Safeguarding your construction business with Scott Green

Zach Wojtowicz:

Welcome to “The Building Code,” everybody. I’m Zach Wojtowicz.

Charley Burtwistle:

And I’m Charley Burtwistle.

Zach Wojtowicz:

Today, we have a topic that I’m very excited to talk about, construction law.

Charley Burtwistle:

Heck yeah. This is something that we are actually just upstairs, back at our real jobs, talking to a former attorney here at Buildertrend, and he was very jealous that we got to come down here and record this episode.

Zach Wojtowicz:

Let’s plug it. Yeah. Check out “The Better Way” with Nick Knihnisky, where we talk about lien laws, which we got into the origin of where liens came from and how it’s evolved over time. Super exciting stuff. And we like to bring attention to things that maybe you’re not thinking about right now in your construction business, but we know is out there to ultimately, make sure you’re the best construction business you can be. And so, Scott is on today to talk a lot about all the things that go into the contract and administration of your business.

Charley Burtwistle:

Yeah. He had sent over some pre material for us to bring Zach and I up to speed. Zach, you may not know, actually has a background a little bit in law, so he’s more up to the speed than I was. But I was going through some of these bullet points, and I was just … honestly, it was scary. I was like, “I didn’t know you had to prepare for that. I didn’t know you had to think about that.”

Zach Wojtowicz:

Your dreams of starting a construction company, and you’re like, “I better get a lawyer.”

Charley Burtwistle:

Yeah, exactly. That should be the title of his episode, you need what in your contract? Like, “Wait till the end to watch.” And I’m hoping … I mean, I’m sure he will because he sent over that material, that’s where we’re going to get in today. So, there should be a very, very exciting interview.

Zach Wojtowicz:

All right. Scott Green, welcome to “The Building Code.” Thanks for joining us today.

Scott Green:

Thank you. Glad to be here.

Zach Wojtowicz:

Awesome. Well, we talked a little bit about you in the intro, but we always like to ask our guests directly. Now, tell us a little bit about The Green Law Group and your story that brought you here on “The Building Code.”

Scott Green:

Yeah, so happy to. I grew up in the construction business. I went to law school at night, and I painted houses during the day.

Zach Wojtowicz:

Wow.

Scott Green:

And when I got out of law school, I passed the bar no problem. And I had no idea about what it was to be a lawyer. And my dad was an unlicensed contractor and a buddy had said, “Hey, Scott, you got to get your dad licensed up.” Well, that led to a 10-year partnership between myself and my father. So, as I learned about law, I was helping him legitimize his business. So, I was bidding projects, doing payroll, getting insurance, getting him licensed. I did that for 10 years. So, we grew this company from like a quarter million to four or five million a year, which is not a lot, but this is back in ’78 to ’88. So, that’s where I got my chops really. And from there in ’88, I opened up my own law office specializing in construction, and in particular helping contractors get paid. Because the most painful experience in being a contractor is doing a great job, holding your hand out, hoping to get a check and instead getting your hand smacked away. And now what are you going to do? You’ve already paid all your bills. So, been helping contractors with that issue now for 40 plus years.

Charley Burtwistle:

Wow. So, you’re definitely the lawyer they’re happy to see, the one that’s going to help get them paid.

Scott Green:

I hope so. Yes, exactly. That’s the way I look at it. Yeah.

Zach Wojtowicz:

Are you still involved with a construction company at all? Did you kind of …

Scott Green:

No, my dad passed a few years ago. But he was a good guy. He wanted to work till his very last day, and he did into his eighties. And when he couldn’t work any longer, he was bored stiff. But now I’m the managing partner of The Green Law Group. We have eight lawyers. And we all work on various aspects of construction law, employment, contracts, arbitration, litigation, mediation, you name it. A to Z construction law.

Charley Burtwistle:

Yeah. So, for our listeners out there and for Zach and I probably a little bit, too, what are some of the typical legal cases or issues that you’re genuinely seeing on a daily basis?

Zach Wojtowicz:

Yeah. When would a contractor want to talk to you? I mean, that’s really interesting.

