Managing Your Construction Project – information for a successful project

It is construction season.  Owners are planning and hiring for commercial and residential projects.  There are many qualified contractors in our area who are skilled and ready to assist.  How do you find them?  What should be in the contract?  What about warranties for the work?  The following practical tips and summary of the relevant law will give you the confidence to proceed with your project.

Identify the contractor.

There are a variety of ways to locate contractors.  Have you used a certain contractor before and been pleased with the result?  Does that trusted contractor do the type of work you need done?  Or, if not, can that trusted contractor give you a referral?  You can also ask neighbors, co-workers and other business contacts for referrals.

Contractor licensing.

The Minnesota Department of Labor and Industry is responsible for licensing Minnesota residential building contractors.  Hiring a licensed contractor in Minnesota ensures that the company has met certain standards that include continuing education and maintenance of proper liability insurance.

Hiring a licensed contractor in Minnesota may also allow access to Minnesota’s Contractor Recovery Fund.  The Fund is a statutory safeguard that compensates owners who have suffered losses due to a licensed residential contractor’s fraudulent, deceptive, or dishonest practices.  The Minnesota Department of Labor administers the Fund and can provide guidance on a claim.[1]

In Wisconsin, contractors must also have proper state credentials.  The status of a contractor’s credentials can be obtained through the Wisconsin Department of Safety and Professional Services.[2]  Wisconsin does not have licensing reciprocity with Minnesota.

What should be in a construction contract?

Once you have identified a contractor, and assured that the contractor has the proper credentials, you are ready to proceed with outlining the rules for the performance of the work.  There should be a written contract for any construction project.  At a minimum, the contract should cover the project’s cost, scope and timing.  There is always the possibility that the scope of the work could change during the course of the project.  Therefore, the contract should also cover the process for written change orders.

Minnesota Statutes require specific contractual provisions related to construction warranties and dispute resolution for residential projects.  Pursuant to Minnesota Statutes section 327A.08, the warranties required by sections 327A.01 to 327A.08 (described below) must be set forth as written warranty instruments that are to be included as part of the construction contract.  Statutory warranty exclusions under Minnesota Statutes section 327A.03, the right to inspect and offer to repair framework outlined in Minnesota Statutes section 327A.02, subdivisions 4 and 5, and the home warranty dispute resolution process under section 327A.051 (also described below) must all be conveyed in writing to a residential owner.

Statutory construction warranties for residential construction.

Minnesota Statutes Chapter 327A provides warranties that cover essentially any new dwelling or major home improvement project.

With new home construction the warranty period begins from the statutory “warranty date” (typically established by a “certificate of occupancy” from an inspecting authority), or from the date on which the initial owner takes title to the home.  The warranty period depends on the type of defect for which warranty repairs may be required.

A builder must warrant that during a one-year period the dwelling is free from defects caused by faulty workmanship and defective materials due to noncompliance with building standards.  There is a two-year warranty that covers defects caused by faulty installation of plumbing, electrical, heating, and cooling systems due to noncompliance with building standards.  And there is a ten-year coverage period that warrants that the dwelling is free from major construction defects.  A “major construction defect” is actual damage to the load-bearing portions of a dwelling.

Minnesota Statutes also cover home improvement work involving major structural changes or additions to a residential building.  The home improvement warranty periods mirror those covering newly constructed homes.  There is a one-year period for defects caused by faulty workmanship and defective materials, a two-year period covering the installation of plumbing, electrical, heating and cooling systems, and a ten-year period covering major construction defects.

Statutory dispute resolution.

Minnesota has a home warranty dispute resolution process.  With some exceptions, Minn. Stat. § 327A requires homeowners and contractors to employ the dispute resolution process before a homeowner warranty dispute can proceed to litigation. The dispute resolution process is administered by the Minnesota Department of Labor and Industry.[3]

Forbidden contractual terms.

An indemnification agreement is an agreement that provides that one party bear the monetary costs, either directly or by reimbursement, for losses incurred by a second party.  It is “risk-shifting.”  In a construction setting, a general contractor may demand that a sub-contractor agree to “indemnify” the general contractor for damages caused by the actions of the sub-contractor.

For many years risk-shifting agreements in Minnesota construction contracts that required a first party to indemnify another from that other’s own negligent or wrongful acts were prohibited.  However, there was an exception to this general prohibition that allowed contracting parties to obtain insurance for the benefit of one another.  Therefore, a general contractor could contractually require a sub-contractor to obtain insurance indemnifying the general contractor for the general contractor’s own negligence.  However, a statutory change to Minnesota Statutes Section 337.05(b) now forbids such agreements.  Therefore, any contract that contains a contractual indemnity section should be reviewed for compliance with current Minnesota law.

Conclusion.

Choosing a qualified contractor, clearly understanding the parties’ expectations and responsibilities, and ironing out the details in a legally compliant contract will go a long way toward ensuring a successful project while minimizing the chance for dispute.

Matt Hanka is an attorney at the law firm of Fryberger, Buchanan, Smith and Frederick, P.A. concentrating his practice in the areas of civil litigation, construction and land use.  Matt can be reached at (218) 725-6815.

[1] See http://www.dli.mn.gov/ccld/rbcrecovery.asp

[2] See http://dsps.wi.gov/Licenses-Permits/Credentialing/Trades-Professions

[3] See http://www.dli.mn.gov/ccld/ene.asp