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Construction and Constructive Defects

A construction contract is a contract between a property owner and a contractor. A construction contract is formed by negotiation or bid. While a bid is an offer, an invitation to bid is not an offer. Bids must conform to the specifications of the project to be accepted. A contract between a subcontractor and a general contractor follow the same rules as construction contracts. Special protections are required in a home improvement contract. If there is no specified time to complete construction, a reasonable time is implied. If an architect is hired by the owner, he or she is considered an agent of the owner. If no price is specified in a construction contract, the price is the cost of construction plus profit and overhead. If there is a problem with a contract, the contractor can still sue under quantum meruit for services rendered.

Contractors or subcontractors may use several methods to enforce their construction contracts. One method is to file a mechanic’s lien to seek foreclosure of the property. Another method is to sue on the contract for a personal judgment. Another method is to go after a bond. Every licensed contractor should have a bond, and public projects require bonds. A bond is a means by which a 3rd party indemnifies a party to a contract for a fee. Another method to enforce a construction contract is to enforce a stop notice with the construction lender or funding company. A stop notice is a written demand by a contractor on the owner, fund control company, or other custodian of the construction funds, to withhold sums claimed by the contractor.

Defective Construction involves the potential liability of contractors, subcontractors, material suppliers, architects, surveyors, engineers, inspectors, developers, and owners. Liability for residential units sold new after January 1, 2003 is covered by “SB800”. SB800 provides statutory guidance on how to deal with builder warranties and repairs. A contractor is liable for defects in construction, not defects in plans or designs. An owner-builder takes on the liability of both seller and contractor. A contractor may be liable for breach of contract, negligence, implied warranty and fraud. Indemnity clauses and insurance policies may provide relief to contractors. A subcontractor is only liable for a portion of the work according to the plans and specifications. Engineers and architects owe professional standards of care as independent contractors, and their contracts must be in writing. Developers are often treated as manufacturers with respect to their liabilities. Certain immunities and protections apply to inspectors.

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