Contract language, lien waivers and insurance policies are among the last things a business or property owner wants to deal with when undertaking a major remodel or build-out, but what you don’t consider now may cause problems later. Contracts, lien waivers and insurance policies can provide owners much needed protection should problems arise. If there is a legal dispute, a court will typically look at the documents prepared in relation to the project to determine the parties’ legal rights and responsibilities. Therefore, it is important to ensure that all of the required documents are provided and that all procedures and requirements are followed to make sure you are protected.
Contracts Should Be Clear And Followed
Contracts should be clear as to the scope of work that is to be done, the responsibilities of parties regarding supplying of labor and materials, the timeframe for completion of the work, when payment is due, change orders, warranties, dispute resolution, insurance requirements and other matters of concern that may be expected to arise during the project. During the course of construction contractors should be required to comply formally with the requirements of the contract (i.e. written change orders signed by all parties; time for completion of various phases of construction adhered to or modified in writing).
Lien Waivers and Section 5 Contractor’s Sworn Statements
A lien waiver is a document from a contractor or subcontractor stating the amount of payment to date or for the entire project and waiving any future lien rights for work performed or materials supplied to the property where work was performed. Lien waivers should be received from contractors, subcontractors and material providers and reviewed for accuracy prior to payment. Additionally, a Section 5 contractor’s sworn statement should always be obtained from a contractor that is employing subcontractors to protect the building owner from possible later claims if the contractor does not pay his subcontractors. The Section 5 contractor’s sworn statement was key in protecting a property owner from a claim of a subcontractor in Doors Acquisition, LLC v. Rockford Structures Construction Company, 2013 IL App 2d 12052, 39 N.E.3d 8 (2nd Dist. 2013). In that case union members were not fully compensated by a subcontractor on a contract. The court held that the property owner properly relied on the amounts owed to the union members in the contractor’s sworn statement and did not allow the union members to recover additional sums from the property owner beyond those that were listed.
Certificates of insurance should be collected and reviewed to ensure they correctly reflect the insurance requirements under the contract for the construction, including identification of the owner as an additional insured (if agreed into the contract), the policy limits and the policy period. Preferably, owners should request a copy of the insurance policy because under Illinois law if the policy provides for different coverage than the certificate, the policy will generally control. Legal counsel or even an insurance broker can review and discuss the different parts of an insurance policy and probably answer most questions so owners understand what is actually covered and to what extent.
The foregoing are not all things to consider, but should provide a starting point for discussion prior to undertaking a major remodel or build out.