How to Avoid Litigation

The last thing you want is for a client to take you to court. David Crump, Jr., director of legal research for the National Association of Home Builders (NAHB) and counsel for its Construction Liability Section, offers ways you can avoid legal disputes with homeowners.

One important step is signing a comprehensive, written contract with your customer, Crump says. "Litigation often stems from differing expectations of the contractor and the homeowner," he says. Crump suggests you provide a contract that specifies what is to be done, who will do it and the materials to be used. It should outline everyone's expectations and responsibilities. "Then the contract is the dispute resolution mechanism," he says.

Among other things, Crump recommends that contracts include an "opportunity to repair" provision. This requires the homeowner to:

1. Notify you of his or her dissatisfaction with your work within a given timeframe.
2. Give you the opportunity to inspect the work to see if there is a problem.
3. Give you a reasonable opportunity to make repairs.

Crump notes that 25 states specify "opportunity to repair" provisions by statute. He believes offering the provision always is a good idea, even where it is not state law. "The idea is to correct the problem, not to run to the courthouse and sue, which is an inefficient way to resolve the issue," Crump says.

Crump urges even small remodelers to consult an attorney when drawing up contracts. "It's money well spent and it saves a lot of money [should you experience a claim]," he says.

Check your workers and the work they do to prevent potential legal disputes. "Sometimes workers may not be as well trained as you are," Crump says, "So you need to closely supervise his or her employees. This is especially important in critical junctures—installing windows or other procedures in which there is a risk that water can get inside and cause damage, for example."

To ensure customer satisfaction, Crump suggests you follow industry standards of construction, such as those found in the NAHB's publication, Residential Construction Performance Guidelines. "It is the reference book that both homeowners and contractors can reference to see if the work that has been performed is within acceptable tolerances, or if it is in need of warranty repair," he says.

Offering a warranty on your work—a promise to go back and make repairs if the workmanship proves faulty—and following through also can keep unhappy customers from going to court, Crump says (see Wise Warranties).

Finally, Crump suggests specifying an alternative dispute resolution (ADR) or arbitration process in your contract (see Is Your Company at Risk?). "These are mechanisms designed to streamline the dispute process," and usually are effective ways to avoid a courtroom confrontation, Crump says.