About ten years ago, Pickup Pete set up his own construction company. Before that time, he worked for his father’s company, Old Guard Construction, Inc. In his father’s company, Pete advanced from a general laborer, to a framer and onto a finishing carpenter. Then, Pete decided that dear old Dad wasn’t paying Pete enough, and Pete could make more money on his own.
Pete left his father’s company and set up his own company, Pete’s Home Repair and Renovation. Pete took and passed the required residential contractors’ licensing test, obtained general liability insurance, was granted his contractor’s license, printed business cards and started asking friends, family and neighbors if they needed any work done.
One neighbor, Sam Slippery, said he needed his basement remodeled. Pete told Sam that Pete was the man to do it. On a handshake, Pete agreed to drywall and trim the basement and install a new hardwood floor for Sam. Pete did not yet know what the job would cost; however, he and Sam agreed that they would figure it out later once Pete has acquired the necessary materials. Pete believed he could trust Sam to be fair, and Pete was excited to start working on his first job.
Pete needed to set up a supply account to get supplies for the Slippery job. Pete knew his father’s account manager, John Supersales, at All Building Products Supply, Inc., so Pete asked John if he could open an account. John told Pete he knew Pete’s dad well, knew Pete was a hard worker, and that All Building Products Supply would be pleased to have Pete’s Home Repair and Renovation as a customer. Pete signed the supplier’s credit application and began to pick out materials for the Slippery job.
Pete was at the Slippery job every day from sun up to sun down. Sam regularly commented to Pete that Pete’s work looked great and that he was more than pleased with Pete’s progress. Pete figured he had about one-half of the project finished and was excited about completing his first job on his own.
Pete ordered more materials from All Building Products Supply and received his first monthly statement on his account. Pete was a bit concerned about the amount of the bill; however, on reviewing it, he determined the prices were reasonable and the materials were what he ordered for the project. Pete put the bill in his pocket and brought it to the jobsite to discuss payment from Sam Slippery.
Sam wasn’t so happy that day. He was surprised that Pete thought Sam was going to pay the materials bill before the work was completed, and Sam said that early payment was “not what was agreed on.” Pete discussed with Sam what amount would be paid for the job and when payment would be made. Sam said that he will pay for the materials, of course, at the end of the job but that Pete’s fee would need to be determined when the work was completed. Pete felt a little uncomfortable about that approach, but Pete knew he was nearly done with the project and continued to complete it.
On Friday, Pete woke to a beautiful sunrise and knew the project would be completed that morning. Pete was happy about finishing the job because he had yet to pay All Building Products Supply for the materials and he knew their payment deadline was coming up. Pete also needed money to pay his rent, truck payment and he was looking at buying a new set of hand tools.
That morning, Pete met Sam at Sam’s door. Sam greeted Pete and said he had to run out for some errands but would be back for lunch. Pete went down to the basement and finished the job just before noon. Pete was extremely proud of his handiwork and looked forward to seeing Sam’s reaction.
Sam didn’t come back at noon. Sam didn’t come back at one. Pete called Sam on Sam’s cell phone and went right into voicemail. Pete left a message for Sam that Pete was finished with the work and to call him back so they could go over the work and the bill. Pete waited for Sam another hour without a call back or Sam returning home. Eventually, Pete decided he would leave and return around dinner time when he thought Sam would be home.
That evening, Pete drove by Sam’s house and saw Sam’s Mercedes-Benz in the driveway, so Pete stopped in. Sam was definitely not in a good mood. Sam told Pete that Sam had looked at Pete’s work and was very disappointed with it. Sam said that the trim wood grain did not match the floor wood grain, that the trim nail holes showed through, that the drywall tape job showed through the paint, and that he thought Pete was a better craftsman than the work Pete had done. Sam said there was no way Sam was paying for such shoddy workmanship and that Pete would either need to “eat the job cost” or the work would need to be redone. Sam told Pete to leave and think about how to fix the problem.
Pete left feeling like he had been punched in the gut. He knew his workmanship was excellent, and he started to think that Sam was using the workmanship claim as a way not to pay Pete. Pete didn’t know what to do, but he decided on Saturday that he better talk with Dave Cornerstone, his father’s company attorney. Dave knew Pete since he was born and always had time to chat with Pete. Pete called Dave, told him what had happened, and Dave asked Pete to come over to Dave’s house immediately.
Pete met Dave Saturday evening, and the two sat down on Dave’s deck to discuss the turn of events. Dave told Pete that Pete’s first mistake was thinking like an employee. Dave advised Pete that running a successful business was not about the work, it was about getting paid. Dave said that Pete should have agreed with Sam on the scope of the project and its price before the job started. Dave said the agreement should have been written down and signed by Pete and Sam. Dave informed Pete that, by law, residential construction contracts in this state must be in writing and, by not using a written contract, Pete risked a contractor’s license sanction by the state. Dave advised Pete that Pete should have gotten money up front for the job and at least an amount to cover the cost of the materials. Dave told Pete to “listen to his gut,” and when Pete began to feel uncomfortable about Sam’s actions the first time, Pete should have stopped working and addressed the job price and payment terms before doing further work.
Finally, Dave gave a legal opinion to Pete that Pete likely did not have an enforceable contract with Sam because the agreement lacked the necessary term of price; however, Dave could use another legal theory, unjust enrichment, against Sam to get Pete paid. Pete may not be able to buy that new set of hand tools; however, Dave was confident he could get Sam to cough up enough money for the cost of the materials and, possibly, a reasonable value for Pete’s time. Pete thanked Dave and walked away with his first education on the difference between running a construction company and being a tradesman.
This article begins a regular series based on a composite of real world situations faced by residential contractors from which other contactors may learn not to make the same mistakes. The series follows the education and development of a young contractor, Pickup Pete, who often learns his business the hard way, by his own mistakes.