Laura and Daniel Holland wanted a custom home built on their Pocomoke City, Maryland dairy farm. They selected an architect to draw plans for a 3,912 SF residence. After several rounds of negotiations and changes, Don Littleton of Wicked Professional Services Inc. (WPS) agreed to build the house for $700,250. Don emailed Ms. Holland a construction contract created from a template on RocketLawyer.com. The Hollands signed the agreement. Work was to be completed by May 16, 2018.
If you know anything about Maryland construction contracts, you can see trouble coming.
To comply with Maryland’s Custom Home Protection Act (MCHPA), the agreement needs a long list of notices and disclosures:
- A draw schedule signed by the buyer and builder;
- A list of the primary subs;
- A notice that all changes have to be documented with change orders;
- A statement in bold type disclosing whether the builder is covered by Maryland’s home warranty program;
- A notice that the builder has to disclose the names of subs and suppliers after receiving each progress payment;
- A notice that the builder is required to provide waivers of lien from all applicable subs and suppliers after final payment to each sub and supplier;
- A notice about buyer's risk under Maryland’s mechanics' lien laws.
Omitting any of these notices in a Maryland custom home contract is an “unfair or deceptive trade practice" and makes the builder liable for losses due to the violation – including attorney fees. In the words of the trial court, the WPS contract based on a Rocket Lawyer template was "legally deficient and woefully inadequate."
The court evaluated the agreement as a "standard general contractor contract" as "accepted in the industry with a management fee tacked onto the end." The agreement was "not sufficient to establish the contract in the nature of a construction management or a cost-plus contract as is generally recognized." The management fee was "inconsistent with a general contractor arrangement generally and with the subject contract specifically" and was poorly defined. The contract did not specify when the fee was earned or how it would be paid. The court ruled Don’s addition covering the management fee to be vague and unenforceable.
If the job had gone as planned, WPS might have earned their $58,125 fee. But the job had problems. More than a year after scheduled completion, work still wasn’t done. Worse, the job was nearly $400,000 over budget. Project cost had ballooned from $700,250 to $1,075,102.
As pointed out many times in this space, when the job goes bad, you better have a good contract. WPS didn’t. The Maryland trial court denied WPS’ claim for $352,647 in damages. WPS would not be reimbursed for $218,347 they had paid to subs and suppliers on the Holland job.
Instead, the trial court awarded the Hollands $58,066 in damages, principally the cost to complete work. Last month an appellate court affirmed the award of the trial court but remanded the case to the trial court for a ruling on attorney fees. For any violation of the MCHPA, the Hollands can collect reasonable attorney fees.
In the words of the trial judge, “this was an unusual construction contract dispute because there were no complaints about the quality of the workmanship.” The problem was the contract – a bungled attempt to blend elements of cost-plus and fixed price agreements.
Don’t make the same mistake. Start every job with a contract as professional as the work you plan. Construction Contract Writer drafts letter-perfect contracts for any job and any site – whether fixed price or cost-plus. The trial version is free.