This blog is from a webinar that was presented by SunRay Construction Solutions and Alex Barthet. Alex is a board-certified construction lawyer serving clients in Florida. In this article we will discuss how to deal with material price escalation – a real problem that is affecting the construction industry.
Steps to Try Before Hiring a Lawyer
The number one thing that we recommend you do is to start early. These are some other steps that you should also follow:
1. Have a fair written contract
Have a written agreement that is fair, addresses payment and specifically addresses non-payment. It should mention what happens if you are not paid on a project and what your rights are.
Many people incorrectly believe that if they are not getting paid, it does not matter what their contracts says, and that they have the right to stop working or top delivering material. That is not always the case.
There are some contracts that require you to work, provide labor and/or materials to a project even if you are not being paid. And your remedy is not to stop work, it is to follow the dispute resolution process that is set forth in the contract. This may mean that you have to go to arbitration, mediation or litigation in a court of law.
But under no circumstances can you stop working. As you can imagine, that is a very difficult position to be in, and you would of course like to know that in advance before you sign the contract. So, make sure that you read the contract that you are about to sign and understand all of its provisions.
Don’t do what other people do, which is look at the price, the schedule, skip to the scope of work and then ignore the boilerplate language that may be in that contract. So the other thing to consider is having your own terms and conditions or contract that you give to people. That is your contract. It can be written by a lawyer and prepared in a way to protect you over protecting the other side if they give you their contract.
2. Timely send a Notice to Owner
You should timely send a Notice to Owner even if you don’t need to under the lien law. If someone receives a Notice to Owner from you, they will take you more seriously. Even if you are in direct privity with or have a direct contract with the owner, you don’t need to send a Notice to Owner. But it is highly recommended that you do.
They will receive this document and they will understand that you are serious about getting paid. The other thing you can do is to make sure that you notice every job that you work on. Because for example, if you are a supplier to a subcontractor, once the notice goes out, the owner will be making sure to get a release from you before they pay the contractor. It acts as a check and balance on the payment process so that you get paid to the extent you need to send it.
It ensures that you have lien rights secured. So our advice is to notice every job over a certain threshold that you determine in your office is appropriate. This can be $250, $1,000 or $2,500. But whatever that threshold is, just have a process in your office and no matter what, notice all of those jobs. This is a great way to increase the likelihood of getting paid.
Cut off further credit
People do not like to do this, but you need to be able to cut off further credit on this job and other jobs to the extent that you are contractually allowed to do that. It is one thing to get burned for $5,000 but things will get worse if you continue to extend credit and get burned for a larger amount like $15,000.
When you take a decision to no longer take a greater loss, and you do not feel good about collectability, you need to cut off that customer.
Timely record your lien or send a bond claim
The bond claim is also called a Notice of Nonpayment. Again, this needs to be done no later than 90 days from your last work on the job. You need to make sure that you do this because this is the second step in the lien and bond claim process. The first step in sending the Notice to Owner within and no later than 45 days from your first work.
It is critical because this is the step that will set you apart from others who haven’t followed the lien law. You automatically rise to the top of the list of people who are going to get paid when payment is due.
For example, there was an owner of a hotel condo project that went bad. The property has 30 lienors that were owed money on the job and only those who timely served their Notice to Owner and recorded a construction lien, got paid. Nobody else had lien rights against the owner. They needed to pursue the contractor who went out of business. So those people who didn’t have the construction lien didn’t get paid at all.
Contact the debtor often
Call, email and visit the debtor often. You need to be the squeaky wheel that is going to harass the person who owes you money. This is so that they don’t forget about you and when the money comes in, they pay you so that you leave them alone. The most successful people actively work through their credit department to collect the debt. This is the best practice that you can employ.
What Can a Lawyer Do that I Can’t?
These are some of the things that a construction lawyer can do for you:
1. Advise you on the merits of your case
The biggest thing a lawyer can do for you is give you advice on the merits of your case and likelihood of success. An experienced construction lawyer deals with these types of cases on a regular basis. So they can look at your case and the situation and tell you whether you have a likelihood of success.
