September 13, 2018
Author: Michael P. Ring
Organization: Law Office Of MICHAEL P. RING AND ASSOCIATES
What Are The Most Common Causes Of Disputes Between Contractors And Their Customers?
• Not understanding what the contract requires of each side.
• Changes before time and cost are agreed upon.
• Projects not completed on time and in Budget
• Changes or variations on a daily basis when directed changes or instructed variations are employed
• Requiring contractors to finance project change or variations
• Refusing to deal with extensions of time
• Failing to settle change or variation orders “full and final”
• Poor planning and use of wrong equipment
• Narrow interpretation of plans and specifications,
Contractor Practices That Contribute To The Problem
• Inadequate investigation before bidding.
• Unbalanced bidding.
• Bidding below costs and over-optimism.
• Poor planning and use of wrong equipment.
• Failure to follow authorized procedures
Owner Practices That Contribute To The Problem
• Changes in plans and specifications during construction.
• Inadequate bid information.
• Inadequate time for bid preparation.
• Narrow interpretation of plans and specifications.
• Restrictive specifications.
Legal Issues That Concern The Contractor
Business and professions code §7028 - Engaging in business without license. § 7028. Engaging in business without license; Fine and punishment; Statute of limitations
a. It is a misdemeanor for a person to engage in the business or act in the capacity of a contractor within this state without having a license therefor, unless the person is particularly exempted from the provisions of this chapter.
b. A first conviction for the offense described in this section is punishable by a fine not exceeding five thousand dollars ($5,000) or by imprisonment in a county jail not exceeding six months, or by both that fine and imprisonment.
c. If a person has been previously convicted of the offense described in this section, unless the provisions of subdivision (d) are applicable, the court shall impose a fine of 20 percent of the contract price, or 20 percent of the aggregate payments made to, or at the direction of, the unlicensed contractor, or five thousand dollars ($5,000), whichever is greater, and, unless the sentence prescribed in subdivision (d) is imposed, the person shall be confined in a county jail for not less than 90 days, except in an unusual case where the interests of justice would be served by imposition of a lesser sentence or a fine. If the court imposes only a fine or a jail sentence of less than 90 days for second or subsequent convictions under this section, the court shall state the reasons for its sentencing choice on the record.
d. A third or subsequent conviction for the offense described in this section is punishable by a fine of not less than five thousand dollars ($5,000) nor more than the greater amount of ten thousand dollars ($10,000) or 20 percent of the contract price, or 20 percent of the aggregate payments made to, or at the direction of, the unlicensed contractor, and by imprisonment in a county jail for not more than one year or less than 90 days. The penalty provided by this subdivision is cumulative to the penalties available under all other laws of this state.
e. A person who violates this section is subject to the penalties prescribed in subdivision (d) if the person was named on a license that was previously revoked and, either in fact or under law, was held responsible for any act or omission resulting in the revocation.
f. If the person engaging in the business of or acting in the capacity of an unlicensed contractor has agreed to furnish materials and labor on an hourly basis, \"the contract price\" for the purposes of this section means the aggregate sum of the cost of materials and labor furnished and the cost of completing the work to be performed.
g. Notwithstanding any other provision of law, an indictment for any violation of this section by the unlicensed contractor shall be found or an information or complaint filed within four years from the date of the contract proposal, contract, completion, or abandonment of the work, whichever occurs last.
h. For any conviction under this section, a person who utilized the services of the unlicensed contractor is a victim of crime and is eligible, pursuant to subdivision (f) of Section 1202.4 of the Penal Code, for restitution for economic losses, regardless of whether that person had knowledge that the contractor was unlicensed.
Business and professions code §7159 – Written agreement and fixed price for residential construction. 7159. (a)
(1) This section identifies the projects for which a home improvement contract is required, outlines the contract requirements, and lists the items that shall be included in the contract, or may be provided as an attachment.
(2) This section does not apply to service and repair contracts that are subject to Section 7159.10, if the contract for the applicable services complies with Sections 7159.10 to 7159.14, inclusive.
(3) This section does not apply to the sale, installation, and servicing of a fire alarm sold in conjunction with an alarm system, as defined in subdivision (n) of Section 7590.1, if all costs attributable to making the fire alarm system operable, including sale and installation costs, do not exceed five hundred dollars ($500), and the licensee complies with the requirements set forth in Section 7159.9.
(4) This section does not apply to any costs associated with monitoring a burglar or fire alarm system.
