Arbitration Advice
This is a bit out of the scope of green building, but wanted to see if anyone in the GBA community had any experience with arbitration. We already have an attorney, and I realize the first advice is to listen to the attorney. But so far there hasn’t been much to show for it other than extensive costs. Our situation is that the original builder of our house largely stopped working on our fixed price, fixed timeline project during the pandemic and after over 2 years had not even completed framing. We went through the contracting board, went through mediation, but the builder took months between replies. After 10 months and thousands of dollars in attorney fees after mediation they were still asking for extensions to start any remedial work so we gave up on mediation. The only real next step seems to be arbitration. The problem is that this would cost 50-100k in attorney fees and it’s not clear if we would ever see much of that back if the builder just declares bankruptcy other than a small bond that wouldn’t even cover legal fees. Does anyone have any success stories from the homeowner’s side? Just hearing from others that have had to go through this would be much appreciated as there really isn’t much out there to go on. I decided to post this on an account that doesn’t have my name.
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It seems to me arbitration is generally a rig system in that your opponent picked the arbitrator and wrote the rules the arbitrator must follow.
Note your legal fees are almost never covered.
How much of your money has the contractor gotten paid to him? In most contracts he would get X % of a dollar amount after each milestone was completed. Sign contract pay 10% break ground 10% foundation complete 10%
Have any of the sub-contractors and suppliers filed liens?
Is the land titled in your name now?
My guess is the contractor is judgment proof in the it is a corporation with almost zero assets.
I think your efforts are better spent finding a new contractor willing to complete the project for a known cost.
Covid changed the world and given todays prices the contractor would lose a ton of money if he was somehow able to honor the contract. A lot of home contracts got voided after covid the buyers had no choice but to pay the new market price 20% more than before.
Walta
A fight like this is a war where only the attorneys win. Unfortunately i think your best bet is to cut your losses and start over.
Sorry.
What does your force majeure clause say? There is a huge difference between best efforts and commercially reasonable efforts which should be the basis of whether any arbitrator rules for performance of contract.
Either way, I agree with starting over. Even if your contract says best efforts, I don't think it's really fair or right to try to stick your builder with huge losses. No one could have foreseen what happened during covid. Yeah, it sucks to have your costs balloon; I'm living that right now. Besides, what kind of quality result do you think you will get if he is forced to build it for you?
"Even if your contract says best efforts, I don't think it's really fair or right to try to stick your builder with huge losses."
Turn it around though. Let's say things had gone the other way, prices had unexpectedly dropped. Do you think the builder would be offering to renegotiate the contract downward?
Under normal circumstances if the builder estimated or bid incorrectly then yeah, he should eat it. An unprecedented time when governments shut everything down, pumped billions of free money into economies inflating everything and factories and supply chains shuttered is not normal.
Thank you for the replies. Yes moving on is what I keep hearing, but from a homeowner's perspective that means the entire industry is broken and our contracts are in fact meaningless. I went with regular advice to get a good contract and hire an attorney to review, and have been following attorney advice all along. Builders have lien rights to take your home at any point, and even if completely bogus can cause you months of legal headaches and huge expenses just to resume building on your home. The homeowner just has the contract, which it turns out even if written in their favor would cost more than I would ever likely get back just to try to enforce.
walta100:
"Have any of the sub-contractors and suppliers filed liens?
- no, I made sure everyone signed lien releases including the builder. Unfortunately that meant I also paid them for all "work", even if shoddy.
"Is the land titled in your name now? "
- yes, I own the lot fortunately. The builder was just contracted to build a home on it.
" A lot of home contracts got voided after covid the buyers had no choice but to pay the new market price 20% more than before."
- there were no escalation clauses in the contract or grounds for voiding the contract. the builder just ignored it. so far that seems to be a working strategy and probably not their first time.
"My guess is the contractor is judgment proof in the it is a corporation with almost zero assets."
- yes this is the major concern. He has a lot of employees and equipment. But I have since spoken to builders that actively brag that they just lease everything to their own company for a dollar so that their company is worthless on paper if someone sues. Disgusting. Builders and banks can take our house if we go against the contract.
nynick-
I have already started over, but it goes beyond just not completing the contract. There were a lot of damages, so really it was 2 steps back to even move forward. The biggest is that the excavation had to be almost entirely redone at huge expense. It was not easy building the rest of the house with the bank on my back and a lot of work I had to redo let me tell you.
AC200-
Best effort. Which I can prove he did not do. He had an in house crew that were working on projects started after mine while my lot sat empty. There were no escalation clauses or economic impacts in the contract and he is liable for any damages/costs incurred to the homeowner from running over the deadline. I can understand the hardship cost increases cause the builder and I was patient and tried to work out and negotiate with him for over 2 years. This it turns out was a mistake. He just kept saying work would resume and didn't in any meaningful way. If he was honest up front that he could not complete the contract we would have been far better off at a time when other builders were 18 months+ out from new projects.
