Subcontractors and Construction Defects – What is Your Legal Risk?

As a subcontractor on a project, there is a lot that is outside of your control. Unfortunately, though, if things go wrong and lawsuits are filed, you might get dragged into a legal battle even if you are not to blame. There are a few simple things to consider going into each project that will at least make you well-prepared for potential legal landmines.

The first thing to consider is who can sue you and who can’t. In Utah, the only person who can usually sue a contractor for performing poor work on their home is the person who hired the contractor. So, in the case of new construction and renovations, if the general contractor is sued, it's usually the homeowner who brings the lawsuit because they are the one who hired the GC. But, since the homeowner did not hire the subcontractors directly, they have no right to sue the subs. This means that, even if the homeowner knows for certain that the problem they are dealing with is limited to the plumbing, they will have to sue the GC, who then will have to sue the plumber. In the lawsuit that ensues, the homeowner will try to get what they can out of the GC and, in turn, the GC will try to get what they can out of the plumber.
It’s also important to consider what you can be sued for. This all depends on your contract with the person who hired you. In Utah, if your contract says that you will perform well below industry standard, the person who hired you will have to live with that. Or, if your contract says that your work will be absolutely flawless, that’s the standard you’ll be held to in court.

But what if there was no formal, written contract? In that case, things will get messy if you are sued. The parties will have to argue over what was implied and reasonably expected when you were hired. Your emails and text messages about the project might become important evidence about what the agreed-upon expectations were. In all likelihood, the court will agree that you were expected to at least perform to the standard widely accepted in the local industry. That standard will be established by expert witnesses – usually other construction professionals – who will testify about how a job like yours is normally done and what the best practices are.

Finally, how long are you on the hook for your work? That depends on the nature of your contract as well. If you used a written contract that was signed by both sides, your exposure under that contract lasts for 6 years. But if you did not use a written contract and your agreement was only verbal, your exposure lasts for 4 years.

So, the takeaways are these:
    (1) Don’t rely on handshake deals. If you do, you are leaving too much to chance. You can’t be certain of the standard of work you will be required to meet, or if you can hold the other side to the payment terms you believe you agreed on.
    (2) If you have any control over what the contract says, take full advantage of that. Make sure that it holds you to realistic expectations that you are comfortable with. Don’t let the contract hold you responsible for flaws in materials that you shouldn’t be responsible for or for delays     that are out of your control.
    (3) Maintain adequate insurance. Very often, construction-defect lawsuits turn into a fight between insurance carriers. This is because, if you are sufficiently covered, the insurance carrier will effectively take the reins for you in the lawsuit, hiring an attorney to defend you, paying the     attorney’s fees, and paying to settle the case if they decide it makes sense to.
 
Scott Welker- Miller Harrison LLC, Attorney
SLHBA Member