(5) Failure by the licensee, his or her agent or salesperson, or by a person subject to be licensed under this chapter, to provide the specified information, notices, and disclosures in the contract, or to otherwise fail to comply with any provision of this section, is cause for discipline.
(b) For purposes of this section, \"home improvement contract\" means an agreement, whether oral or written, or contained in one or more documents, between a contractor and an owner or between a contractor and a tenant, regardless of the number of residence or dwelling units contained in the building in which the tenant resides, if the work is to be performed in, to, or upon the residence or dwelling unit of the tenant, for the performance of a home improvement, as defined in Section 7151, and includes all labor, services, and materials to be furnished and performed thereunder, if the aggregate contract price specified in one or more improvement contracts, including all labor, services, and materials to be furnished by the contractor, exceeds five hundred dollars ($500). \"Home improvement contract\" also means an agreement, whether oral or written, or contained in one or more documents, between a salesperson, whether or not he or she is a home improvement salesperson, and an owner or a tenant, regardless of the number of residence or dwelling units contained in the building in which the tenant resides, which provides for the sale, installation, or furnishing of home improvement goods or services.
(c) In addition to the specific requirements listed under this section, every home improvement contract and any person subject to licensure under this chapter or his or her agent or salesperson shall comply with all of the following:
(1) The writing shall be legible.
(2) Any printed form shall be readable. Unless a larger typeface is specified in this article, text in any printed form shall be in at least 10-point typeface and the headings shall be in at least10- point boldface type.
(3) (A) Before any work is started, the contractor shall give the buyer a copy of the contract signed and dated by both the contractor and the buyer. The buyer's receipt of the copy of the contract initiates the buyer's rights to cancel the contract pursuant to Sections 1689.5 to 1689.14, inclusive, of the Civil Code.
(B) The contract shall contain on the first page, in a typeface no smaller than that generally used in the body of the document, both of the following:
(i) The date the buyer signed the contract.
(ii) The name and address of the contractor to which the applicable \"Notice of Cancellation\" is to be mailed, immediately preceded by a statement advising the buyer that the \"Notice of
Cancellation\" may be sent to the contractor at the address noted on the contract.
(4) The contract shall include a statement that, upon satisfactory payment being made for any portion of the work performed, the contractor, prior to any further payment being made, shall furnish to the person contracting for the home improvement or swimming pool work a full and unconditional release from any potential lien claimant claim or mechanics lien authorized pursuant to Sections 8400 and 8404 of the Civil Code for that portion of the work for which payment has been made.
(5) A change-order form for changes or extra work shall be incorporated into the contract and shall become part of the contract only if it is in writing and signed by the parties prior to the commencement of any work covered by a change order.
(6) The contract shall contain, in close proximity to the signatures of the owner and contractor, a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond.
(7) If the contract provides for a contractor to furnish joint control, the contractor shall not have any financial or other interest in the joint control.
(8) The provisions of this section are not exclusive and do not relieve the contractor from compliance with any other applicable provision of law.
(d) A home improvement contract and any changes to the contract shall be in writing and signed by the parties to the contract prior to the commencement of work covered by the contract or an applicable change order and, except as provided in paragraph (8) of subdivision (a) of Section 7159.5, shall include or comply with all of the following:
(1) The name, business address, and license number of the contractor.
(2) If applicable, the name and registration number of the home improvement salesperson that solicited or negotiated the contract.
(3) The following heading on the contract form that identifies the type of contract in at least 10-point boldface type: \"Home Improvement.\"
(4) The following statement in at least 12-point boldface type:
\"You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started.\"
(5) The heading: \"Contract Price,\" followed by the amount of the contract in dollars and cents.
(6) If a finance charge will be charged, the heading: \"Finance Charge,\" followed by the amount in dollars and cents. The finance charge is to be set out separately from the contract amount.
(7) The heading: \"Description of the Project and Description of the Significant Materials to be
Used and Equipment to be Installed,\" followed by a description of the project and a description of the significant materials to be used and equipment to be installed. For swimming pools, the project description required under this paragraph also shall include a plan and scale drawing showing the shape, size, dimensions, and the construction and equipment specifications.
(8) If a downpayment will be charged, the details of the downpayment shall be expressed in substantially the following form, and shall include the text of the notice as specified in subparagraph (C):
(A) The heading: \"Downpayment.\"
(B) A space where the actual downpayment appears.
(C) The following statement in at least 12-point boldface type: \"THE DOWNPAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS.\"
(9) If payments, other than the downpayment, are to be made before the project is completed, the details of these payments, known as progress payments, shall be expressed in substantially the following form, and shall include the text of the statement as specified in subparagraph (C):
(A) A schedule of progress payments shall be preceded by the heading: \"Schedule of Progress Payments.\"
(B) Each progress payment shall be stated in dollars and cents and specifically reference the amount of work or services to be performed and materials and equipment to be supplied.
