As a construction attorney, I see many of the same problems repeated between contractors and property owners. The names change, but imperfect (or missing) contracts, unreasonable homeowners, and payments disputes have become more and more common in construction. In November 2019, a trial was held between a remodeling contractor and a homeowner, and the final judgment entered this week reads as a textbook example of what can go wrong on a project and how not to deal with those problems. While I will summarize the judgment and give some recommendations in this blog post, the judgment is such a great read for contractors that I have included a link to a PDF of it at the bottom of this post.
The story begins when Hammer Construction Corp (“Hammer”) was hired by Werner Pfeifer (“Werner”) to remodel the interior of his Miami Beach condominium. The contract scope of work was as follows:
Replace up to 50% of existing drywall as needed to produce a smooth finish ready for paint, furnish and install wall insulation as needed; adjust wall framing, reinforce walls and furnish and install backing in bathrooms to accommodate vanities and any other wall mounted fixtures, furnish and install cement board in shower enclosures; install new shower pans, install all trim and fixtures in bathrooms including p-traps, angle stops, etc.); install new electrical wiring throughout unit as needed, install Owner-provided light fixtures (chandeliers, high hats, LEDs, etc.) furnish and install new quiet exhaust fans in bathrooms, relocate switches and dimmers where needed; adjust light fixture placement in ceilings as needed; install tile flooring and tile base trim throughout; paint interior portion of all window frames and balcony railings with electrostatic paint; replace window handles and bumper cones as needed; complete installation of air handler and duct system; furnish and install all interior doors except front entrance door; install front entrance door supplied by owner; paint interior throughout.
Even Hammer’s project manager admitted that this description was not very precise. With regard to change orders, the contract stated as follows:
Once the contract is signed, any modification or addition to this scope of work, whether necessary or implemented at the owner’s discretion will be billed to the owners separately.
Changes in specifications or additional work will be done by written change orders and entail payment by OWner of all additional costs plus normal overhead and profit.
The contract amount of $147,298.34 was to be paid with 50% as a deposit, 25% at completion of rough in, 15% at completion of trim out, and 10% upon final inspection by building department.
Two months into construction, the parties began to have issues arise between them. Werner claimed that the project was generating excessive “construction dirt,” imperfect ceilings, and that there was a lack of lighting to property conduct the remodel. Werner also stopped work at one point because the tiles on the balcony were being installed improperly in his opinion.
The same month as the issues began to arise, Hammer complained that they were being asked to do much more work than was originally agreed to and that payment for that work needed to be addressed. Hammer was managing logistics, supervising installations, and overseeing work that was not part of its contract or responsibility. Hammer sent a $36,301.24 change order to Werner for the extra work. After some negotiation, the change order was reduced to $29,865, but Hammer insisted that the payment be issued within 4 days or work would have to stop.
After payment was delayed a few more days, a meeting with Werner was scheduled, but Hammer made clear in an email it expected immediate payment at the start of the meeting or it was stopping work:
I know you said the owners wanted to cut a check once they got here, and that is fine, but now they're here, and so I'm going to be very forthright with this: in the event that I receive event he slightest hint that the owners are going to require that some new list of demands is met before they pay the change orders, or hand anything over our heads otherwise, I will pull off the job on the spot tomorrow and get the ball rolling on the legal side.
Hammer testified at trial that when he asked for payment at the start of the ensuing meeting, he was told there was no check and he would not be receiving payment. Werner testified that he did have a check but has some questions about the change order invoice he wanted resolved before paying. Regardless, that same day, Hammer left the meeting, and ordered its workers to stop work and leave the job.
Several days later, Hammer sent a letter to Werner indicating that he was not abandoning the job, but had stopped construction until payment was made in full for the work complete, which included the change order and the third draw under the original contract. When payment was not made, Hammer filed suit.
In rendering the final judgment, the trial court reached multiple conclusions. Both Hammer and Werner contended that the other breached the contract first. Hammer contended it was when Werner failed to pay the change order invoice; Werner contended it was when Hammer pulled his crew off the job site and terminated the work.
The court concluded that Hammer breached the contract first because (1) Hammer invoiced Werner only days before it demanded payment, (2) the invoice included work that was incomplete, and (3) the contract set no time for when change orders must be paid. Instead of sitting down and talking with Werner to resolve the concerns over the change order, Hammer stopped work, thus breaching the contract first.
Notwithstanding this, the trial court did not conclude that Hammer was not entitled to any payment. Werner was not entitled to work performed for free. After evaluating the testimony, pictures, and inspection reports, the trial court determined that of the approximately $55,000 Hammer was claiming it was due, it was actually due $39,000. The court then determined that Hammer’s breach of the contract had caused approximately $36,953 in damages to Werner, a reduction from the $155,529 originally sought by Werner.
At the conclusion of the trial, the court awarded $2,046 to Hammer (the difference between the amount it was entitled to and the amount to which Werner was entitled). The court also determined that under these circumstances, neither party was the prevailing party, thus neither was entitled to attorneys’ fees.
There are some key takeaways from this case. First, it is always tempting, as a contractor, to want to put a homeowner in his/her place, especially one that has taken advantage of your presence at the project or kindness. But this rarely is helpful in getting a project completed, and can easily form the basis for a breach of contract claim.
Second, before you stop work on a project, it’s important to make sure that the other side truly has breached the contract. Questions about payment, delays in making payment, or disputes over payment amounts may not be breaches unless the contract specifically indicates that they are breaches. So make sure your contract is specific about payment terms and obligations.
Finally, recognize that in a construction dispute, even if the property owner ends up paying you money, you still may not be able to recover the attorneys’ fees spent in litigation. Trial courts can declare neither party the prevailing party, which can drastically reduce the payout you could receive.
As I noted at the beginning, if you’re a contractor, it’s very much worth reading the entire final judgment. Click here to view a PDF of it.