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Avoiding Subcontractor Liens

August 6th, 2010 Contract Smart No comments

Last week, three of the largest national consumer protection agencies released their annual joint report on the most common consumer complaints, along with their recommendations.  As a result of repeated complaints about contractors, The Consumer Federation of America, National Association of Consumer Agency Administrators, and North American Consumer Protection Investigators indicated in that more laws are needed to “Regulate home improvement contractors and protect consumers from subcontractors’ liens.”

Although most people have heard a story or two about a home improvement contractor that acted less than professionally on a project, many are not familiar with the subject of subcontractor liens, also known as mechanic’s liens.  In short, a subcontractor lien occurs when a subcontractor, typically working under a general contractor, makes a claim against property they have worked on as a result of non-payment for their time and materials.  Although a subcontractor lien often arises because a general contractor has failed to pay a subcontractor from monies provided by the owner to the general contractor, some can occur well after the job is complete.  The latter instance sometimes occurs when a subcontractor finds himself in a financial bind, even if he was originally paid for his efforts on the job he’s filed a lien on.

Regardless of when a lien is filed, it is usually costly and time consuming to have it removed, and is an especially frustrating process when the owner unfairly suffers from misbehavior by a general contractor or subcontractor.   So how can an owner avoid these annoyances?  By having each subcontractor that works on their project sign a lien release or lien waiver in conjunction with payment.  A subcontractor lien waiver is strong evidence that the subcontractor has received payment for their work. The waiver can serve to deter subcontractors from filing invalid liens on an owner’s property or have invalid liens removed more quickly.

While additional laws and regulations may help protect consumers, they may be a ways off from being drafted and passed.  And even with laws on the books,  there is no substitute for a lien waiver for each contractor that works on a project as well as a good contract that provides each party with legal protections.  In Colorado, Consumer and Contractors alike can take advantage of the contract drafted by Contract Smart’s attorneys, who have significant expertise in the field of construction law.   When a contractor uses the Bid and Contract Management System from Contract Smart, he provides the owner with a third party contract that is designed to be fair and balanced and to provide the owner and the contractor with important legal protections.  He also has access to a subcontractor agreement to cover any subcontractors on the project, as well as subcontractor lien releases that can be completed as each subcontractor on the project is paid.  And since he Contractor can e-mail the owner a contract and an up to date summary of tasks for your project, you can stay in the loop during each step of the project.

If you’re an owner and you like to learn more about why the contractor on your next job should use Contract Smart, click here.  Or, if you’re a contractor, and you’d like to know how Contract Smart can help you better protect you and your customers, click here.

Finally, while we do our best to provide useful information to contractors and owners regarding the home improvement process, we are not attorneys and we do not provide legal advice.  We recommend that you always consult an attorney to address legal matters.

Construction Budgets as a Savings Tool

July 19th, 2010 Contract Smart No comments

Contractor Plans

We’ve all heard that home improvement projects “always take longer and cost more than you expect them to.” However, here’s a great article from homebuildingremodeling.com that illustrates how you can use a project budget and a detailed schedule as tools to buck this conventional thinking, while saving you both time and money on your next project.  We hope you find these simple tools as useful as we do.

Creating a budget and schedule for a construction project is going to be a great savings tool for you. While you can save money by shopping around for the best bargains, getting the best subs for the best prices, and many other cost cutting, money saving keys, it is important to realize that one of your biggest money savers is going to be your budget and schedule. These will help you to create a viable way to build the house you want at the price you want, and stay on task to do it.

If you are going to use your budget and schedule as a savings tool, you definitely need to have one. A great way to figure out the very most realistic budget and schedule you can is to get some help. In fact, your best option is to have a general contractor do it for you.

You probably want to save money by not using a general contractor, but using them as a resource is a great idea. What you are going to do is make sure you have all of your options covered. In case of the unforeseen, you might end up turning your project over to a general contractor anyway, so it doesn’t hurt to find a few and get bids on your project right from the start. Their bid will be extremely helpful to you in planning and budgeting your work, but only if you can get the most thorough bids possible. So, when you ask for a bid for your project ask for the following:

1. A written cost break down or budget. This is something you will want to see broken down well so that you can see what each line item will cost you separately. It will help you see what your most expensive items are, and give you an idea of where you should look harder for a bargain.

2. Have them indicate in writing (with contact info) who will likely perform each line item. In other words, have them tell you which subs they are going to be using. This is especially important so you can compare this bid to that of the other general contractors you get bids from, and find subs that can do your jobs well and for great prices.

3. A written calendar of completion, or in other words a schedule that meets your deadline. You will likely want to have them draw up a schedule for a six-month project. Have them break your construction project down and show you how long each item will take.
When you ask for the bid remember that if they give you a good enough price, it might be worth using them, so simply be straight forward with them, and challenge them to give you the best price they can. If you tell them that you will defer building, go with another contractor, or build your house yourself if their prices aren’t good enough, so you would like their best price, you will likely get it. Give them a chance to talk you out of owner building, and into using their services, but only if the price is right.

This approach will help you in two ways. One it will give you a more accurate idea of what your costs are going to be, you won’t have nearly as much mark-up from the general contractor, and two it gives you an option in case you find you can’t, or don’t want to owner build after all.

Use the information the general contractors provide you to come up with your budget and schedule. They have been doing this for a long time, and likely will be accurate in their bids, with some mark-up. Utilize your resources well, and your budget and schedule will act as a money saver you did not even realize you had.

One great resource available to homeowners and contractors alike to help with a project plan and budget is Contract Smart.  Through its innovative Bid and Contract Management Service, Contract Smart Member Contractors can collaborate with homeowners to develop a step by step project plan. With specific project goals and a timeline with payments tied to project completion, the Bid and Contract Management System can provide clarity and peace of mind for your project.  Contract Smart’s Bid and Contract Management System is currently available in Colorado. If you live outside Colorado, please check back with Contract Smart frequently for updates regarding our national expansion.