It’s rough for contractors out there in Colorado today. Materials and labor costs have
increased since 2020. Skilled labor is increasingly hard to find. And insurance companies in Colorado have taken steps to provide worse or no coverage to many common perils like fire and hail. All of this combines to squeeze contractors and increase the cost and delay of roofing or construction projects.
This has effects on property owners, too. When an owner hires a contractor, they have to place some amount of faith in the contractor. A deposit may be required, and then the two parties will embark on a long, often challenging process of trying to get the project done. Delays and changes in the scope of work are common for all but the simplest projects. And, if a contractor turns out to be incapable of performing the work due to financial or other reasons, it is not trivial to hire a replacement.
When Contractors Start Robbing Peter to Pay Paul
I believe that most contractors do their best to fulfill their contracts and do a good job. But, not all. In the work we do for homeowners, I have seen an uptick in the last few years of contractors engaging in dishonest or at least questionable conduct as their companies are failing around them. Commonly this looks like a contractor who is short of cash to finish projects for existing customers who then tries to sell new projects in the hope of using the new customer’s deposit to finish the old customer’s job.
This game of “robbing Peter to pay Paul” only has a limited lifespan, though. At some point, the contractor will not be able to get new jobs and, if the old jobs are still not done, the old customers will not pay. At this point, if not before, the lawsuits start. A common pattern is for a cluster of property owner or subcontractor lawsuits to be filed and then eventually followed up with a bankruptcy or, in extreme cases, criminal prosecution.
Getting a Judgment Is Only Half the Battle
If this happens, where does it leave the property owner? Getting a judgment against a misbehaving contractor is all well and good, but does not mean money goes back into the owner’s pocket. People in lawsuits are sometimes very unhappy to learn that after you get a judgment, the case is only half over: now you have to find assets to actually pay it. If a contractor spent all the money and went belly up or, worse, is in a jail cell, what money is going to be available to make the owner whole?
How to Vet a Contractor Before You Sign
The best time for a property owner to inquire is before hiring the contractor in the first place. How long has the contractor been in business? Are there good online reviews going back many years, or are there some credible negative reviews? Does the contractor have sufficient capital or access to credit to handle the size of the job, or is it going to be tempted to abandon your project once it blows past the initial deposit to keep cash flow positive?
Has the contractor (or a different company with the same owners) been sued for a construction defect before? Has the contractor or its owners recently filed bankruptcy? Are they still in the middle of a bankruptcy?
What You Need to Know About Contractor Insurance
Another major sticking point is insurance. Obviously, it is important to ask for proof of liability insurance before a project begins, but that may not be enough. I have seen cases where contractors provide fraudulent insurance certificates or where they allow the policy to lapse during the project. Once a contractor identifies the carrier, calling the insurance company to validate the coverage and the policy dates is often a good idea.
Even if the policy is valid, many property owners are surprised to learn what is covered and what is not. Most contractor’s insurance policies will cover damage caused to your property by the contractor, but not the defective work itself. Thus, for example, a contractor’s carrier might cover water damage caused by a leaky roof, but refuse to pay for the cost to replace the roof a second time. On top of that, carriers will usually resist covering damages related to fraud, theft, or other intentional acts by the contractor. In some cases, the policy even tries to exclude “contract” damages, which might be a large part of the harm when a contractor doesn’t finish a project.
When to Get an Attorney Involved
Not all of this research is something a property owner can do alone. In addition to reviewing the construction contract itself, attorneys have access to online court dockets and can check for defect cases and bankruptcies. They can also help review insurance policies thoroughly.
If your project involves a large amount of money, consider carefully whether it is worth getting counsel involved to help minimize your risk. If it is, consider contacting Moriarty Underhill or another lawyer with construction and contract law experience to help protect your money and your project.