Scott Green:

You want me to give you an example from just this morning? So, we have a new client. He worked on a couple of residential custom homes for the same developer. And he gets about 90% done on both projects, and they owe them a couple hundred grand on each project, and all of a sudden the money is stopped. And so, he is out $200,000, $400,000, right? So, he contacts us and says, “Hey, can you help?” So, we can. That’s what we do. The first thing we look at is, does he have a mechanic lien, the right to record a mechanic lien. It happens that he does, he’s already got liens. So, we’re going to help him take action enforce those mechanic liens. But we ask him, “Well, when you were following up on all this money and saying, ‘hey, where’s my dough,’ what explanation are you getting?”

And so, in this particular case he’s being told, “Well, the money’s just not there. We don’t have the funds.” So, we suggest that he write back and say, “All right. So, it has nothing to do with me. It’s just a hiccup in the finances. Put that in writing.” Because if we end up in court someday, we want that paper trail to nail that down. But we’ve got to look at his contract and see if he can get attorney’s fees back. Because the sad news is you can spend more than 200 chasing 200. So, unless you’ve got a contract that gives you the ability to recover fees if you win, you’re in a real tough spot. So, that’s a typical scenario.

Zach Wojtowicz:

That’s super interesting. I feel like contractors are in a unique position to where those legal conversations are happening more frequently than the average profession. I mean, like Charley and I work for a software company, we have service agreements and things like that, but the majority of our customers are never going to run into a legal issue. But your contract, every new job, they’re signing a contract, and they’re subcontracting out work based off an agreement. And so, I imagine you guys are busy and have a lot of customers that are talking to you on a daily basis.

Scott Green:

Yeah, you’re right. The other thing that’s unique about construction is you’re really in the unsecured credit business because contractors don’t get paid until after performance. So, it’s not like the supermarket where you can’t walk out with a loaf bread until you pay for it. Right. The contractor goes in, does work and then they submit a progress payment bill. And if they don’t get paid, now they’re kind of immediately in trouble because they’ve got to pay their labor and their materials. So, when I tell contractors that and say, “Listen you’re giving unsecured credit. Think about what you have to provide to a bank before you can get a loan for 10,000 bucks. You basically have to disclose your life history. And you might be talking to a customer who wants to enter into a $2 million contract with you. What do you know about these people? You don’t know anything. You might get stiffed.” So, it’s a unique business. It’s a great business. I love construction. I love contractors. Can be really fulfilling. But oftentimes it’s a lot more complicated than people realize.

Charley Burtwistle:

Yeah. I mean, Zach … just both of you guys were going through all the various touch points that happen along the way and all the contracts that have to be enabled, is that something that you’ve seen? We’ve had a few different guests on here in the past talk about just the crazy supply demand offset right now and how backed up a lot of manufacturers and distributions are, and it’s causing a lot of delays in projects. With these sort of delays and everything that’s been happening in the past couple years, have you guys seen a delay in payment? And as a result, more clients coming in trying to figure out a way to get paid?

Zach Wojtowicz:

Or more disputes because of it?

Scott Green:

Yeah, absolutely. We have. If we’re drafting a contract today, we’re putting in an escalation clause that essentially says, “Look, I’ve included X amount for, let’s say, electrical fixtures. But if that number goes up by 10%, I’m going to provide an affidavit showing my clause, and then we’re going to submit a change order, so we get some more money.” But just a few years ago, nobody was thinking about that. So, we’re getting calls from property owners and from contractors on the property owner side. It’s, “Hey, my contractor wants another 10 grand, and we had a fixed price contract. What’s up with that?” And from the contractor’s point of view, it’s, “Well, we had a pandemic. And that’s disrupted everything, and my costs are going through the roof.” So, there’s a lot of brewing disputes on that particular issue. It’s a mess.

Zach Wojtowicz:

Do you represent homeowners as well as contractors?

Scott Green:

I do.

Zach Wojtowicz:

You do both.

Scott Green:

I do.

Zach Wojtowicz:

Interesting.

Scott Green:

I walk both sides of the street.

Zach Wojtowicz:

Okay.