(C) The section of the contract reserved for the progress payments shall include the following statement in at least 12-point boldface type:
\"The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A
CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWNPAYMENT.\"
(10) The contract shall address the commencement of work to be performed in substantially the following form:
(A) A statement that describes what constitutes substantial commencement of work under the contract.
(B) The heading: \"Approximate Start Date.\"
(C) The approximate date on which work will be commenced.
(11) The estimated completion date of the work shall be referenced in the contract in substantially the following form:
(A) The heading: \"Approximate Completion Date.\"
(B) The approximate date of completion.
(12) If applicable, the heading: \"List of Documents to be Incorporated into the Contract,\" followed by the list of documents incorporated into the contract.
(13) The heading: \"Note About Extra Work and Change Orders,\" followed by the following statement:
\"Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of work covered by the new change order. The order must describe the scope of the extra work or change, the cost to be added or subtracted from the contract, and the effect the order will have on the schedule of progress payments.\"
(e) Except as provided in paragraph (8) of subdivision (a) of Section 7159.5, all of the following notices shall be provided to the owner as part of the contract form as specified or, if otherwise authorized under this subdivision, may be provided as an attachment to the contract:
(1) A notice concerning commercial general liability insurance.
This notice may be provided as an attachment to the contract if the contract includes the following statement: \"A notice concerning commercial general liability insurance is attached to this contract.\"
The notice shall include the heading \"Commercial General Liability Insurance (CGL),\" followed by whichever of the following statements is both relevant and correct:
(A) \"(The name on the license or \"This contractor') does not carry commercial general liability insurance.\"
(B) \"(The name on the license or \"This contractor') carries commercial general liability insurance written by (the insurance company). You may call (the insurance company) at __________ to check the contractor's insurance coverage.\"
(C) \"(The name on the license or \"This contractor') is self-insured.\"
(D) \"(The name on the license or 'This contractor') is a limited liability company that carries liability insurance or maintains other security as required by law. You may call (the insurance company or trust company or bank) at ____ to check on the contractor's insurance coverage or security.\"
(2) A notice concerning workers' compensation insurance. This notice may be provided as an attachment to the contract if the contract includes the statement: \"A notice concerning workers' compensation insurance is attached to this contract.\" The notice shall include the heading \"Workers' Compensation Insurance\" followed by whichever of the following statements is correct:
(A) \"(The name on the license or \"This contractor') has no employees and is exempt from workers' compensation requirements.\"
(B) \"(The name on the license or \"This contractor') carries workers' compensation insurance for all employees.\"
(3) A notice that provides the buyer with the following information about the performance of extra or change-order work:
(A) A statement that the buyer may not require a contractor to perform extra or change-order work without providing written authorization prior to the commencement of work covered by the new change order.
(B) A statement informing the buyer that extra work or a change order is not enforceable against a buyer unless the change order also identifies all of the following in writing prior to the commencement of work covered by the new change order:
(i) The scope of work encompassed by the order.
(ii) The amount to be added or subtracted from the contract.
(iii) The effect the order will make in the progress payments or the completion date.
(C) A statement informing the buyer that the contractor's failure to comply with the requirements of this paragraph does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment.
(4) A notice with the heading \"Mechanics Lien Warning\" written as follows: \"MECHANICS LIEN WARNING:
Anyone who helps improve your property, but who is not paid, may record what is called a mechanics lien on your property. A mechanics lien is a claim, like a mortgage or home equity loan, made against your property and recorded with the county recorder.
Even if you pay your contractor in full, unpaid subcontractors, suppliers, and laborers who helped to improve your property may record mechanics liens and sue you in court to foreclose the lien. If a court finds the lien is valid, you could be forced to pay twice or have a court officer sell your home to pay the lien. Liens can also affect your credit.
To preserve their right to record a lien, each subcontractor and material supplier must provide you with a document called a 'Preliminary Notice.' This notice is not a lien. The purpose of the notice is to let you know that the person who sends you the notice has the right to record a lien on your property if he or she is not paid.
BE CAREFUL. The Preliminary Notice can be sent up to 20 days after the subcontractor starts work or the supplier provides material. This can be a big problem if you pay your contractor before you have received the Preliminary Notices.
