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.
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.