Elite Homes We Build Your Dreams

By Al Greiner   

    Paperwork! The most boring article you'll ever read! But, read it, you should. There are many official documents that should be filled out and filed or delivered or posted at jobsites, etc...etc. Depending on your locality and the local customs some of these things get done and some don't. I'm not an attorney so I'm not offering any legal advice. I am a builder familiar with the different documents and I will attempt to familiarize you with them. Please have your attorney review all documents and advise you further.

    The Contract. We all know what a contract is so I won't bore you with too many details, except, you should have one and it should be in writing. Each builder has their own variation of a contract. Most builders have obscure little clauses in their contract. Most of these clauses are written because of past problems, such as; "The Marry Smith clause" or the "Jack Daniels clause." So don't let those clauses bother you. Always have your attorney review any contract.

    Notice of Commencement. This should be issued by your builder but it is often issued by your financial institution because a lot of builders forget. The financial institution wants to make sure it is issued. This document should be posted at the construction site and sometimes it is issued to all interested parties. It lists the names of; the owners, the financial institution, and the general contractor. The reason for this is to make sure that all suppliers and subcontractors know who to go to for payment. Sounds simple so far, right?

    Notice of Furnishing. This document should be issued by every supplier and subcontractor to the owner and the financial institution. This document is often overlooked by subs and suppliers especially in a market where there is a lot of trust among the trades. What this document is for is to let the owners know who is working on the project and will be expecting to get paid. This is so that the owner will be looking for proof of payment to those people. See, this all makes sense.

    The Sworn Statement. Now things get a little tricky, this is what sometimes slows down payments to the General Contractor and in turn to the subs and suppliers. What the Sworn Statement entails is a kind of spreadsheet that, in the first column, lists all of the suppliers and subcontractors. In the next column is the "original contract amount", followed by, "changes", "adjusted contract amount", "previous payments", "amount of this request" and "balance to complete." All the amounts have to add up and balance -- exactly! If your contractor lets things slide just a little, the Sworn Statement can be a real challenge to fill out correctly. It is however, his problem, unless he isn't able to meet his financial obligations to his subs and suppliers and they start walking off the job. Then it becomes everyone's problem.

    The Waiver of Lien. These are like mini Sworn Statements to each of the subs and suppliers with each one's information only, on their respective waiver. Each waiver has to match the Sworn Statement exactly! Now things are getting real clear aren't they. There are four types of Waivers; Partial Conditional, Partial Unconditional, Full Conditional and Full Unconditional. The "condition" is that the party actually gets paid. Well any person in their right mind won't accept a "conditional" waiver as final proof. So, in some markets these are being done away with and the "unconditional" waivers are submitted before the next request for payment is submitted. So in a sense the waivers are always in arrears. The thought process behind that is so that the General Contractor only has to get signatures on one set of waivers per draw. He has the payee sign the Unconditional Waiver at the time of payment and turns in those waivers with his next request for payment. The tricky part is at the end of the project when Full Unconditional Waivers are needed. The General, in theory, could walk off with the final payment and leave his subs hanging. However, in most markets the Title Company won't issue the General's part of the final payment until he has Full Unconditional Waivers from all of his subs and suppliers.

    Now let's not forget the Change Order. A lot of contractors do! Then they cry foul when things go south! The change order is a nasty little subcontract that slows things down and makes life miserable. until you need to have one to verify an agreement! A contract is a contract whether it is verbal or written. Obviously written is better because its verifiable. That's why you need a change order. Let's face it change orders are going to be part of any project of any significant size. If you change your mind during the project (and you will) be prepared for a set back. Change orders will slow down progress because the General has to take time to do an estimate and adjust the schedule and it may require undoing some things that have already been done. This in turn may push the Contractor off his schedule for his next job and etc. Also the owner is now going to be even more anxious to keep the job moving. But it may come to a standstill anyway, until the change can be made and everything gets back on track. Now, all of the subs have been pushed off their schedules... aaaug! It's no wonder that change orders are sometimes neglected. But, a necessary evil they are.  The change order has to show up on the Sworn Statement and the Waivers of Lien if those people are to get paid. You will want to make sure they get paid. If they don't, guess who they are going to come to.

    I hope that this enlightens you somewhat. I know it can be confusing, I've given myself a headache just writing about it, and I'm used to this stuff. As I said before this is meant only to familiarize you with these documents and in no way is it an attempt to offer legal advise.

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Last modified: 03/12/06