Tuesday, June 28, 2011

Construction Contracting in Vermont – Part 2

I am back in Vermont and had a very pleasant golf game with Jim Mills at the Woodstock Country Club Golf Course with its narrow fairways, tight greens and plenty of streams crossing fairways and protecting greens. The setting is beautiful and Sunday afternoon was sunny with temperatures in the low ‘70’s – perfect golf walking weather. I took the opportunity to discuss with Jim the unpleasant experience he had with a customer that required him to bring a lawsuit for collection of monies owed under the construction contract. Yes, as you may recall from my prior article,  Jim was my constructon contractor who had told me that he had worked all his life without contracts with his customers and felt that if he needed a contract with a particular person then it was not the kind of person he wanted to work with.   

Basically the amount owing was Jim’s profit and when he sued the customer counterclaimed. The controversy involved alleged delays that Jim argued were due to change orders.  Jim had not been able to obtain signed approvals of the change orders but proceeded to implement them in good faith.

In Vermont mediation is a mandatory process in all civil litigation cases.  Mediation does not necessarily result in an agreement since the essence of mediation is for the neutral mediator to facilitate a voluntary settlement of the controversies.  In mediation, any of the parties can at any time decide that he or she does not want to continue and terminate the process without any obligation whatsoever. The mediation normally is undertaken over a one day period and in this case, according to Jim, things were moving well after some 8 hours when the customer decided that he did not want to continue having lost faith in the mediator. Obviously, the customer felt that he would come out better in court then under the mediation as it was developing.

The matter continued to be litigated in court and after a three year process, the counterclaim was dismissed, but so was Jim’s action for damages.  Another factor that may have been crucial was that there was no arbitration clause. Arbitration is usually quicker and less expensive and permits one to have more control of who will be deciding the matter which is particularly important in cases requiring special expertise such as construction contracts.

Jim had not followed his basic principle of refusing to deal with someone requiring a written contract.  He explained that he knew the person had a reputation of being litigious, but the construction of a newly designed large home in a prestigious resort was very tempting, and he felt that his people and construction skills that had served him so well over some 35 years without a claim would also allow him to resolve any issues that would come up. Jim recognized that he compounded the problem by also proceeding with change orders without obtaining the customers signature.  If you are going to work with a written contract then one needs to be consistent in obtaining signed amendments.   It has never ceased to amaze me how very sophisticated clients with in house attorneys uniformly fail to document changes and required renewals, not to mention not enforcing the normal contractual conditions.     

I mentioned to Jim that the CEO of our family businesses, Eggie Navas, has a saying that I feel is so true, “ You can never have a bad contract with good people nor a good contract with bad people.”  In other words, no matter how well a contract is written, litigious persons will one way or another find a way to litigate something in order to improve at the end their monetary position. I am sure you can think of a person in your community who fits this picture to the tee.  On the other hand, with good people a handshake will do, and if there is a written contract (which is something I always recommend), problems will be worked out in a mutually satisfactory way without either side taking undue advantage of the other.

Contracts, and diligence in following up with their terms, help prevent conflict, but even more importantly, dealing with good people is the best way to prevent conflict and facilitate the resolution of conflict if one arises. 

No comments:

Post a Comment