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Take care in selecting your staff and superintendents:
- Be sure they are experienced and professional.
- Don't assign them more work than they can handle.
- Teach them proper reporting and documentation methods, and insist that they follow them.
Take care in selecting your subcontractors:
- Ask for references and check them out. Look at other work they have performed and talk to other builders.
- What is the subcontractor's history regarding warranty work, maintenance and insurance claims?
- Be sure that they receive and follow manufacturer's instructions, and document that they are following them.
New Products Require Special Care
If you have a new product, make sure that you and the installer meet with the manufacturer's representative to review the instructions carefully. Be certain to ask the representative if there are any special quirks about the product. Keep a copy of the instructions from each order of the product. Sometimes subtle changes in the instructions can let the manufacturer off the hook if you do not follow the instructions exactly as written.
When first using the product, ask the manufacturer's representative to come to the job site and inspect the installation of the product to confirm that it has been properly installed. If a manufacturer knows the installation method you are using and allows you to continue, then that method may become the accepted standard for the community.
Home owners can derive a false sense of security from products that are described as low- or no-maintenance. Be realistic with your home buyers about the amount of maintenance that will be required and their maintenance obligations. You may even want to compile a maintenance manual for them.
Shifting Liability to Other Responsible Parties
While it is probably not possible to avoid liability in all cases, there are some steps builders can take to minimize liability or to shift liability to other parties that is consistent with their responsibilities.
One of these steps is to put provisions in your contract requiring the owner to notify you of any defect and give you time to correct it. Respond immediately when you are notified that there is a problem. In moisture intrusion and mold claims, builders should consider responding even if they believe that the home is no longer under warranty.
Responding to a claim is not the same as accepting responsibility for the problem. Your response may depend upon factors such as what you believe is the cause of the problem, the total cost of the repair, the number of homes with similar problems and your financial condition.
If others may have liability — such as a subcontractor, supplier or manufacturer — notify them immediately and ask them to help correct the problem. If you have to correct the problem immediately without their assistance, document the damage carefully; take photographs; and keep precise records of what you have done to correct the defect and the cost involved. Your records will help establish your claim if you decide to proceed against third parties for the cost of the repair work and those parties, not having had an opportunity to see the damage before it was fixed, contend that it was not their fault.
There are two common methods of shifting liability to third parties. One is to use an independent contractor agreement with all trade contractors that includes performance standards. In addition, require trade contractors to follow the instructions of the manufacturers, and obtain from trade contractors a warranty covering the quality of their work and materials for the period of time that the home owner requires of the builder. For example, the warranty might begin on the date when the certificate of occupancy is issued and run in accordance with the dates outlined in the builder's limited warranty to the owner. Builders should insist on obtaining certificates of insurance from trade contractors before any work begins.
Also, if an inspector or an architect is retained by the customer, a provision in the contract may say that the builder is not liable for any actions he takes that rely on their recommendations.
Another risk-shifting option available to builders is the indemnification agreement. An indemnification clause allocates the risk of loss to the party that is directly responsible for the loss. An indemnification clause in the subcontract can help protect the builder from actions brought by the purchaser, the owner or other third parties relating to the trade contractor's work. For example, if the builder is liable to the home owner for defective construction by a trade contractor, an indemnification clause in the subcontract might entitle the builder to recover the cost of correcting the work from the trade contractor.
Finally, the contract may require the trade contractor to buy insurance to ensure that funds will be available to pay any judgment that the builder, the home owner or a third party wins against the trade contractor. This insurance makes it more likely that the trade contractor will have funds to fulfill its warranty and indemnification obligations to the builder, and makes it less likely that a home owner or other party will be required to sue the builder for injuries or damages caused by the trade contractor’s work for which the builder may remain legally responsible.
In addition to requiring the trade contractor to obtain liability insurance for itself, the contract may require the trade contractor to obtain liability insurance to protect the builder against any claims or lawsuits stemming from the contractor’s work. In fact, the builder’s own liability insurer often requires the builder to obtain such liability insurance for himself from his trade contractor.
(To learn more about risk shifting, NAHB members can click here to read the association's "White Paper on Risk Transfer for Trade Contractors.”)
Working With Your Attorney
Finally, it is important to consult with your local attorney to ensure that protective provisions in the contract are in place before any problems arise. In addition, when a problem does come up, consult with your attorney early in the process.
Your attorney can provide such services as examining insurance contract language, advising about statutes of limitation and other rights and helping draft letters to home owners and others. Where it is advisable for the builder to hire a professional inspector, it may be prudent to delegate this task to your attorney to preserve the confidentiality of the inspector's report.
Learn About Quality
Builders and trade contractors who want to learn more about quality are encouraged to contact the NAHB Research Center about its National Housing Quality Program, which includes Certified Builder and Certified Trade Contractor programs that are based on uniform quality principles that both need to apply to their businesses.
The program has gained recognition as a leading advocate and resource for quality-related information in residential construction. For more information on NHQ Quality Assurance Training, call 800-638-8556 x6225, or send an e-mail.
The recent rise in construction defect litigation — fueled in part by the introduction of new technological advances in building materials — shows no signs of letting up. In the meantime, by reemphasizing quality control, supervision and inspection in the construction process, and taking other preventive measures, builders can take steps to minimize their liability.
If you have questions for Ask the Lawyer, click here.
There is no guarantee that your question will be answered in this format, so if you have a particular legal concern that requires immediate attention, contact the NAHB Legal Research Service at 800-368-5242 x8491.
This information is provided as a service of the NAHB Legal Action Committee and NAHB Building Products Issues Committee. The information is intended to familiarize you with the law in this area. It is not intended to be an exhaustive presentation of legal information on this particular subject, and in no way constitutes an opinion of law. Your own attorney must review this information to determine how it may apply to your particular situation.
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