually sets out various mechanic's-lien release forms, which may, and should be used, on construction projects to reduce your liability for additional costs. The law allows contractors to file mechanic's liens on the property, if services rendered or materials supplied are not paid for. Many disputes arise in this area, particularly if work is shoddy, unacceptable or not up to code. Only the general contractor (the one with a signed contract with the owner) may file a mechanic's lien without a 20-day preliminary notice. All other sub-contractor's and material suppliers are required to serve an appropriate 20-day preliminary notice before they can record a mechanic's lien. If they fail to do this (or do so too late) they'll be barred from enforcing a mechanic's lien. As the owner, you obviously want to protect your land & project from liens. One way to do that is by having the contractor sign lien release forms at each stage of the project. Once signed, this precludes the contractor from going back before that date and claiming additional money. Also, joint-check systems are helpful. Under those systems, progress payment checks are made payable to the general contractor AND all sub-contractors and material suppliers. In this way, you have added assurance that all subs and others are actually being paid. Alternative protective methods may be to have the contractor purchase payment and performance bonds. These bonds are basically insurance which in the event of contractor default, should: a) pay unpaid lien claims; b) pay to complete the project, using replacement contractors if necessary.
If you find yourself in a dispute with a contractor you should contact an attorney as soon as possible to determine your rights under the contract and protect your property. There are bonds available (usually at a modest cost) which will "bond around" mechanic's liens so that for example, you should be able to re-finance or take other action with your property, which might not otherwise be possible with a pending mechanic's lien. There are also procedures for having mechanic's liens removed altogether. Of course, the ultimate goal is to get satisfactory and timely completion of your project, with fair compensation to the contractor.
Construction defects & dealing with them are coming next time.