Free Webinar: What Happens When Getting Paid On Your Construction Job Goes Wrong?

What we’ll cover:

• Strategies for getting paid when mistakes occur
• What’s in your subcontract and is it working for or against you?
• Charge backs and offsets: Who wins and who loses?
• When does insurance step in?

Seth Bloom:
We thank Daniel Tron firm for joining us today to, uh, from the prosperous law group. Uh, uh, we’re really excited about the webinars. So we thank him greatly. And the title is what happens when getting paid on your construction job goes wrong. Um, I’m the senior director of attorney services at level-set. We’re really happy to be putting on more and more of these webinars for you. And we’re happy to have great lawyers like David, uh, host them. So if you have any questions, please ask them. You can always post questions, uh, at the attorney network where we’re attorneys from all over the country and all over your state can answer questions, or you can ask them during the webinar. Or of course you can always ask David and we’ll put a, we’ll put up all his contact information at the end. So David, thank you so much. Uh, we look forward to a great webinar.

David Tran:
Thank you very much. Um, good afternoon or good morning folks, uh, depending on where you are. Uh, my name is David Tran with profit log group. Um, I’ve been a, uh, attorney focusing on construction, construction trade for the better part of 15 plus years. Um, uh, we cut our teeth initially in construction by, uh, learning, uh, how to reverse engineer or the forensic of the construction project, uh, when it goes wrong. Okay. Uh, today’s focus is going to be the various aspects, um, that affects your ability to get paid on a project, or if you’re doing the course of your construction, when something goes wrong, uh, these, uh, these factors are gonna arise and you’re gonna have to deal with it one way or another. Um, a, um, we always advise our client, don’t take the first step, the first easy response. Um, rather have a little talk with your, uh, counsel and sort of plot out all the different scenarios, how, you know, a, uh, an Austin or a mishap on a job. What is it gonna mean to you? Okay. Um, let’s get started. Okay.

David Tran:
Right. You know, like I said, when you’re entering into a project and you agree to do work with, uh, either a general contractor above you or a subcontractor, if they love you. Um, when you’re talking about a project, everything sounds really great. Yeah. We’re going to get into, we’re going to get in and we know bang this thing out without making a lot of money. It’s going to be real simple. Uh, yeah, it, that’s the kind of talk and the kind of things you expect when you’re just beginning to date someone, everything is rosy and, uh, but you know, just like dating, you have to work at that relationship to keep it pretty RL. And to keep it from turning into something ugly or having a project goes sideways on you or worst case the project, you start losing money on it. So, uh, everything, you know, let me say everything focuses and start.

David Tran:
All right. Um, with these seven factors, now you’re on a job. You’re doing your, your scope of work. A mishap happens. Okay. Somebody does the wrong thing. Okay. And then, uh, the finger pointing starts to happen. What should you be going? What should be going through your mind? Okay. We determined that these are the seven ongoing liabilities or seven things that most likely it’s going to affect you. Okay. Uh, I’ll give you an example. You are hired to do, uh, to core additional concrete on an existing slab. Okay. In order to fulfill the bigger building, you hire a, a x-ray guy to go and scan the conky, to see where the existing conduits are. Okay. And then you hire another subcontractor to actually go cut the concrete. Okay. Um, right. The scanning company comes in, they may or may have not have done a good job and they marked it, the location.

David Tran:
And then the concrete cutting company comes in and they may or may not know how to read what the x-ray technician had marked. And they go about cutting the concrete, low and behold, they cut through the concrete and they sever a conduit, sever some utility line, some, um, electrical or some, um, some low voltage lines in there and you and the telecommunications line. Okay. General contractor halts, everything. And then he goes to the general contractor, huddled with the owner huddles with his team. Okay. And so you’re thinking, all right, all right. What’s going to happen to me now. Um, so we’re going to discuss a little briefly, I’m going to try to touch on a little bit of these things, but some things that you gotta, you gotta know it’s gonna come up to the play are going to be, are they going to top my bond or are they going to charge backs on me?