Then you can decide if you should walk away, settle the cause or take the offer that may be on the table. You will get some very valuable advice from a competent construction lawyer.
2. They will send a demand letter
They will send a demand letter for payment on the lawyer’s letterhead and this is typically the first step that a lawyer will employ. What it does is it conveys a strong message to the other side that as a result of the outstanding debt, that you have hired a lawyer. If they don’t resolve the problem, they know that a lawsuit may happen. They now also know that you are serious because you have retained the services of a lawyer.
3. Filing a lawsuit in court
The next step is a lawsuit which is something filed in court, or if your contract requires instituting an arbitration. Individuals can represent themselves in court irrespective of the amount of the debt. So an individual can prosecute their own case of their own money or as a defendant.
However, business must be represented by a lawyer for cases outside of small claims court. That is any case greater than $5,000. So if you are owed $14,000 and want to pursue that full amount, you can’t do it yourself. And the converse if also true. If you sue an entity that owes you money and they owe you $22,000, they will have to get a lawyer to defend them because they cannot defend themselves.
How Do I Recover Incurred Legal Fees in Florida?
In Florida there are really only two statutes that will help you recover your legal fees:
- Lien Statute, Chapter 713
- Bond Statute, Chapter 627
The statute that says the prevailing party is entitled to recover his or her legal fees. In Florida, there are two statutes that govern this issue – Chapter 713 which is the lien statute and Chapter 627 which is the insurance bond statute.
The statutes say that if you sue an owner on a construction lien and you win, or you sue a surety on a bond and you win, then they are obligated to reimburse you your legal fees. You do not need a written agreement in either of those situations, and you can still potentially recover your legal fees.
Written contract should say prevailing party collects legal fees
The other way to do it, is you need to have a written contract that says the prevailing party is entitled to recover his/her legal fees. If you and someone else have a handshake agreement, and if the other person has to sue you because you owe them money, they are not going to recover their legal fees for the oral agreement because there is nothing that says the prevailing party gets their legal fees.
Maybe there’s a written agreement, a signed purchase order or an invoice with terms and conditions. But if one of the terms and conditions is not that the prevailing party gets their legal fees, then the prevailing party won’t be able to collect them. So you need to have a specific provision in the contract that says the prevailing party in any dispute will recover legal fees.
Almost every case settles
Almost all cases, no matter how much money anyone is owed, settle. So be prepared.
Change your perspective on the legal process
It is highly recommended that you change your perspective on the way you think about this. No matter how much money you are owed, even if it is $100,000, usually the offer on the table is zero. The other side is not willing to or has not offered to pay anything.
It is unfortunate that you are in this situation, but don’t think about the legal fees that you are spending as dollars that you absolutely need to collect. Don’t think about it as the cost of getting as much as you can and thinking about the least amount in legal fees that you need spend in order to recover the most amount possible.
For example, assume that you are owed $100,000 and the other side isn’t paying. But maybe you only need to spend $5,000 in legal fees and the other side is willing to pay you $85,000 either because you force them into settlement or for some other reason. It would be nice to get all your money, interest, and legal fees but many times that is not doable. It is better to move on from litigation than it is to fight over absolutely every last nickel.
There are of course some cases where everything is recovered. But if you go in with that mindset, that you are only going to resolve the case if you get everything, then you may find that you chase every last dollar and spend more in the process.
How do I File a Small Claims Case Myself?
If you are going to take a case yourself to small claims court, you may be wondering what the process is and how to go about it. if you hire a lawyer you are likely going to have to spend some money. How much money is it worth or how much do you need to be owed to make it worth hiring a lawyer? This really depends on your business.
1. You must claim less than $5,000
A small claims court case has to be less than $5,000. Meaning that this amount is the most you can recover. Maybe you are owed $6,200 and you decide to take on the case by yourself. The court is only going to award you $5,000, so you will end up having to let go of $1,200 of your claim.
2. File a Statement of Claim and pay the filing fee
Now first, you need to file a Statement of Claim and pay the filing fee, which depending on the time and county that you are in, varies between $200-$250. This is the fee that gets paid to the clerk.
