One of the things that helps you maintain control is a larger number of small draws instead of a small number of large draws.
The draw schedule was a major factor that caused us to keep the CM as long as we did. Our contract had us paying him (labor only) in 3 equal payments.
1. After the footers were poured.
2. After the framing was completed. I would estimate that the framing would occupy 90% of the CM's effort with 10% going to other tasks he was supposed to perform.
3. After completion of drying in the house
Once the footers were poured and the first draw was paid, the CM had all the advantage. We would lose a large chunk of money for not much work if we let him go at that time. It was after we had paid him the first draw that I started getting hints that his competancy and quality of work might have some issues. But we were hesitant to get rid of him because we hadn't yet gotten much work for our money.
If I had it to do over again, I would not have given him such a large draw near the beginning. I would have made smaller payments so that I could let him go if needed without losing a large sum of money. I know a lot of contractors will ask for a large chunk up front. However, in today's slow economy, I'm thinking that issue could be negotiated.
Toward the end, we had the advantage because most of the house had been framed and he had not received a payment in a while. We could have gotten rid of him, paid him what we felt he had earned minus our costs to fix his mistakes. The only thing he could have done would have been to put a lien on our house and then sue us for extra payment (i.e. the full 2nd and 3rd draws).
According to our attorney, once the CM finished the framing, we could pay him the 2nd draw and would not legally owe him any other money. So we had that option and could have used that leverage if needed. We have required the subs to sign lien release waivers when we paid them that stated that all work performed and materials used to-date were paid in full. I'm fairly confident that we could have paid the CM the 2nd draw and gotten him to sign the waiver before letting him know we wanted to terminate the contract. He had already signed a waiver for the 1st draw. We could have then fired him without paying anything extra and it would have been very difficult for him to collect any more from us.
His only option for getting any more money from us would have been to put a lien on our house and bring suit against us for non-payment within 12 months. If he didn't file suit within the 1st 12 months, he would not be able to file suit against us for non-payment later. Although he wouldn't have much legal standing to file the lien, it would still be easy to do and would require us to sue him to have the lien released.
In our situation, filing a lien against us wouldn't affect us. The attorney said that most title companies ignore liens older than 3 years. If the CM filed a lien but didn't follow up with a lawsuit within 12 months, he would lose the right to bring the suit to court and would have no legal way to collect. So the CM would have to file a lawsuit within 12 months if he wanted to collect more money (i.e. the 3rd draw).
Our attorney said that if we had to go to court, it would cost us $10,000 in legal fees and that the best thing for us to do would be to sit down with the CM and work out an agreement to end the contract. If we paid the 2nd draw and got the lien release signed before firing him, it might not appear above board and might encourage the CM to fight us. So we followed the attorney's advice. While I believe it is unlikely that the CM would go to the effort to take us to court, it seemed best to just try to cleanly end things now than to start a fight. The last thing I wanted was to end up in court where the big winners are the lawyers. So we sat down with the CM, worked out a payment to him, and signed a lien waiver and contract termination form. The CM didn't act mad and was probably as glad as we were to end the contract.