David Tran:
Are they going to increase my retention? Okay. Is my general liability insurance going to get involved? Okay. Am I going to get in trouble for breach of contract? And what about my subcontractors? The guys who did the x-raying and cutting, what can I get out of them? And then what about the general contractor? What’s he going to do? To me? Those are all the people that are looking at you. Okay. You and your company. And they, of course, they want to defer their liability and defray that liability and say, no, it’s all you and your responsibility. And you have to manage all of that all the while you’re still on the job, you haven’t been fired. You haven’t been, um, you know, uh, replaced. And they’re looking at you and saying, all right, buddy, what are you going to do about this mess? Okay. So like I said, everything starts with your contract.

David Tran:
Okay. Now you got to look at the contract between you and the guy above you, the general. And if you have people or subcontractors below you, you’ve got to look at your contract with, uh, the people who, who promise to do things for you. Over the years, we get a lot of those. Oh, I’ve worked with so-and-so for so many years. We don’t even do contracts anymore. We do business on a handshake. Well, that’s great between you and the other owner, but when the problem and the dollar amount starts climbing, okay. The other lawyers and other insurance company that are going to scrutinize your contract and say all based upon what was in the contract, it’s going to be whether or not your going to have any help with this problem or not. Okay. So you have to have a full understanding of what it is you’re signing.

David Tran:
If you are fortunate enough to have the general contractor signed your subcontract that you created, or you and your team have created, then you have a pretty good understanding what’s in there. Okay. But if you are assigning a contract that will get into you from your general contractor and you don’t have an understanding of full understanding of what’s in there, that is where all the landmines are going to be. Okay. And then also you have to match the contract that was given to you by the general contractor down to you versus your contract that you get down to your subcontractor. If the terms do not match. So you could have been, you could be promising a lot more to the general contractor. Okay. But at the same time, you’re not holding your subcontractors feet to the fire. Then any gaps or differences is going to be on you.

David Tran:
Okay. Um, so couple of things, I wanted to talk about that in the contract, a lot of people say, well, uh, attorney fees, clause, uh, you, you attorneys only want that because it protects your ability to get paid. No, that’s not true. An attorney’s fees clause in your contract will serve as both a sword and shield. It acts as a, as a shield to prevent people from making, you know, uh, spurious claims or like really weak claims against you. Because if they make that claim against you and they’re wrong, they could potentially need stuck having to pay your attorney’s fees. Right? If they have a valid claim against you, they won’t care about that because they know, right. Hey, squarely, UFO, you were wrong. You concert accident. If you, you know, if we have to pursue you, you would have to pay our attorney’s fees.

David Tran:
Okay. That is their, their sword against you. But their attorney fees clause is also a shield for you in that if they come at you for work, that you didn’t call it or damage that you clearly didn’t didn’t. Cause you can say, look, you’re chasing me for some Bowden’s claim. If I have to prove myself and prove that I didn’t do it, and that I would no way the cons of the problem, then you claim it maybe responsible or having to pay all my attorney’s fees. So if the attorney’s fees act as a reasonable deterrent against crazy claims, but, um, next issue I want to talk about is, um, let’s see, uh, uh, sorry, the chargebacks. Well, Charlie, but you hear that a lot. First time anything goes wrong. Well, I’m going to hold that, you know, I’m going to take that out of your contract, right?

David Tran:
And you hear that so often that people forget to check was char or our charge backs even allowed in the contract. Now, if you’re dealing with a pretty sophisticated general contractor doing a multimillion-dollar project, chances are, they’re going to be a big section on charge backs. And what do, what are required for charge backs, right? Um, uh Burston if you’re doing a small commercial job for like $50,000 for a general contractor, and then, you know, a local general contractor, he may not even have charge backs in his contract. Now, why am I talking about all this? He can charge backs are predominantly, uh, preachers that are only exists within the contract. So if the contract that you’re working on doesn’t have chargebacks requirements or, or details what happened doing charge backs, then you can say, Hey, it’s not in there. It doesn’t exist. So you don’t have the right to hold back or charge me back monies.

