Q&A -contract with general contractors- are you protected?

 

Question:

Ken,  When working with  contractors in commercial installations does just  sales contracts have  enough information to ensure proper payment or collections if needed to be  filed? Should a separate sales agreement be signed by the owner of the facility  rather than the contractor? How do we ensure as an installing company that if  they do not pay they are liable? Please inform us of all proper paperwork need  when doing business with contractors

Thank you, Michael DiBattista

 

Answer:

    This is a complex issue because you need to  consider more than your rights in a collection situation.  You need to be  concerned with shielding your company from liability.    Let's deal with the issue you raised,  collections.  You are engaged by a general contractor to install an alarm  system.  Neither the owner of the building nor the tenant sign any contract  with you.  The general contractor does however sign your Sales Contract,  which covers the design and installation of the alarm system.  [I know that  many of you are thinking that the general contractor often refuses to sign an  alarm contract, but assume that the Sales Contract is signed].  You perform  your terms of the agreement; you install the system.  The general  contractor doesn't pay you some or any of the money owed to you.  What are  your rights?    You have a breach of contract action against the  general contractor.  You cannot sue the owner or the tenant, if there is  one, because your privity of contract is with the general contractor, not anyone  else.  The Sales Contract does have a legal paragraph that deals with  collection of money owed to you.  In addition to your breach of contract  action against the general contractor you may be able to file a Notice of  Mechanics Lien and then foreclose that lien.  That action would be against  the owner of the building.  Mechanic lien laws are statutory and may  vary state by state, but common to all is the right to file a lien when you have  contributed to the improvement of real property.  Whether you can file a  mechanics lien in any particular case may depend on the type of equipment you  installed.  Unless the equipment is considered permanently installed it may  not qualify as an improvement to real property [discussion of mechanic lien law  and rights are beyond this article].    So to answer the question, the Sales Contract does  contain sufficient provisions to recover for breach of contract from the general  contractor.    Now the question you didn't ask.  Should you  install an alarm system for an owner or tenant when only the general contractor  engages you, signs your Sales Contract, or worse, doesn't sign your  contract?  Assume the general contractor does sign your Sales Contract and  you install an alarm system.      After the installation the alarm fails and the  break down of the alarm system is clearly traced to the negligent error you made  in installation.  Let me make it a little more confusing.  After the  installation you do have the foresight to require the owner, or tenant if it's  the tenant who ordered the alarm, to sign a Monitoring contract and a Service  contract.      A lawsuit is commenced.  The subscriber of  course claims negligence in installation, which are the facts of this  case.  Your monitoring and service contracts are useless, they don't cover  the installation.  You have no contract with this subscriber for the  installation.    So you pull out your Sales Contract and look to the  provision that says that the general contractor is your subscriber or buyer and  that there are no intended beneficiaries, which you contend means that the  owner of the premises for whom you are now providing service and monitoring,  cannot sue on the negligent installation because you owed this non intended  third party no duty [an essential element of negligence].  Well good luck,  because I don't think a judge is going to have too much trouble holding that you  knew the general contractor was not in fact the user of this alarm and that  there was indeed an intended beneficiary, to whom you did in fact owe a duty of  care.    How can facts influence the outcome of a  case?  First, why should you find out when you can avoid the issue by  having the owner or tenant, the intended user of the system, sign the alarm  contract in the first instance, even if that contract provided that all money  would be paid by the general contractor.  Second, a familiar axiom in law  is that "hard facts make bad law".  What this means is that if the system  involved was a water gauge and the damage is a $500 carpet, the judge may uphold  the alarm contract and throw out the case.  What if the system is smoke  detectors and you failed to wire all of the detectors in the upstairs living  quarters and several children died of smoke inhalation.  Now how do you  think that judge is going to rule on your Sales Contract that the owner didn't  sign?    Trust me, these alarm contracts were not designed  so that I could provide legal services to the alarm industry.  These  contracts are for your protection, but they only work if you have the  subscribers sign them.  These contracts were designed so that you can build  your recurring revenue and increase the value of your business, but they only  work if you have the subscribers sign them.  These contracts were designed  so you can recover what you bargained for if the subscriber doesn't pay you, but  they only work if you have the subscribers sign them.    I know it's not always possible to get the  contracts signed and I know that you will be economically hard pressed to do  work even if you can't get your alarm contracts signed.  Even so, you don't  have to make a habit of it and you can still have proper business practices in  place and know when you are crossing the line and taking chances.      You would be surprised how often I hear from alarm  company owners who tell me they still don't use contracts, don't believe in  them, and yes of course know that maybe they should.  I don't know, maybe  these guys drive at night with their lights off, and who knows what else,  because they are just too lazy to turn them on, arrogant or stupid.  Take  your pick.  You can get the contracts you need at _www.alarmcontracts.com_ (http://www.alarmcontracts.com/) .  There  are lots of them, and you probably need them all.