Minimize Construction Liability

If you are a licensed contractor in California, your clients and customers can sue you at any time.

Our introductory outlines, (and the seminars we give) have been developed from years of working with contractors who are being sued and are in the process of suing. Some of those suits were legitimate. Some were fabricated and exaggerated. Regardless, the average lawsuit cost the contractor more than $100,000 in hard cash.

Over and over, I have seen how contractors make the same simple mistakes in their contract documents, record keeping, and work performance. For lack of knowledge, they left themselves wide open to the inevitable lawsuit. I have sat next to contractors literally quivering with rage and despair as they read the demands their former client expected them to pay.

During my own years as a contractor, I made the same basic mistakes, and was sued a total of seven times, so I know what it feels like! I wish someone back then could have shared these same insights I desperately needed at the time. That’s the reason I’m making available what I’ve learned as an expert witness, so you can avoid the same stress, grief and financial devastation.

This outline introduces you to a set of strategies and practices that can dramatically cut your liability.

But remember, they are useless once you get sued. At that point, you cannot go back and change the past!

In fact, I am amazed that contractors will not take a few hours and spend a couple of hundred dollars to learn and put into practice methods and strategies that not only slash legal liability, but dramatically increase profitability!

Here’s a brief introduction to a few of the subjects we cover in our seminars:

If you get into a dispute with your client, the history of your performance as a contractor will be examined with a microscope.

There is no way on earth you can change or conceal what you did, or how and why you did it.

Although it could be months before a lawsuit is eventually filed against you, the process of Discovery will dig up every detail of your performance (and drive you crazy at the same time).

Don’t forget this vital truth. Your former client’s attorney will hire an expert like me to examine every document, change order and check you ever wrote.

There’s very little I miss when it comes to a forensic analysis of a contractor’s performance. I’ve done it all myself many times and I owe it to share my experiences with you!

I know about the tricks, the cash payments, the material purchases expensed against a business that are credited as wages, the “favors” traded with subs, the hidden discounts and the “invisible” change orders.

I didn’t do those sorts of things, but many contractors do, and guys like me know where to look and what to ask for.

Remember,

if you don’t have full written records, courts and juries will be inclined to believe you are concealing something.

Aside from all that forensic analysis of your contracts, change orders, invoices, payroll records and a review of plans, specs, allowances and permits, as part of a pending lawsuit, contractors will be expected to demonstrate that during the course of construction, they provided a level of service described as…

“Standard of Care.”

Standards and “Standard of Care” …What are they?

1)Simply put,
the general public has a reasonable expectation that a licensed contractor has professional knowledge in their licensed category. In other words, if you’re a licensed plumber, you ought to know how to change out a hot water heater (for example). That knowledge should extend to contracts, plans, specifications… and basically, everything within the world of construction. That would include building permits, workmen’s compensation, materials, pumps, fixtures, faucets, durability and suitability, billing, check handling, liens and etc.

“Standard of Care” tends to be a somewhat vague concept that will be expanded upon by a plaintiff’s attorney (if needed) using building codes, CSLB, and CASE LAW. (Case law is a very important component of law suits, and I explain what this is and why you need to understand it in our seminars).

But this is what you need to grasp right now. Once you get sued, your case, along with your reasons, justifications and excuses, could possibly (and eventually) end up in front of a jury.

If the plaintiff’s attorney has anything to do with it (and they do!) that jury will consist of the following people: seven mothers of newborns and five accountants.

I call this imaginary jury….

The Seven Mothers & Five Accountants Test:

I bring this up because I want you to think about the eventual end of the law suit you may be heading for now, or may encounter later. It was Stephen Covey, (Seven Habits of highly Effective People) who publicized the phrase: “Begin with the end in mind.” So although it’s true that 97% of cases never end up in trial, everyone has to “begin with the end in mind” and that “end” is that your contract performance could be spread eagled in front of this type of jury.

This is when “Standard of Care” comes alive as a guiding concept. Will those mothers and accountants be convinced you provided expert professional service and direction to your customer?

They will settle for a compromise. That’s the seven mothers and five accountants.
And, whether you like it or not, you will be held to a level of accountability by that jury, not unlike large corporations, where the consumer is treated as entirely ignorant.

You’ve seen those plastic bags that have printed labels warning you of the dangers of suffocation if you place the bag over your head? Well, duh! That may sound extreme, but that jury will be coached to expect you to deliver that level of support in documents and communication.

You must not only provide everything in writing, signed and initialed, you must follow through and perform as per your contract.
In other words, the record of your performance must keep those mothers and accountants “Happy.”

It’s also true that the plaintiff’s attorney (that’s the attorney who is suing you on behalf of his client, who may well have been your former customer) would much prefer to choose a jury of twelve women who were abused by contractors. But your defense attorney will want twelve contractors who were all sued and lost.

Did you get that..?

If they feel you have done a competent job of communicating, documenting, explaining and performing, you will have passed the “Standard of Care” test. But if not… Their frowns will turn (eventually) into a verdict against you.

That will give you a pretty clear picture of what “Standard of Care” really means for a contractor today. Of course, you will probably never see the jury, or get to trial (because your liability company will step in and negotiate a settlement on your behalf), but everything that takes place all the way up to settlement is based upon this jury scenario.
So the first step in reducing your liability is to take this picture and apply it back to how you prepare your contracts, what you get signed, how you do the work, how you handle the clean up, how you bill, how you get paid.

In other words, if those seven mothers and five accountants would approve of your clear and straight forward contracts, specifications and written descriptions; If they can see you gave a start and finish date; if you can show them every change order was issued before the additional work was begun, (and signed by the owner!); if your flow chart was simple and comprehensive, your lien notices accurate, your invoicing was easy to follow and your work product was excellent from beginning to end, including clean up—then, you will have a chance of being heard regarding all the other complaints arrayed against you.

But if you’ve missed it there… You may have missed it somewhere else too. Those “somewhere else” areas could include code compliance, over charging (even if you issued change orders), suitability of materials, tie ins on remodels, product failure, mistakes and errors, forgetting to obtain signed design approvals and product submittals, engineering, T-24, notifications, valid licenses on subs, testing and as builts, compliance with manufacturer’s recommendations etc. etc.