David Tran:
You can make claims against my insurance or whatever, but you don’t have the right to hold up my money. Okay. If the general contractor told you, Oh, but I’m going to do it anyways because I can, well, you have some options and I would suggest you go onto the levels level set, uh, education center. They have a lot of articles and videos regarding chargebacks. Um, and they’ll give you a primer on what’s available to you. Um, but predominantly you would expect to see chargebacks on issues. Like, you know, um, if you had to use someone else’s equipment longer than, than necessary to, in order to complete your work, okay. Car caught on by your mistakes, that could be an element of chargeback, or if you, uh, do, uh, incomplete or incorrect workmanship that delays the project or causes, um, uh, you know, uh, someone else having to come in and fix it.

David Tran:
And States that is very much, uh, a, uh, opportunity for the general to, to charge you back. Okay. Now, same when you’re working with your subcontractors below you, it’s important to have charge backs, uh, in your subcontract so that you can turn around and charge them that subcontractors for any mistakes and things that they did in the example that we gave you about the concrete time, right? Let’s say, um, you know, the concrete cutter right in his, in his zeal, cutting concrete, that SPARTS, uh, from, you know, sparks come flying and it catches something on fire. You know, fire extinguisher comes down and soaks up the place and, you know, preventing anybody from doing any, any cleanup or repair it for awhile. Now those delays, okay, you can potentially come back and charge the subcontractor who doing the concrete cutter. Like, Hey, you cons this, you cause everyone above, uh, uh, me, uh, time and material.

David Tran:
And then we’ve lost days on the job and we have to expend additional man hours to clean up this mess. So I’m gonna deduct that amount from water, my contract with you. Okay. If you’ve got a problem with it, you know, go talk to a lawyer, we can deal with it later. But for now, you know, I have to spend X amount of dollars to fix your mistake. Therefore I’m going to choose to hold on or deduct that money from your account. Okay. Now, um, okay. The next issue that’s related to that or retention, let’s talk a little bit about know, I don’t want to go too deep into retention because I know this subject has been discussed in an ad nauseum, but, um,

Seth Bloom:
Real quick, David, I just, it’s not to interrupt, but I just wanted to let everyone out there know that if anyone has any questions, we’re kind of at the halfway point. So feel free to ask them now, or we’ll save a few minutes, uh, for later, but thank you, David, keep going.

David Tran:
Right. And we can do something really quick. Um, you know, there’s no limits and probably works at least in California. There are no limits on how much retention you can initially set. Okay. Um, but say in, let’s use the example of a concrete, uh, today. Um, if okay. If we determined that the car, the, the, um, the general decide, Hey, because of the fire that our roads from the concrete cutters work, um, you know, we tend to pay damages and having to fix that, uh, that, uh, the area it’s gonna take X amount of dollars. So the general can say I have the right to hold 150% of the cost or the value of that fix. Okay. Just to make sure that we have enough money to, to, to, to resolve that problem. So if they estimate the fixed to be 20,000 and they can hold up to $30,000, right.

Speaker 1: (42:12)
Just five long as it takes for them to fully pay off all the bill and make all the fix. Okay. Now, what does that mean to you? If your contract was $50,000 and the general hold back 30 you’re you’re, you’re losing on the thing you’re done. Okay. So that, so you better make sure that your subcontract agreement with your, your subcontractors have a similar retention rates or, um, you know, ability to hold back, um, or the ability to go after the insurance or something else that you’ve got to find a solution for it, because otherwise you’re going to take a big hit off. Okay. Um, but as soon as the owner, uh, and as soon as you go all the repairs and you fix everything and you tell the general contractor, don’t worry, I’ll take care of this whole thing. It won’t cost you a dollar out of your pocket and you actually do make all the repairs.

