By Benton M. Eskelsen
One of the worst parts of working in the construction industry is how often clients, general contractors, etc. refuse to pay contractors for a job without any justification. Similarly, one of the worst parts of being an attorney for these contractors in such predicaments is when I have to tell them that it probably is not worth it to file a lawsuit for the unpaid amounts. This can occur even when a job is worth tens of thousands of dollars. Now, you might ask, how can that be? All too often, contractors and many others fail to use several simple legal tools at their disposal. In my experience, there are two powerful tools that contractors often neglect: inclusion of attorney fees provisions in contracts and the filing of a preliminary notice with the Utah State Construction Registry.
The right to recover attorney fees generally only exists when the parties’ contract contains an attorney fee provision or if a statute allows for recovery of attorney fees. The contractual and statutory routes to recovering attorney fees on construction jobs that go south are discussed below.
Will I get attorney’s fees if I sue a client for breach of contract?
In Utah a person is usually not guaranteed attorney fees for a breach of contract claim unless their contract contains a provision indicating as much. To give you an example of how detrimental this can be, let’s imagine that you have signed a contract to a construction job, and your contract is worth $50,000. Let’s say you complete all the work, and the person you contracted with is now refusing to pay you. You decide to sue the person for breach of contract. The person who hired you decides to fight the suit. Now you are stuck in a situation where very easily your attorney fees could grow to the point it that may not be worth it to pursue the issue in court. This can occur when the time and fees it would take to pursue those claims would leave you in the red. A court case can easily cost as much as, if not more than, your $50,000 claim, even if that case doesn’t make it to trial. A lawsuit that an attorney manages efficiently but that goes to trial will probably cost, at a minimum $50,000. Even if you settle partway through litigation after incurring $10,000 in attorney fees, that amount eats heavily at your bottom line. The reality is that litigation is expensive, and by not putting in an attorney fees provision in your contracts, you may not be able to shift the risk of attorney fees to the other side. You are putting at risk your ability to collect what is owed to you.
Despite that risk, it is impossible to ignore that there may be legitimate reasons to forego an attorney provision in a contract—or entering a written contract altogether for that matter. Deciding to pass on having a written contract may help you get more work. Certain clients may believe you are easier to deal with when you do not insist on a signed contract. Many clients may pass on your services if you require a contract because they want to avoid the hassle. Forgoing a contract might also help you take on work faster because you aren’t worried about getting the parties together in order to sign a contract. But far too often, failure to have a contract creates confusion over terms, ambiguity as to expectations, and reasons to sue one another. It is generally better, in my opinion, to have a written contract, regardless of whether it contains an attorney fee provision. Nevertheless, each party must engage in this cost-benefit analysis for themselves. However, it is important to understand the consequences of taking on more risk.
Now, while there are arguably reasons for a person not to have a written contract or not include attorney fees provisions in their contract, there is no excuse not to file a preliminary notice.
How do construction liens help me get paid?
A construction lien is another way that a contractor can protect their payment—and recover their attorney fees after winning the case. The filing of a preliminary notice is the first and most vital step to securing a construction lien. A construction lien allows a contractor to secure a property interest on the property it is working on, a right that is important if a contractor is not paid. A construction lien allows you to bypass a general contractor or owner and go directly to the property (which cannot run and hide) when seeking payment.
It is easy to underestimate how valuable preserving a construction lien is. For instance, if you have a construction lien and you follow all the laws required to maintain a construction lien on the property, it does not matter if a general contractor refuses to pay you or if the owner refuses as well. If you are not paid and you have a construction lien, that person who owns the property likely will not be able to transfer the property without you getting paid the value of your work. You, as a contractor, are entitled to file a construction lien by virtue of you being hired to do work on real property.
And as stated above, you are also entitled to attorney fees when you successfully enforce a construction lien. However, all of these protections, including the right to obtain attorney fees under Utah’s construction lien statutes, start with the preliminary notice.
Failure to file a preliminary notice is fatal to your ability to ensure payment through a construction lien. For instance, let’s say you are a subcontractor on a job, and the general contractor goes bankrupt. You now have very little ability to recover anything from the general contractor, and you have no contract with the owner, so you cannot generally pursue the owner through any other route than a construction lien on the owner’s property. Maybe the owner paid the general contractor, and the general contractor just didn’t give you the money they should have. At that point, even with a written contract between you and the general contractor, you have very little recourse.
However, if you had filed a preliminary notice, you could now start the procedure for filing and recovering the value of your work through a construction lien. This remedy will be completely unavailable unless you have filed a preliminary notice, which you generally must do within 20 days of beginning work. To find out more on how to file a preliminary notice, please view this article, visit the State Construction Registry Website (you do need to create an account to use this website), or talk with a construction attorney.
Both of the protections described above will help you secure payment but are most effective when done in conjunction. If you have a contract with an attorney fees provision and you have filed a preliminary notice on a job, you are protected by your contract and the potential for a construction lien against the property. If for some reason you need to go to court to recover payment, you can be more confident that you can require the other party to pay your attorney fees—the cost of going to court will not render any amount you receive from the lawsuit pointless because you pay an attorney more than you recover.
Do you need help with getting paid on a construction job?
The article above does not explain every issue you may have with payment on a construction job. If you have questions about a specific payment or job, I am happy to help, and I offer a free 15-minute consultation. My direct dial is 801-365-1029, and you can e-mail me at email@example.com.
Benton M. Eskelsen