Builders can't take your home, and they are also at significant risk so liens are the only real leverage they have.
The pandemic and its impacts were unprecedented in modern times. Few builders would have been able to simply absorb the additional costs and stick to timelines when subcontractors became unavailable. Few builders have contracts that say, "if material costs double overnight and all of our regular subcontractors disappear, this is what we'll do..." It impacted everyone in or related to the construction industry.
If there were mistakes and you're otherwise unhappy with your contractor I don't see why you would want him back anyway. You own the land, you have signed lien wavers and have moved on with a new team; I recommend not letting this eat away at you.
"Yes moving on is what I keep hearing, but from a homeowner's perspective that means the entire industry is broken and our contracts are in fact meaningless."
Having worked in a B2B environment my entire career where you deal with professional procurement, project managers and production, it was a rude awakening to build my house. Schedules and commitments can be meaningless, some subs chronically lie about when they will show up wreaking havoc on the schedule and subsequent trades. Sometimes drawings and explicit written instructions are ignored and they do things because they know better and they have always done it their way.
There are also subcontractor gems who care about their work and whose word is their bond beyond any contact. I'm sure the contributors here are more like this. But it can be so variable that in the words of Forrest Gump, building a house is like a box of chocolates you never know what you are going to get.
It astounding sometimes to think about an industry that is so vital to our economy and life can be so dysfunctional, but it's what we have to work with to build a house.
Oregon, I feel for you... Its a frustrating and angering experience that if your not careful will take your mental health and every bit happiness that you used to have... One or two experiences like this in life and one becomes an ANGREY OLD MEAN PERSON. I went through 2 contractors in 2021 when I started my build, I got so disgusted, I have given up on contractors and I am building this house one weekend at time. Here I am 3 years later and I'm still not done. My saving grace is exactly what Walta 100 originally said... well defined MILESTONE PAYMENTS... here is an example of the milestone payment my second contractor exited on, which was building the walls... at a loss of of about 1K to me...
It should also be noted that the milestone payment schedule I defined scared off a lot of contractors. This is part of the reason no one wants to build my house... Contractors simply didn't want to be tied down to such details and time frame... But if you go through what I did, from the homeowner perspective... its not defined enough!
4.1. MILESTONE 1 CONSTRUCT WALLS: Construct and Stand up Walls as shown on plans. Foundation to be in place and ready for construction of the walls on June 15th 2021.
Owner shall pay a FIRM FIXED COST of $4500 for this milestone. 50% to paid upfront and 50% upon immediate completion.
4.1.1. Exterior walls Walls to be constructed per the supplied Framing Plan.
4.1.2. Interior walls to be constructed per the 2018 IRC building code as the contractor sees fit.
4.1.3. Headers on load-bearing walls to be double 2x8 per the plan (with room for 2” rigid insulation on the interior side to be done later by others).
4.1.4. Headers on non-load-bearing walls to be single 2x6 per the plan.
4.1.5. Foundation plates or sills shall be treated wood per the plan.
4.1.6. Neoprene Sill Structural Gasket (Conservation Technology or Equv) under sill plate.
4.1.7. Zip systems flashing tape (or equivalent) installed at top of all walls, exterior and interior, covering the top 3” of double top plates (1.5” for single top plate) and wrapping over and down the opposite portion of the top plate(s). This shall be done BEFORE THE TRUSSES ARE LANDED. This will allow for a continuous WRB from the exterior to the interior of the house.
4.1.8. Build, stand up, and sufficiently brace all exterior and interior walls, ensure 2x6 vertical posts for Glue-Lam beam are located in interior walls (or 3x 2x4) in Dining area.
4.1.9. Set Structural Glue-Lam Beam in the Dining area at the proper location and elevation indicated on plans to support the trusses.
4.1.10. MILESTONE 1 COMPLETE ON THIS DAY OF ________________________________2021
4.1.10.1. OWNER ACCEPTANCE_____________________________________________
4.1.10.2. CONTRACTOR RECIEPT OF PAYMENT_________________________________
How many more years of your short life are you going to waste away in your effort to hold this contractor to this contract?
2 years are lost and gone forever.
The best case scenario has zero work on the house for 2 more years and the builder slow walking the build for 2 more with you out 50K paid to your lawyer. After 6 years you get a poorly built house than make you want to vomit every time you look at it a low price point.
Find another builder pay the extra 25% and move into the house of your dreams in 6 months.
Walta
You have received some very good advice, and I'll just add to it. I have done quite a bit of work as a building expert in litigation/arbitration. These cases are very complicated and therefore, long and expensive. My first advice to all of my clients was to do everything possible to avoid this process, including walking away from supposedly big payouts assuming success at the end.
I did have some dramatic successes where homeowners were made whole, and a few total failures. Most cases were just unsatisfying settlements that helped nobody but the attorneys after several years of pain and suffering.
Best advice at this point is to take the $50k-$100k that you would have to pay an attorney and apply it to getting the house finished.