Here’s why it may be a good idea to have a lawyer assist you in drafting construction contracts.

Tom Gallagher, Esq., Partner

As a California commercial litigation and real estate attorney, I am commonly asked by general contractors to help recoup unpaid balances from their customers and complaints about the quality of the work.

Many common problems can be avoided if the contractor develops a clear and concise contract in their construction agreements and adheres to specific rules, empowering them to collect payment for their work on real property through a mechanic’s lien.

The contractor should anticipate change orders and progress payments and set forth grounds for premiums such as a cost-plus on materials. Having procedures to document change orders and communications makes the scope of work and latent conditions clear as the project progresses. As the contractor collects payments and performs work, certain milestones may allow for the recovery of progress payments.

What contracts does a construction contractor need?

A contractor should generally serve a “20-day Preliminary Notice” when they begin work to put the owner, prime contractor, or lenders on notice of your right to secure payment on the real property project via a mechanic’s lien. Service can be given personally or by certified mail, return receipt requested.

Mechanics Liens must be recorded within 90 days of the completion or cessation of a project. For example, if all work on a project has stopped for 60 days, such a stoppage may also be considered “completion” of the project. Recording means being recorded at the County recorder’s office in the county where the real property is located.

Finally, a contractor must sue for judicial foreclosure within 90 days of recording the mechanic’s lien. Otherwise, the mechanic’s lien will expire by operation of law.

Including a clause awarding reasonable attorney’s fees and costs to the prevailing party is essential to recovering your costs of hiring an attorney to defend or collect on a project. (Civil Code § 1717). Another consideration is to provide for the recovery of quantum meruit for the reasonable value of services rendered and the cost of internal investigation given the opportunity cost of such distractions to a busy general contractor.

Should I hire an attorney?

It is always good practice to speak to an attorney to ensure that your company is adequately protected of limited liability afforded to corporations and in good standing with California.

You should have an attorney review all of your currently used construction contracts for compliance with all aspects of the California Contractor’s License Law. In addition, we may offer additional suggestions on dispute resolution and best practices to use in collecting payments, handling employment issues, and subcontracting.

Call us at (858) 926-5797 or send us an email (info [at] tomgallagherlaw.com), and we can schedule a private consultation.

Nothing in this article should be construed as legal advice, nor does it form an attorney-client relationship. For more information, see generally California Civil Code §§ 8000-9566.

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