Scott Green:

And that’s a little bit unusual for attorneys, but from my perspective, the more I know about both sides, the better I’m able to represent my clients. And if I’ve got a property owner who contacts me, and they’ve really been run over by a contractor wrongly, I want to get that contractor out of business. I mean, my contractor clients, what I talk to them about is, “Listen, let’s figure out what the rules are and let’s play by the rules. Let’s run your business, so you can sleep at night. You don’t want to be cutting corners all over the place.” But the guys that are out there cutting corners and not doing things like getting insurance and such, they’re competing unfairly. So, I have no problem at all going after that.

Zach Wojtowicz:

That’s …

Scott Green:

And when I talk to my clients about it, they understand.

Zach Wojtowicz:

I love that. Your point of view is about making the construction industry the best for both the consumer and the contractor, which is really, really interesting. I wouldn’t have even thought of that. Generally when you talk to attorneys, they specialize on one side of the fence.

I’ve noticed you do a lot of education work, and you sent some information for us. And I found it super interesting to talk about some tips and tricks and things that contractors can be doing when going into a contract. I’d love to just hear a little bit of your advice to our listeners about if you’re getting your process buttoned up and figuring out exactly what you want to do with your business, what are the three things that you should do to be the best contractor you can be from a legal position?

Scott Green:

Yeah. Thanks for asking that. I think it’s an important question. I start with contracts. Contractors get into the business typically because they’re mechanics, they want to build things. They don’t like paperwork. The unfortunate, sad truth is the paper side of the business is at least as important as your ability to build things. You can’t ignore the paper side and that generally starts with the bidding process and then the contract. So again, I like to tell contractors, “Listen, keep the end in mind at the beginning. What’s the end? You want to get paid? You’re going to build this thing and at the end of the day, you want a check.” And so, right at the beginning, what happens? Well, you’ve got a new client. Who are they? Figure that out. Is it an LLC? Is it an individual? Is it a corporation? Is it a partnership? Who are you working with? Vet them a little bit. Are they in litigation? Do they have any financial wherewithal? That whole idea that you’re working in an unsecured credit environment, do a little bit of research.

And then you’re going to draft a contract or you’re going to get a contract. You’ve got to read the darn thing. And it might be a small telephone book, but what contracts are about is they’re about shifting risks between the contracting parties. So, if you get a contract, when you’re reading it, every provision you should look at it and think, “Okay, what just got pushed over to my plate? What am I responsible for? What’s it going to cost me? Did I include that in my bid or not?” And if you read a provision, you don’t understand it, circle it, send it back to the party that sent it to you and say, “Hey, you know what? I’m reading this thing and I can’t make heads or tails out of it. What did you have in mind?” Start a conversation. Don’t be afraid to negotiate. Particularly today because in times past when business is slow, you might have 10 contract actors lined to bid the same project. Not today. So, the contractors now have a little more leverage. And if there’s a provision in there that you didn’t include in your bid or doesn’t make any sense, at least ask about it. Too often, I think contractors just go to the last page, like, “Where do I sign? How much money is it? Let me get it back to them.” So you got to read the contract. That’s number one.

A close second is in California … And I’m a California lawyer. Licensed law in California is very strict, sometimes complicated, and the penalties for not being licensed for working within the scope of your license are onerous. You can’t go to court and get the money and you got to get back the money, and you might even go to jail. So, you have to make sure you’re correctly licensed.

The biggest mistake I see people in that regard is they have an individual license they incorporate, and they neglect to get a license for their corporation. They think, “Well, I’m licensed. I own a corporation. What’s the big deal?” In California, it is a big deal. Corporations are separate legal entities …

Charley Burtwistle:

Entities.

Scott Green:

They’ve got to have their own license.

I had a case years ago where a contractor incorporated using his personal names, let’s say it was John Smith. So, his corporation was John Smith Inc. Well, he had his client write all the checks to him as John Smith. And he went to the bank, and he just cashed them. Well, he didn’t have an individual license anymore, just a corporation had a license. So, when he took the money as John Smith personally, when it didn’t go to his corporation, he was contracting without a license. He had to give the money back. So, having your license, make sure it’s tuned out is a good idea, great idea. And if you’re a GC, general contractor, make sure your subs are licensed. In California if you have an unlicensed sub, all that subs employees become your employees.

