Everyone in the construction industry struggles to get paid at some point. The most basic tip to ensure payment is to put the contract in writing. An oral contract might not destroy your chances at recovery, but common sense will tell you the best practice is to document everything. This principle is even more important when it comes to change orders. Lienors may only file a claim for work done under contract, so change orders should be put into writing if they are to be included. Without keeping track of costs of the contract and changes, you cannot know what to include in your lien. If you can’t prove your price, your lien claim may be worthless. So be careful estimating lien amounts.
In a recent New York case, the parties failed to record anything. The contractor worked under an oral contract and change orders came on verbal agreements and failed to even provide invoices, bills, time sheets, or virtually any documentation of the work done. The owner filed a cross-claim after having to hire another contractor to finish the job, but could not prove any damages because no proof could be provided to establish what damages were suffered. As a result they both walked away empty handed. Handshake deals are fine and dandy, but failing to reduce an agreement to writing at some stage or to failing to record costs incurred along the way is irresponsible. Blind estimations will not fly in court.
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The property owners hired a contractor to remodel their house, including adapting storage space into a kitchen, remodeling the master bathroom, and painting. They agreed on a flat fee of $48,000. During the remodel, the contractor ran into various issues, including structural problems and an ant infestation. These obstacles slowed the progress of the work, but the owners agreed to the changes in the contractor’s building plans. Around this time, the owners provided a $15,000 progress payment. Apparently the property owners grew impatient, and fired the contractor before work was completed.
In response, the contractor filed a lien for $27,000. The property owners filed a cross-claim alleging damages resulting from the contractor’s breach of contract.
The district court found in favor of the contractor. Sort of. The court found that he was entitled to $7,000, which was the cost of the changes. However, because much of the work was incomplete, the court found the contractor was not entitled to the price of the contract. The property owners’ cross-claim was dismissed. Both lienholder and property owner appealed.
On appeal, the Court noted that a lienor has the burden of establishing the amount owed by providing proof of either the price of the contract or value of the labor and materials provided. The contractor here failed to provide bills, invoices, description of the work performed, cost of that work…the list goes on and on. He actually admitted that the amount of the lien was an estimate.
Because the contractor did not provide any basis for the amount of his lien, the Court could not establish its validity. The lien could not be enforced and the sum awarded at the trial court was vacated. The property owner’s cross-claim was also denied, as the contract with the new contractor was also an oral agreement with no supporting evidence regarding costs. Both parties walked away empty handed.
Billing surprises, disputes over work performed, and billing surprises are among the main reasons parties don’t get paid on construction projects. Until construction payment reaches a better place, payment issues will persist. Had these folks properly prepared, both sides might have avoided costly litigation.