David Tran:
Okay. Once those repairs are accepted by the owners, there’s a time limitation on, uh, when they have to go ahead and release the payments to you. Okay. Uh, each, each state may have different, uh, requirements, but in California, what you see here, um, are the, um, uh, the timeframe upon which, uh, someone had to release the money once the work had been accepted. Okay. So I don’t want to go too much into that, but more importantly, getting back to your con your contracts, that right. You have to manage and understand what, what promise between the owner and the general. Okay. And then you have to understand what the agreement is between the general contractor and you, and then you also have to fully understand and manage the agreement between you and your sub. So, uh, sometime our clients will come up to us and say, Hey, um, you know, I don’t really pay attention.

David Tran:
I’m glad to get work from general. So I signed whatever contract that they give me. Okay. But at the same time, I don’t really have a subcontract agreement with my sub sub. And I sign whatever invoice that they give me or a, or a quote, um, proposal that they give me, okay. That works well. And that situation works fine if you never, ever intend to get into any kind of dispute. If there, if you are all of your project work 100% all the time, and that never any, uh, mistakes or ambiguities, if that is your, your reality, if that is your world, then great for you. But I’d never seen that. I’ve never seen a project go so smooth that no one ever disputes, uh, contract term, um, uh, then again, if everything worked perfectly, I would, I wouldn’t be out of a job. So, uh, that situation that didn’t arise too much in my world that, okay, now let’s talk about the same issues again, w we’re going to use the same scenario, concrete cutter, use it in power tools, spark flying burns, and the fire catches on something.

David Tran:
Flammable causes a minimal amount of fire. Okay. And, um, and the concrete cutter also accidentally cuts through a conduit and cuts through other people who work now would your general liability insurance step in, okay. Given the fact scenario that we just gave you, it makes sense that general liability would step in general liability is that 10, 20,000 or $30,000 or more, uh, costs that you have every year to buy insurance, to protect you against this very thing. Now it’s job is to protect you, but it is not there to protect against your, uh, lack of workmanship or your, um, uh, incorrect or incomplete workmanship. But what does that mean? Okay. If you are pulling concrete and you pour it to the wrong, the real thickness or density, or, or PSI that’s bad workmanship. Okay. But if you pour concrete and the way you pour concrete damages, other components of the structure, such if you collapse a conduit or whatever, then that causes what called resulting damage or damage to someone else’s work.

David Tran:
Okay. That is an unforeseen circumstance. And that is when general liability insurance will step in. Okay. So in the case of the concrete cutter, accidentally cutting a conduit that the insurance company would most likely interpret your bath as being partially covered in personally, non-covered work, what is not covered is, Hey, I’m not going to pay for concrete that the concrete cutter cut wrong. It can, that it’s a function of his work. And he did it badly. I’m not here to guarantee that he does good work. I’m only here to guarantee that he doesn’t cause damage to other people. Now damage to other people is sorry, work that within the conduit, the guy utility line, electrical line, the low voltage line and telecommunication line that was done by someone else other than a concrete cutter. So the concrete cutter inadvertent mistake of, of damaging those other people’s work.

David Tran:
Okay. The insurance company would come in and say, all right, we will cover the cost of replacing the lines. We are fixing the conduit and fixed, and that you have the, and rerunning the line and, and my new lines, because that would damage that was caused resulting from the concrete cutters mistake. Okay, cool. That’s okay. So the question that you have to think about going to general liability insurance is okay. Do I have enough insurance? Okay. Typically when you’re buying general liability insurance, you’re buying 1 million, 2 million aggregate, meaning they’ll post up to a million dollars worth of, uh, protection. So hopefully to Replair and replace the conduit and the, a utility lines and so on would cost less than a million, if it is great, that’s more than enough money to cover it. Okay. Now what happens if the damage, it costs more than million dollars.

