By Ed Williams, RRC / Published December 2018
You are on your condominium board, and the board has just approved a $500,000 reroofing project. You have a one-page proposal from the roofing contractor. Do you sign this proposal? This is a question asked by many board members throughout the course of their tenure on the board. If we think this through logically, the board is committing $500,000 to a contractor who has furnished a proposal that protects the contractor. The only thing required of the board is to pay $500,000.
As a consultant primarily involved in condominium work, we see this every day. Sometimes a project goes well, and sometimes it does not. With all the complexities involved in the reroofing project, there is a very good chance that something will not go right. Keep in mind that reroofing is the most litigated area in the construction industry, and it does not have to be a roofing project. It could be paving, painting, or any other project commonly seen by condominiums.
We had a condominium association that had signed a major roofing project contract furnished by the contractor. The association had not hired a consultant or consulted with an attorney before entering into this large contract. The job did not go well, and the contractor was demanding final payment, but the roof was leaking. We were called in to find a solution. We reviewed all the documents in the file, including the signed proposal. We did an inspection of the roof and furnished a report of the deficiencies and the corrections needed. We then suggested to the association that they contact their attorney since the contractor was not returning phone calls.
The lawyer spent several months negotiating with the contractor’s attorney to try and reach an amicable solution. The attorney later told me that he had gone into this negotiation with one hand tied behind his back due to the lack of a strong contract. Consequently, he estimated that his fees were double what they would have been with a good, strong contract.
There are many good contracts available to you and your team. The one our firm recommends is the American Institute of Architects (AIA) contract between owner and contractor. The contract format can be adapted to any job of any size. Even if you are presented with one of these contracts, your attorney should review it to be sure that it covers your situation. In addition to the contract, AIA has payment applications to be used by the contractor for invoicing.
Keep in mind that any good contract offers protection to both parties. This is important because the contractor is not going to assign away all of his rights, nor should he. But regardless of what format is used, it is imperative that your lawyer review it and revise it as necessary.
Another important factor to consider is the payment and performance bond. This is very inexpensive insurance that protects the owner from default by the contractor. It pays all the bills that may be outstanding as well as completes the contract if the company should go out of business in the course of the contract. This usually costs about 1.5 percent of the contract, and our bid form requires that the contractor spell out the cost of the bond on the form. The higher the cost of the bond, the less faith the bonding company has in the contractor’s ability to finish the contract. Costs should run between 1.5 and 2 percent of the contract’s sum. If the charge is higher than 2 percent, find another contractor.
Keep in mind the scenario where the contractor’s performance was not up to par, as attorney’s fees are often a point of negotiation in trying to settle the dispute. Sometimes it will be paid as part of the settlement by the defendant, but sometimes not. A proper contract will define who is responsible for attorney’s fees in the event of a conflict.
Keep in mind when planning for a large project, which is defined as $10,000 or more, that you need to build a team commensurate with the experience or lack thereof on the board. Do you need to hire someone to design the project and monitor it? Do you need legal advice to prepare the contract? In our opinion, the answer is yes on both counts. Consider your consultant and your lawyer as part of the team to get the contract performed in an orderly manner. Our advice to our clients is always to present the contract to their attorney. When you think about the potential liabilities, it just makes sense.
Ed Williams, RRC
Ed Williams Registered Roof Consultant