Zach Wojtowicz:

Interesting.

Scott Green:

The obligation for workers comp becomes your obligation.

Zach Wojtowicz:

Wow.

Scott Green:

And in California, if you don’t have workers comp for all your employees, you can be subject to something called discouragement, which means give the money back.

Zach Wojtowicz:

I say, it doesn’t sound fun. Does not sound fun. This is connected …

Scott Green:

Not a good thing.

Zach Wojtowicz:

This is connected …

Scott Green:

The last thing I would say is take steps to secure your right to payment. So, when you’re not working directly for a property owner, you want to use a preliminary notice. A preliminary notice is something that puts the owner, general contractor and lender on notice that you’re working on this project, and that you have rights to secure your payment by recording a lien or doing a stop notice or bond claim in the event you’re not paid. So, that’s a way that you can convert your unsecured situation into potentially a secured situation. So, those are my top three.

Zach Wojtowicz:

I love it. I was just going to say, it’s connecting some dots for me. I had clients I worked with in California, and they’re very particular about the way they displayed their license number and the lien waiver situation, and their subs and how they displayed their license number. And I understood why they would want to do those things, but there’s legal implications of making sure those are visible to their clients I’m sure and making sure that all their documentation to avoid those penalties that you mentioned.

Scott Green:

Yeah. Yeah. California’s a different animal. I was just looking – I’ve got somebody who wants to … who is thinking about a franchise and in the construction area. But the franchise orders are out of Chicago. And when I said, “Well, let me see your contracts.” Well, they weren’t anything near meeting California requirements. And that was a big deal. So, California is unique. You got to know what the California laws are before you do business here.

Charley Burtwistle:

So, you mentioned contracts there, and I know that was your number one thing that you talked about for tips and tricks there. Are you actually going and helping contractors build out their own contracts. And if so, are there certain things that you always make sure are included in there, and the typical check boxes you check?

Scott Green:

Yeah. Great question. And yes. And there’s a lot about contracts. For instance, one size doesn’t fit all. Who are you? Are you a general contractor? Are you contracting with an owner? Or as a general, do you need contract with subcontractors? Maybe you want to have a master subcontract agreement with all your subcontractor. Are you doing residential work? Which in California requires a whole list of statutory disclosures to a homeowner. Or are you doing commercial work?

So, the first thing we have to do before we can help somebody with a contract is understand what are you doing and who are you doing it with. And then we want to see, well, what have you been using? We don’t know, for instance, as lawyers, what things you may typically exclude. Maybe there are things that come up like clean up, for instance. Maybe your assumption is that as a sub, the GC is going to have a trash bin there and they’re going to take all the rubbish away. So, you’re going to exclude cleanup of construction debris because you don’t want to get tagged with that responsibility if it’s not something you’ve included in your bid. So we got to learn something about the contractors, what they do, what they’ve been using, what works, what doesn’t work. And then we can help them customize an agreement or multiple agreements.

Zach Wojtowicz:

Yeah. It’s funny. Because a lot of our customers will ask us. They’re like, “Hey, can you provide contract language for … Or lien waiver?” We’re always like, “No, you don’t. You don’t want us to do that. Talk to a professional.”

Scott Green:

Yeah. I get it. I mean the assumption is that one size fits all and people have this idea. And I say, “Look, is that true in construction? Are all states the same? Are all doors the same?” No, they’re all different. So, you have to think of your contracts that way you need a contract that fits the particular facts and the parties of the project you’re talking about. And a lot of times somebody will contact us when there’s been a big dispute and we get their contract and it’s like, “Whoa this is a $3 million project. You got four paragraphs, kind of left out some stuff.”

Zach Wojtowicz:

Yeah. Thought that would cover it.

Scott Green:

Or more likely the contract is totally one sided because the guy who signed it just assumed that everybody was going to be fair about it, and he could just sign off, not really realizing that a whole bunch of responsibility got pushed his way.

