How to deal with misinformation in a construction contract

Many people assume that, once a contract is signed, there’s no going back. But what if there’s a mistake in your construction contract? What if the property owner’s name is wrong, or the property address is missing details? Bad information could cause a dispute or, worse, invalidate the contract entirely. Here are some strategies for dealing with misinformation in a construction contract.

The problem of bad information in a construction contract

Imagine this: You sign a lucrative sub-subcontract with a firm. You’re excited to get to work and you want to handle this job properly. You purchase your materials and line up your manpower. To protect your payment, you send your preliminary notices. The project is underway.

And then things get derailed. You’ve been on the job for a few weeks already, or maybe you’ve delivered materials. The job could even be nearing completion at this point, as you came on to the project towards the tail end. Your phone rings, and it’s the GC’s office manager, telling you that your preliminary notices were no good.

It turns out that when you began your project, your contract contained some inaccuracies. Perhaps the owner listed on the contract was incorrect, misspelled, or only partially named (one partner instead of both). It could be that the address listed was completely incorrect. At any rate, the parties that you thought needed to receive preliminary notices inform you that you’re barking up the wrong tree.

You’ve done almost everything right for protecting your payment, but now you’re outside of the window to send preliminary notices. Or potentially even worse, you might end up filing a mechanics lien claim with outdated or erroneous information.

This can be a very scary situation for most contractors. Your payment potentially stands unprotected while you’ve invested time and resources into the project.

This is a more common situation that most contractors would expect. Suppliers may be more familiar with this, as they’re dealing with lots of subcontractors at any given time and many different projects.

How to avoid contract misinformation

Very often, contracts that contain misinformation are simply mistakes. Subcontractors might aren’t always kept aware of the changes on a jobsite.

Owners can change hands mid-project. General Contractors can be removed and replaced. As a sub-subcontractor, you might be signing a contract that’s out of date without even knowing it.

Rarely, misinformation can be a result of dishonesty, but it’s far more likely that it’s a good, old-fashioned mistake.

Whatever the cause may be, it’s important to do some research on a project before you jump into a contract with both feet. It’s possible to find the owner information on a job site, it just might require some sleuthing and research.

The first and possibly most direct step is to stop at the county assessor’s office and inquire. If your project is in a state that uses a Notice of Commencement, the project and property information should be in that filed document.

A notice of commencement is also often required to be posted on the job site. However, it’s not convenient or advised to walk through a job site you’re not yet contracted on, without an escort.

Some document service providers will do the searching for you. Levelset’s Scout Research Team uses their experience, knowledge, and databases to collect all of the pertinent information on a job site. The team will provide you with owner information and the available property data, allowing you to confidently sign a contract, send a notice, or file a mechanics lien that you’re sure is spot-on.

What to do if you’ve already signed a construction contract

If you’ve already signed the contract before you’ve discovered the misinformation, your options really depend on your stage in the project. The most flexibility will be provided if you haven’t started the project. The avenues of jobs in progress and completed projects may be a little more challenging.

If you haven’t started the project

If you haven’t started the project yet, you’re most likely still in luck. In most states, the preliminary notice deadline window starts from first furnishing. You can send the appropriately addressed preliminary notices at any time between your first improvement or material delivery on the job. You’ll be on the right track before long.

This is also an excellent time to get the contract amended or replaced to correct the misinformation. If both parties agree, they can cancel the contract and draw up a new one in its place.

Courts do have the ability to reform contracts. However, they’re less likely to get involved unless it’s an egregious issue. In which case, the courts may step in to rebalance the power and avoid someone being taken advantage of by nefarious contract language.

When you’re on site and working

Check to see what your state’s guidelines are, if you’re on the job site and working before you catch the contract misinformation. If you’re still within the window for sending preliminary notice, you can likely revise the notice and send the corrected version to all of the parties required. Even if you’ve sent the notice on day 20 of your 20-day window, most states will recognize that as being within the window. Do check your state’s regulations though.

In other cases, states may permit a sliding scale of protection. If you’re outside of the initial window, sending a preliminary notice will then protect the money from the date it was sent and on. Payments for work prior to the notification may be subject to forfeiture. This timeframe tends to contain mobilization and material costs.

Regardless of whether you’re in the window or not, or if your state provides a sliding scale, sending a properly addressed preliminary notice should be a priority. It provides the decision-makers and paying parties an introduction to your company and the work you’re performing on a site. This alone could help ensure timely payment.

If you’ve completed the job

This may seem unlikely, but some subs don’t need to be on-site very long before their portion of the job is completed. Although unlikely, you may still be able to send a preliminary notice if you’re within the timeframe. This is more likely to apply to material suppliers than contractors, but you should still check your state’s requirements.

Some states, like New York, don’t require a preliminary notice for protecting your lien rights. It’s still a smart move to send a notice, however, for reasons listed above.

If you’ve missed your state-required deadline, you may be out of luck when it comes to filing a mechanics lien. Your only recourse when payment problems arise may be litigation. It’s still important at this point to send preliminary notices and document all of your communications.

You’ll have a stronger case in court if you can prove you’ve been attempting to recover payment by communicating professionally. Missing the window for preliminary notice doesn’t mean you should skip sending payment reminders and being open to talking your way through a payment issue.

Use it as a learning experience

Hopefully, you’re able to work out the issue, or at least complete the project and receive full payment without a problem ever coming up. You should use the situation as a learning experience however, and avoid contract misinformation in the future. Be sure to perform the appropriate research to verify and validate information on your project.

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