You will not get Preliminary Notices from your prime contractor or from laborers who work on your project. The law assumes that you already know they are improving your property. PROTECT YOURSELF FROM LIENS. You can protect yourself from liens by getting a list from your contractor of all the subcontractors and material suppliers that work on your project. Find out from your contractor when these subcontractors started work and when these suppliers delivered goods or materials. Then wait 20 days, paying attention to the Preliminary Notices you receive.
PAY WITH JOINT CHECKS. One way to protect yourself is to pay with a joint check. When your contractor tells you it is time to pay for the work of a subcontractor or supplier who has provided you with a Preliminary Notice, write a joint check payable to both the contractor and the subcontractor or material supplier.
For other ways to prevent liens, visit CSLB's Internet Web site at www.cslb.ca.gov or call CSLB at 800-321-CSLB (2752). REMEMBER, IF YOU DO NOTHING, YOU RISK HAVING A LIEN PLACED ON YOUR HOME. This can mean that you may have to pay twice, or face the forced sale of your home to pay what you owe.\"
(5) The following notice shall be provided in at least 12-point typeface: \"Information about the Contractors' State License Board (CSLB): CSLB is the state consumer protection agency that licenses and regulates construction contractors.
Contact CSLB for information about the licensed contractor you are considering, including information about disclosable complaints, disciplinary actions, and civil judgments that are reported to CSLB.
Use only licensed contractors. If you file a complaint against a licensed contractor within the legal deadline (usually four years), CSLB has authority to investigate the complaint. If you use an unlicensed contractor, CSLB may not be able to help you resolve your complaint. Your only remedy may be in civil court, and you may be liable for damages arising out of any injuries to the unlicensed contractor or the unlicensed contractor's employees.
For more information:
Visit CSLB's Internet Web site at www.cslb.ca.gov
Call CSLB at 800-321-CSLB (2752)
Write CSLB at P.O. Box 26000, Sacramento, CA 95826.\"
(6) (A) The notice set forth in subparagraph (B) and entitled \"Three-Day Right to Cancel,\" shall be provided to the buyer unless the contract is:
(i) Negotiated at the contractor's place of business.
(ii) Subject to the \"Seven-Day Right to Cancel,\" as set forth in paragraph (7).
(iii) Subject to licensure under the Alarm Company Act (Chapter 11.6 (commencing with Section 7590)), provided the alarm company licensee complies with Sections 1689.5, 1689.6, and 1689.7 of the Civil Code, as applicable.
(B) \"Three-Day Right to Cancel
You, the buyer, have the right to cancel this contract within three business days. You may cancel by e-mailing, mailing, faxing, or delivering a written notice to the contractor at the contractor's place of business by midnight of the third business day after you received a signed and dated copy of the contract that includes this notice. Include your name, your address, and the date you received the signed copy of the contract and this notice.
If you cancel, the contractor must return to you anything you paid within 10 days of receiving the notice of cancellation. For your part, you must make available to the contractor at your residence, in substantially as good condition as you received them, goods delivered to you under this contract or sale. Or, you may, if you wish, comply with the contractor's instructions on how to return the goods at the contractor's expense and risk. If you do make the goods available to the contractor and the contractor does not pick them up within 20 days of the date of your notice of cancellation, you may keep them without any further obligation. If you fail to make the goods available to the contractor, or if you agree to return the goods to the contractor and fail to do so, then you remain liable for performance of all obligations under the contract.\"
(C) The \"Three-Day Right to Cancel\" notice required by this paragraph shall comply with all of the following:
(i) The text of the notice is at least 12-point boldface type.
(ii) The notice is in immediate proximity to a space reserved for the owner's signature.
(iii) The owner acknowledges receipt of the notice by signing and dating the notice form in the signature space.
(iv) The notice is written in the same language, e.g., Spanish, as that principally used in any oral sales presentation.
(v) The notice may be attached to the contract if the contract includes, in at least 12-point boldface type, a checkbox with the following statement: \"The law requires that the contractor give you a notice explaining your right to cancel. Initial the checkbox if the contractor has given you a \"Notice of the Three-Day Right to Cancel.\"
(vi) The notice shall be accompanied by a completed form in duplicate, captioned \"Notice of Cancellation,\" which also shall be attached to the agreement or offer to purchase and be easily detachable, and which shall contain the following statement written in the same language, e.g., Spanish, as used in the contract:
\"Notice of Cancellation\"
/enter date of transaction/
______________________________
(Date)
\"You may cancel this transaction, without any penalty or obligation, within three business days from the above date.