One of the examples of that is whether a contract has an attorney fee provision or not. That’s one of my favorites. If somebody walks in to see me, and they’re owed a quarter of a million bucks, and they have a really great case, but there’s no ability to recover attorney fees in the event they win, I have to give them the bad news, which is, “Look, if we take this puppy all the way to trial, it may cost you a quarter mill.”

Zach Wojtowicz:

Wow.

Scott Green:

So, immediately you’re in the position of having to take a haircut because you can’t get those fees back. So, I think that’s a deal killer. If I’m in a position with the most likely dispute is I’m going to be owed money, and I might have to chase somebody through the expense of legal process, I want to get those fees back. And if I have that leverage, the first letter of the lawyer rights is, “Hey, if you don’t pay us, and we go to court, and we prevail, you’re going to pay an extra XYZ for our fees and costs.” So, why not come to the table now and avoid that grief?

Zach Wojtowicz:

That makes a ton of sense. And while we’re talking about things that people typically forget to include in their contracts, obviously, the recovery of attorney fees is an important piece, obviously, are there any other provisions? You’ve mentioned escalation clauses as well, or any other things that can cause big problems. Structural acknowledgements I’m sure is a place that people are required by, in a lot of states, to have coverage and don’t acknowledge that in their contracts is … or am I off there? I’ve just heard that from builders.

Scott Green:

Yeah. Well, when you talk about structural, you are talking about engineering plans, things like that.

Zach Wojtowicz:

The foundation and coverage and …

Scott Green:

Yeah. And of course that relates to the scope of work you’re bidding. And you want to make sure that you’ve got plans that aren’t full of conflicts or aren’t full of ambiguities. Because as a contractor, if you’ve been a project per plans, and you don’t pay real close attention to what’s in there, and then you’re actually performing the work and the architect says, “Well, listen, I want you to build this in a completely different way, in a more expensive way.” And you say, “Well, I said I’ll build it per plan.” And you go back to the plan and it could have been built A way or W way, as a contractor, you’re stuck. You’re going to have to build it in accordance with the direction from the architect. Whereas, if you looked at the plans carefully and you saw that there were ambiguities, you’d submit something called an RFI, a request for information to say, “Look, I see a conflict between A3 and A6, which way do you want to go here? So, I can give you a bid.” So plans real important.

But I would also say that dispute resolution provisions, critically important. You want to stay out of port if you can. So, if you have the ability to go to arbitration or mediation or both of those, as opposed to going into court, where there’s a possibility you could be in front of a jury, well, you want to avoid that. The contractor who goes to court in front of a jury, sadly wears a black hat from day one.

I had a jury years ago, where one of the jurors got up in the middle. That’s when the lawyers are questioning the jurors to see if they can be fair. And the jurors stood up and told horror stories about what had happened to him with a contractor while I’m representing a contractor. And it’s like the whole jury pool just got tainted listening to this guy’s horror story. Now, that guy didn’t serve on the jury, but it was too late. It was like my whole jury … Now, truth is everybody’s heard horror stories about the contractors. But you don’t want to be in front of a jury where somebody could be looking for a great opportunity to get back for something that happened to them.

Zach Wojtowicz:

Your honor, can I get 12 strikes, please? I need an entire order before …

Scott Green:

Yeah. So, I prefer arbitration to litigation because we’re going to get an arbitrator who’s going to be schooled likely in construction, and it’s going to be more likely to be based on the facts of the law, where in a jury you don’t know what you’re going to get.

Charley Burtwistle:

Yeah. Well, Scott, we’re getting pretty close to time here. I want to give you a chance at the end though to … I feel like construction law is one of those things that you don’t think about until it’s too late, obviously, is one of the … Ideally, you never have to go in and to your lawyer as much fun, as I’ve had talking to you today, what are some things that people can do proactively to think about whether they need legal advice or legal services, or they’re not sure if they need it and they just want to make sure that they covered, where would you recommend or listeners that may be thinking to themselves like, “Oh crap, you, I don’t want this to happen to me,” where would you re and they start?

Scott Green:

Yeah, well, I’m going to be a little self-interested here, and I’m going to share the fact that on our website, thegreenlawgroup.com, we’ve got probably 30 videos, all addressed to contractors, essentially.

Charley Burtwistle:

Nice.