David Tran:
Okay. The insurance company, they’re not obligated to put up anymore other than what they, what they promise. So they only promise you 1 million, that’s all they’re going to pay anything above that. You’re on your own. Okay. So if the damage is more than million dollars, then everyone is scrambling to try to find additional money to cover. If they don’t have additional, uh, more than enough money to cover it, then they’re looking at you. Okay. The concrete cutter. And they’re also looking at the guy who hired the concrete cutter, and also maybe the general contractor above him. Okay. That’s when everybody’s insurance starts fighting with each other and they’re saying, well, no, what’s covered. What’s not covered. I’ll get into that in a little bit. Yeah. Now again, all it takes is to trigger insurance and for someone to say, Hey, so-and-so’s work cons damage to mine work, or some preexisting part of the structure.

David Tran:
Okay. And so that is usually enough of a trigger, um, to, to get general liability, to start investigating and saying, okay, the potential for coverage here now, what does that mean to you? If the insurance is going to come in and they’re going to pay for some of the repair, some of the costs, then the general contractor and the owner might say, all right, if that’s a revenue source, that’s going to come in and pay for that. Then I won’t hold out, hold it against you out of your contract. Okay. A couple of distinction. When you’re talking about insurance there’s coverage for what is called ongoing operation versus completed operation, there’s a huge distinction. Ongoing operation is when, for example, there’s boots on the ground. The project is not complete yet. There’s still work going on. And there’s going to be perhaps a multiple tray doing work later on.

David Tran:
Okay. They have no notice of completion or certificate of occupancy or whatever else becomes a project hasn’t been fully complete yet. All right. Anything that happened doing that timeframe from the time you start until the time you get notice of occupancy or certificate of completion is categorized under what’s called ongoing operations. Okay. And then once there is a notice of completion or a certificate of occupancy, then we start looking at what’s called completed operation. Okay. There, the reason that’s a distinction for that, um, uh, insurance company wants to be able to categorize risk. Okay. When there’s a bunch of people running around, working on a project, on a building, that’s a high potential of personal injury and property damage. Again, there’s so many moving parts going on at same time. So doing that timeframe, they go look, there’s a lot of things that could potentially happen. You know, it’s not unheard of for nails and bolts to drop from the third story down and hit some guy in the head, right. Or, uh, you know, uh, or a window pane, falling and breaking glass, doing the construction. So that’s a huge potential for risk during the construction phase, once construction is over and everybody’s pretty much gone out of the building and, um, that’s less likelihood of that kind of a risk.

David Tran:
You submit a claim or someone submits a claim to the insurance company. They’re going to try to weasel them away out because they’re bad. People know it because they, they have a interest in only paying out at a minimal and they can because it’s a business, okay. Whatever they promise they will do, they are, they’re obligated to do, but whatever they exclude and expressly say, no, I’m not covering you for this. Okay. Then they’re not, um, uh, required to do so if you submit a claim, for example, let’s just say that the back, the concrete cutter cuts through the line and then a damage into the conduit. So if you’ve tried to submit an insurance claim to his insurance company and his insurance company would say, Oh, that looked like we might put, you know, we might cover it, but they’re on some exclusion. And the typical exclusion would be, uh, typically called J one to J a J for inclusion would be, we exclude anything that’s in the care custody and control or supervision of this person, the guy who was hired to do the work.

David Tran:
So if it didn’t the part of the work that he wants a post to be doing, and he didn’t do it, then I’m sorry. We can’t cover for that. He kept that too. That’s another way of saying he was, um, he, wasn’t doing, uh, he, wasn’t doing good workmanship. Okay. And we’re not here to indemnify or protect against poor workmanship. We’re only here to cover, uh, any damage beyond that or resulted come down. Okay. Um, that term occlusion care, custody and control and supervision. Well, it depends who are using, if I’m the general contractor or the subcontractor who sets up, made a mistake. Okay. The work that he did, uh, could arguably be under my control and supervision, right? So therefore the insurance company might say, Hey, well, you know, you were supposed to be there to supervise and you didn’t do it. And so that’s really negligent on your part, okay.

