Economic indicators show that the construction industry continues its recovery. Projects are increasing in number. And, regardless of whether you are a business owner working on a large commercial project, or a homeowner looking to update your home, keeping the following tips and information in mind will increase the likelihood that your project will be a success.
1. Picking a contractor
The first task is picking a contractor. Let common sense be your guide. For example, have you used a certain contractor before and been pleased with the result? Does that trusted contractor do the type of work you need done? Or, if not, can that contractor give you a referral? You can also ask neighbors, co-workers and other business contacts for referrals. Once you have a few contacts, interview the contractors, check with the Better Business Bureau to see if the contractor has received complaints, and ask for references. Finally, ask for the contractor’s license number and check with the Minnesota Department of Labor and Industry to make sure that the contractor’s license is in good standing.
2. Contractor licensing
You should hire a licensed contractor if you plan to build or remodel residential property in Minnesota. The Minnesota Department of Labor and Industry is responsible for licensing Minnesota residential building contractors. Hiring a licensed contractor in Minnesota ensures that the company has met standards that include continuing education and maintenance of proper liability insurance. Importantly, hiring a licensed contractor in Minnesota also allows access to Minnesota’s Contractor’s Recovery Fund. The Fund is a statutory safeguard that compensates owners who have suffered losses due to a licensed residential contractor’s fraudulent, deceptive, or dishonest practices, conversion of funds or failure to perform. The Minnesota Department of Labor administers the Fund, and can provide guidance on a claim.
In Wisconsin, contractors must have proper state contractor credentials. The status of a builder’s credentials can be obtained by contacting the Wisconsin Department of Commerce. Wisconsin does not have licensing reciprocity with Minnesota.
While Wisconsin does not have a fund like Minnesota’s Contractor’s Recovery Fund, there are specific Wisconsin laws outside of common law claims that safeguard owners against a contractor’s wrongful conduct. For example, Wisconsin’s Construction Trust Fund Statute protects owners against contractor misappropriation in private construction projects by creating a statutory trust fund for the benefit of the owner. The purpose of the trust fund statute is to ensure payment to labor and material suppliers, thereby protecting the owner from having to pay twice for improvements if the contractor fails to pay. Money paid to a contractor for improvements are considered “in trust” by the contractor. And, a contractor’s use of the trust funds for any reason other than to pay for labor and materials on that specific project constitutes theft by the contractor that could give rise to criminal liability.
3. What terms should be in a construction contract?
There should be a written contract for any construction project. A written contract removes the mystery related to the responsibilities of the parties to the contract. Generally, the contract should cover the cost and scope of the project. And, if the scope may change during the course of the project, the contract should cover the process for change orders. It’s advisable that both parties agree in writing to a change order and any additional cost before change order work is done. Again, the goal is to reduce potential disputes.
The contract should also cover insurance. The parties should understand the insurance responsibilities for the project. Does the contractor have insurance? If so, what is the scope of the coverage, and who or what is covered? Is the owner named as an additional insured under a policy for the project?
The parties should spell out the start and end date for the project. And, if the project cannot be finished on time, the parties should outline how that time frame is to be modified, and whether there will be penalties. For example, there should be a section regarding the handling of unforeseen circumstances such as delays caused by weather or adverse soil conditions.
The contract should also outline who is responsible for obtaining necessary building permits. Generally, a contractor obtains the permits because it is the contractor who is ultimately responsible for compliance with applicable building codes and inspection requirements.
4. Minnesota statute requires certain contractual terms for residential construction
Minnesota statute requires specific contractual provisions related to construction warranties and dispute resolution on residential projects. Under Minnesota Statutes section 327A.08, the warranties required by sections 327A.01 to 327A.08 (described below) must be set forth as written warranty instruments and must be included as part of the construction contract. In addition, statutory warranty exclusions under Minnesota Statutes section 327A.03, the right to inspect and offer to repair framework outlined in Minnesota Statutes section 327A.02, subdivisions 4 and 5, and the home warranty dispute resolution process under section 327A.051 (also described below) must also all be conveyed in writing to a residential owner.
5. Statutory construction warranties for residential construction
Minnesota Statutes Chapter 327A provides warranties that cover essentially any new dwelling or major home improvement project. With regard to new home construction, the warranty period begins from the statutory “warranty date” (typically established by a “certificate of occupancy” from an inspecting authority), or from the date on which the initial owner takes title to the home.
The warranty period depends on the type of defect for which warranty repairs may be required. For example, the builder must warrant that during a one-year period the dwelling shall be free from defects caused by faulty workmanship and defective materials due to noncompliance with building standards.
There is a two-year warranty that covers defects caused by faulty installation of plumbing, electrical, heating, and cooling systems due to noncompliance with building standards. And, there is a ten-year coverage period that warrants that the dwelling shall be free from major construction defects due to noncompliance with building standards. According to the statute, a “major construction defect” is actual damage to the load-bearing portions of a dwelling which affect, or are likely to affect, the use of the dwelling for residential purposes.
In addition to new home warranties, Minnesota Statutes also cover home improvement work involving major structural changes or additions to a residential building. The home improvement warranty periods essentially mirror those covering newly constructed homes. There is a one-year period for defects caused by faulty workmanship and defective materials, a two-year period covering the installation of plumbing, electrical, heating and cooling systems, and a ten-year period covering major construction defects.
6. Statutory dispute resolution
The Minnesota legislature has enacted a home warranty dispute resolution process. Homeowners and builders or home improvement contractors are required to employ the process before a homeowner warranty dispute may proceed to litigation under Chapter 327A (unless the parties agree to use an alternative dispute resolution mechanism). The goal of the legislation was to encourage and facilitate settlement of disputes, and limit the costs to all parties by providing an unbiased and nonbinding evaluation of the relative merits of the parties’ positions. The dispute resolution process is administered by the Minnesota Department of Labor and Industry.
Whether commercial or residential, successful construction projects start with proper and timely communication. The construction contract is the most important communication and memorial of the parties’ expectations and responsibilities. Choosing a responsible contractor, understanding the parties’ expectations and responsibilities, and ironing out the details in a written contract will ensure a successful project.
Matt Hanka is an attorney at the law firm of Fryberger, Buchanan, Smith and Frederick, P.A. concentrating his practice in the areas of civil litigation, construction, land use and administrative law. Matt can be reached at (218) 725-6815.