Scott Green:

Because one of the things in my career that I’ve done from day one is try to be proactive in educating contractors about where the pitfalls are. Because contractors are good people. I mean, I don’t think you get into this business with malicious intent. You get into it because you love to build things, you like to see the finished product, you like to hear that somebody enjoy and appreciates the work you did. But it’s also a complicated business. And if you don’t realize what the pitfalls are, you can get knocked off course or knocked out business. So, our website is chock full of articles and videos. And if that’s not enough, I’ll send them a PowerPoint that’s about 400 pages long and you can use that to go to sleep at night.

Zach Wojtowicz:

Dreaming about contract law.

Charley Burtwistle:

There you go.

Scott Green:

Or nightmares.

Zach Wojtowicz:

Yeah. Yeah. How to avoid it, hopefully.

Charley Burtwistle:

We’ll definitely link your website in the shownotes. So, everyone that’s listening could go out there and click on that and dive into any and all things construction law.

Zach Wojtowicz:

Yeah. Scott, thanks so much for joining “The Building Code.” This is really enlightening. We loved having you.

Scott Green:

Hey guys, I appreciated it and thank you.

Zach Wojtowicz:

We just had Scott Green of the Green Law Group here on “The Building Code,” talking about what you need to know as contractor when it comes to construction law. And I always like to do this, Charley, what’d you learn, buddy?

Charley Burtwistle:

I learned a ton. That was probably one of the more informative episodes for me because it’s something I didn’t have a whole lot of background in. And I feel like it’s typically something that people don’t like talking out because it’s scary.

Zach Wojtowicz:

Intimidating.

Charley Burtwistle:

Yeah. You don’t want to think about what happens if I don’t get paid this quarter of a million dollars, what happens if my subcontractor isn’t licensed and all of a sudden I have all this risk and liability on me. Those aren’t necessarily light topics that Zach and I would discuss at the bar after 5:00. But things that …

Zach Wojtowicz:

I would.

Charley Burtwistle:

Yeah, you are.

Zach Wojtowicz:

That’s why I sit by myself at the bar.

Charley Burtwistle:

Your little lawyer mind gets constantly turning about those things. But that was, I don’t know, it was really eye opening for me. I hope that everyone that’s watching or listening to this episode goes out to scottgreengroup.com checks out … that’s not the … is that the URL?

Zach Wojtowicz:

The Green Law Group.

Charley Burtwistle:

Thegreenlawgroup.com. We’ll have it linked in the shownotes for sure. Watch some of those free resources, free videos, inform yourself. It’s not fun to think about, but it will be way less fun if it happens to you, and you’re not prepared.

Zach Wojtowicz:

Yeah. I want to see if I can nail the expression here. The best time to be thinking about when you need a lawyer is when you don’t actually need one.

Charley Burtwistle:

There you go. That’s a t-shirt idea for sure.

Zach Wojtowicz:

Oop, put it on the list.

Charley Burtwistle:

Put it on the list. You got one this episode.

Zach Wojtowicz:

Hey, it finally happened.

Charley Burtwistle:

We’re tied.

Zach Wojtowicz:

You’re in, and we’ve finally got good t-shirt ideas. Let’s go.

Charley Burtwistle:

Man, do we. I mean, I feel like we have some news for people about things that I always pitch and never get to do. I don’t want to detract.

Zach Wojtowicz:

Ladies and gentlemen, I have no idea what he’s talking about.

Charley Burtwistle:

We are going on the road.

Zach Wojtowicz:

Oh, that’s right.

Charley Burtwistle:

We didn’t talk about this. Maybe we should crank it into the intro or something. But yeah. In Denver Zach was already going, obviously, but I get to tag along. And we’re going to record an episode live at Buildertrend.

Zach Wojtowicz:

On the road.

Charley Burtwistle:

So, that’s exciting. Great episode. Like, review, subscribe, all the good things.

Zach Wojtowicz:

Thanks for joining us on “The Building Code.”

Charley Burtwistle:

I’m Charley Burtwistle.

Zach Wojtowicz:

I’m Zach Wojtowicz

Charley Burtwistle:

See you next time.