3. Serve the defendant
Next, you need to serve the defendant. You can either use the sheriff or hire a process server to serve the defendant. Usually you are looking at between $100-$150 to serve the defendant assuming that they are not avoiding service. Because if that is the case you may find that you are going to spend more as the process server tries to chase down the defendant who does not want to be served.
4. Attend the pretrial and conduct mediation
Once you serve the defendant, the court is going to give you what is called a pretrial. This is the date that you are going to show up in court. Not for the trial – which is why it is called a pre-trial – but the court is going to do two things. The first thing is they are going to see if the other side shows up. And if they do, they are immediately going to send you to mediation.
That is the process where you and the other side sit down with a neutral third party to try and resolve the case. If you can resolve the case at mediation, which will happen right there, then you will sign a settlement agreement on the spot which will become an enforceable contract.
If not, then after the mediation is over (which will last about an hour), you will go back in front of the judge and the judge will ask how many witnesses you are going to need. Then they will give you a trial date. You will then go back at some point in the future, (usually a month or two months in the future) and you will have your trial.
5. Get a trial date and prepare yourself
Before the trial and after the pre-trial, you are going to want to get all of your documents and witnesses in order so that you can actually show up on the date that the court gives you and attend the trial prepared. You will argue your case and then the judge will render a verdict, typically on the spot.
But sometimes they may take it under advisement and issue an order later. This is very rare. Most of these trials last around an hour to two hours for small claims cases. Sometimes it may even be half a day.
Now one of the greatest resources you should use is Google. If you google how to file a small claims case in __ county, almost every clerk is going to have a web page or a PDF on veery step of this process. It will be much more detailed than what we have written here. It will explain how to file the small claims case yourself.
Understand as well, that if you go through this process and you win, you will get a piece of paper that is a judgement and saying that you won and the other side owes you a certain amount of money. Then it is up to you to collect on that claim or judgment. So you will have to garnish bank accounts and you will have to issue writs of attachment so that you can pick up a car or a van that the other party may have.
You may have to levy on some of their equipment or property too. This requires the sheriff to get involved. So it is a complicated process and not easy unfortunately. Don’t think once you get the judgment that the other side has to pay you. Keep that in mind.
What Are the Associated Costs that a Lawyer May Bring for You?
Knowing the associated costs with hiring a lawyer can help you decide whether it is worth hiring them or just doing it yourself. To give you some rough numbers, a simple collections case through n advisory firm usually costs around $400-$800 to prepare and another $400 in filing and service fees. So it’ll be around a thousand dollars to start the process.
Once the defendant is served, if they never respond within the time frame, then they get what is called a default which usually costs several hundred dollars to prepare and file to get a judgment. So in total that comes to around $1,500. This is from the day when someone owes you money to 60 days later, filing a case, getting it served, getting a default, and a judgment against the other side.
But once you have the judgment, it is your job to try to collect on it. You may have to search for assets and bank accounts, which is usually another $700-$800. Once something is found there will need to be an execution on it which will maybe be another $500-$1,000. A bank account may be found or maybe nothing is found. So now you may have spent another $1,500 to garnish a bank account which has nothing in it.
Those are the risks and costs associated with pursuing a judgment. But understand as well that the other side may not give you a default. You have to fight about it, they hire a lawyer or defend it themselves and say that your materials didn’t show up on time, that the materials were no good, that they had to buy replacement materials, that your labor was no good and the work had to be fixed, whatever the process may be, if they defend it is going to cost more. So even a small case can get very expensive.
An example of such a case is an owner who hired a paver company to do work and didn’t like the work. The paver company thought he was owed $3,000, but the owner said they want to defend the case because the work was no good and that it has to be redone. After $25,000 in legal fees, the case is still open, and the underlying debt is $3,000. The owner could have just paid the pavers and be done with it, but they chose not to do that.
Sometimes cases can get out of hand depending on the other lawyer or the other side. But that is where the advice of a lawyer who can take the emotion out of it and make a business decision, can help you determine whether the settlement offer that is being made is good enough, or whether to move on, pursue the case, do it on your own, or if they can help you economically.