If you cancel, any property traded in, any payments made by you under the contract or sale, and any negotiable instrument executed by you will be returned within 10 days following receipt by the seller of your cancellation notice, and any security interest arising out of the transaction will be canceled.
If you cancel, you must make available to the seller at your residence, in substantially as good condition as when received, any goods delivered to you under this contract or sale, or you may, if you wish, comply with the instructions of the seller regarding the return shipment of the goods at the seller's expense and risk.
If you do make the goods available to the seller and the seller does not pick them up within 20 days of the date of your notice of cancellation, you may retain or dispose of the goods without any further obligation. If you fail to make the goods available to the seller, or if you agree to return the goods to the seller and fail to do so, then you remain liable for performance of all obligations under the contract.\"
To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to __________, /name of seller/ at ___________ /address of seller's place of business/ not later than midnight of __________. (Date) I hereby cancel this transaction. _(Date) ______________ (Buyer's signature)
(7) (A) The following notice entitled \"Seven-Day Right to Cancel\" shall be provided to the buyer for any contract that is written for the repair or restoration of residential premises damaged by any sudden or catastrophic event for which a state of emergency has been declared by the President of the United States or the Governor, or for which a local emergency has been declared by the executive officer or governing body of any city, county, or city and county: \"Seven-Day Right to Cancel
You, the buyer, have the right to cancel this contract within seven business days. You may cancel by e-mailing, mailing, faxing, or delivering a written notice to the contractor at the contractor's place of business by midnight of the seventh business day after you received a signed and dated copy of the contract that includes this notice. Include your name, your address, and the date you received the signed copy of the contract and this notice.
If you cancel, the contractor must return to you anything you paid within 10 days of receiving the notice of cancellation. For your part, you must make available to the contractor at your residence, in substantially as good condition as you received them, goods delivered to you under this contract or sale. Or, you may, if you wish, comply with the contractor's instructions on how to return the goods at the contractor's expense and risk. If you do make the goods available to the contractor and the contractor does not pick them up within 20 days of the date of your notice of cancellation, you may keep them without any further obligation. If you fail to make the goods available to the contractor, or if you agree to return the goods to the contractor and fail to do so, then you remain liable for performance of all obligations under the contract.\"
(B) The \"Seven-Day Right to Cancel\" notice required by this subdivision shall comply with all of the following:
(i) The text of the notice is at least 12-point boldface type.
(ii) The notice is in immediate proximity to a space reserved for the owner's signature.
(iii) The owner acknowledges receipt of the notice by signing and dating the notice form in the signature space.
(iv) The notice is written in the same language, e.g., Spanish, as that principally used in any oral sales presentation.
(v) The notice may be attached to the contract if the contract includes, in at least 12-point boldface type, a checkbox with the following statement: \"The law requires that the contractor give you a notice explaining your right to cancel. Initial the checkbox if the contractor has given you a \"Notice of the Seven-Day Right to Cancel.\"
(vi) The notice shall be accompanied by a completed form in duplicate, captioned \"Notice of Cancellation,\" which shall also be attached to the agreement or offer to purchase and be easily detachable, and which shall contain the following statement written in the same language, e.g., Spanish, as used in the contract:
\"Notice of Cancellation\"
/enter date of transaction/
______________________________
(Date)
\"You may cancel this transaction, without any penalty or obligation, within seven business days from the above date.
If you cancel, any property traded in, any payments made by you under the contract or sale, and any negotiable instrument executed by you will be returned within 10 days following receipt by the seller of your cancellation notice, and any security interest arising out of the transaction will be canceled.
If you cancel, you must make available to the seller at your residence, in substantially as good condition as when received, any goods delivered to you under this contract or sale, or you may, if you wish, comply with the instructions of the seller regarding the return shipment of the goods at the seller's expense and risk.
If you do make the goods available to the seller and the seller does not pick them up within 20 days of the date of your notice of cancellation, you may retain or dispose of the goods without any further obligation. If you fail to make the goods available to the seller, or if you agree to return the goods to the seller and fail to do so, then you remain liable for performance of all obligations under the contract.\"
To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to __________, /name of seller/ at ___________ /address of seller's place of business/ not later than midnight of __________. (Date) I hereby cancel this transaction. _ (Date) ______________ (Buyer's signature)
THE 4 C’S
COMPLETION - COSTS - COMPLIANCE – COMMUNICATION
Finish The Job!
Be In Budget, Or Get The Budget Modified In Writing!
Keep Your Licensure Current And Work Within Your License!
Keep The Lines Of Discussion Positive With The Customer!
– Bedside Manner Makes A Difference!