David Tran:
To work on that particular area of country and you didn’t do it, you didn’t supervise it. Why should we pay for your mistakes? So that’s a typical exclusion that insurance with her wife okay. Nets, they would argue typically a J five exclusion. Okay. If you were hired to cut this particular concrete, uh, uh, you know, feet, eight feet by, by eight feet and you didn’t do it correctly. Right. And in, in doing work on that particular piece of concrete and you messed up, right. What, a pain, but that, because you were supposed to do it right. And you didn’t do it. Right. And that’s really on you. So general liability insurance. We’re not our job. Isn’t to protect that that’s on you. Well, that’s one way of looking at it. If you hire an attorney, he would spin that around and think, Hey, I would, I was, uh, I’m sorry, my client was hired to do this particular, you know, concrete piece, 85, 80, but the damage to the conduit wasn’t with way beyond the eighty-five feet, the cutter went to 12 feet before he hit the conduit line.

David Tran:
So therefore we weren’t working on that one 80 by 18 piece. In fact, we were, we were outside of that area. So we were well into an area that wasn’t part of our contract. So that’s why we believe insurance company should cover this claim. Okay. So essentially, you know, you’re going to have an attorney from the insurance, uh, argue one thing, and then the claimant’s attorneys and argue the other. And whichever one can marshal their facts better is going to be the Victor. And it’s going to determine whether or not there is insurance coverage for that. Okay. All right. Um, the next argument that you want to pay, might’ve throw it out, throw it out at you. It’s what’s called the J six exclusion, J six inclusion, typically known as a faulty workmanship inclusion. Okay. So it reads like that particular part of the property damage that was incorrectly.

David Tran:
That was part of your incorrect work because during the, uh, uh, doing the ongoing operation, okay. That’s a pretty broad sounding inclusions. Hey, if you are doing that, when you are doing your job on that particular piece of the, uh, of the, uh, the work that you were contacted to do, and the mistake happened during that timeframe, right. Then we won’t cover you right now, again, that is still subject to interpretation. So what if the concrete cutter cuts to the conduit and he cuts through one, uh, you know, one part that wasn’t even discovered until after the project completed, right after he’d been accepted by the owner after it had been put to use, and there’s, uh, you know, people occupying the building. Well, you know, when you can turn around and say, look, it might’ve been a mistake, but it was not discovered doing the, uh, ongoing operation or during the time of construction.

David Tran:
If you can argue that, excuse me, if you can argue that then that the JSX inclusion may not apply. Okay. So why am I telling you all this? I’m telling you all that because it, nothing is a foregone conclusion. So whatever one side argues the other side can argue the opposite. So what does that mean to you? Would that mean to you is you, you should really have, um, a, a good CPA, a good accountant, and a good lawyer who understand construction to help you when this particular problem arises. Okay. Um, that’s about what I have for my presentation. So I’m going to open up for questions and I apologize for choking online, my voice

Seth Bloom:
That’s okay. It was a great presentation, David, and thank you for doing it. Um, I see some people are leaving now, so they must be, uh, on the run during this busy day, but we’ll wait around for another second and, uh, see if anyone has any questions. We’ll leave that open for a couple of minutes. And again, uh, thank you for joining today. Uh, my name’s Seth bloom, I’m senior director of attorney services at level-set and we love putting on these kinds of programs, our customers, and for lawyers. Uh, we also do CLS and we get great lawyers like David to participate in those as well. So, uh, don’t forget to go to the attorney network and leave a question, ask a question in all 50 States and get a lawyer in your area to answer them. Uh, David, I don’t think we have any questions coming in and, and people can also post those later or they can contact you directly. Uh, David works in the greater long beach Los Angeles area, and I’m sure he’ll take some cases outside of that zone. So, um, so we thank you so much, David for this, and I look forward to working in working with you in the future with level set and thanks to all our participants today.

David Tran:
All right. Thank you very much.