Protection Against Construction Claims

By Sam K. Abdulaziz

Most contractors know that construction claims have become a real problem in California. There is no way to completely protect yourself from construction claims.

California is very litigious and construction lawsuits continue to grow. However, although there is no way to absolutely protect yourself from claims, there are things that you can do to minimize the likelihood of such a claim, and maximize your ability to prevail in the event that someone makes such a claim against you.

The Contract

Other than qualifying your customer, the most important thing is your contract. A good contract is essential. It sets the stage. A contract should be used to define all of the rights and liabilities of the parties. If there is a dispute, the job of a judge and/or jury is to determine what the agreement of the parties was.

The following things are very important to include in your contract: time, scope, amount, work scheduling, payment scheduling, etc. If your agreement is set out in writing in accordance with the understanding that you have, there will be very little for the judge and/or jury to determine.

Change Orders

Many contractors do not pursue their change orders vigorously. That is not to say that you should gouge your customer. However, whenever your customer asks you to do something different, you should immediately document that fact and document all of the effects of that change order.

Such things as change in payments, change in price and schedules, change in work flow, etc., are things that should be included in a change order. Further, to the extent not changed, the change order should refer to and incorporate the contract.

Documentation

Make sure you keep adequate records of what transpired. Written documentation is very persuasive in court because latent defects have a 10-year statute of limitations, it's possible that you will have to "remember" things that happened a long time ago. Even if a lawsuit is filed quickly, it may not get to trial timely. Therefore, documentation is very important.

One means of documentation is carrying a clipboard with you and noting anything that is out of the ordinary, or something that the owner wants to change or anything that is said. Write that down, and send a copy to your customer. Confirm everything in writing. You may even walk around with a tape recorder and dictate those changes and have that typed and sent to your customer. Paper the job. Maintain a log of all submittals and requests for information.

Turn around all communications from your customer within 24 hours.

Frequent Invoicing

Another very important means of communication between you and your customer is the invoice itself. Frequent invoicing serves the purpose of having your customer pay you more quickly and more often. If there is going to be a dispute, you want to know about it earlier rather than later. You want to know about it before you put any additional funds into the project.

However, another reason for frequent invoicing is to communicate what you have done by way of the invoice. That is to say that your invoice showing progress could be used as an admission if disputes arise. As an aside, with respect to invoicing, if you are invoicing in stages, I would suggest that you invoice at the beginning of a stage rather than at the end of a stage. The reason for that is that it is very easy to determine when you began something but may be more problematic to determine when a stage is actually finished.

The Dispute

When a dispute arises, don't hide your head in the sand. Prepare to meet that dispute head on. Get the names and phone numbers of all other contractors on the project. Were there any other witnesses? Ask them their opinion. What did they see? What did they hear? Contact an attorney for advice.

Summary

In essence, remember that you can minimize your exposure and maximize your chance of winning by following some of the steps mentioned above.

Abdulaziz is an attorney and can be reached at P.O. Box 15458, North Hollywood, CA 91615-5458; (818) 760-2000