What Does Colorado Law Say about Construction Contracts?
Colorado law seeks to protect both property owners and contractors in construction contracting. This premise should guide the drafting of every construction contract to help prevent problems before they occur. But understanding these legal obligations and protections is necessary to know when disputes do arise because they help determine each party's potential liability.
Good Faith and Fair Dealing
What is a breach of good faith and fair dealing? Whenever one party in a contract has discretion over their execution of the contract, Colorado law adds an implied requirement of “good faith and fair dealing” into the contract. In construction agreements, this means that when contractors exercise decision-making in the performance of their duties, they must still do their work in keeping with what a “reasonable person” would find acceptable. The duty of good faith and fair dealing is breached when a party acts contrary to that agreed common purpose and the parties' reasonable expectations.
Express and Implied Warranties
What warranties exist in construction contracts? In Colorado, the Uniform Commercial Code (UCC) provides both express and implied warranties for construction defects and related issues. Traditionally, the UCC only covers the sale of goods, but many construction contracts include the general contractors' commitment to use materials (i.e., goods) purchased by third-party vendors. In such cases, Colorado courts have held that the UCC can apply—even though property-owner purchasers and construction-material sellers may have never had any direct dealings.
Additionally, Colorado protects contractors through an “implied warranty of plans and specifications.” This means that, as long as the contractor adheres to an approved plan, the contractor cannot be held liable for construction defects resulting from the plan's flaws.
On the other hand, if a property owner only provided their requirements for construction, leaving the construction decisions to the contractor, there is an implied warranty that the contractor will use the satisfactory care and materials necessary to meet those requirements.
Similarly, contractors have an implied obligation to provide “workmanlike construction,” meaning that the quality of their work will meet the standards of an average workman in their field.
Colorado Trust Fund Law
Under Colorado state law, general contractors must put the funds for a project in a trust account for the benefit of their subcontractors, laborers, and others who may have lien rights. The trust fund requirement means that a property owner does not have to worry that the subcontractors will demand additional payment once the owner has paid the general contractor for the work, while subcontractors know that a contractor cannot withhold their agreed-upon payment. Violation of this law can mean heavy penalties, both criminal and civil, against a contractor.
Contact a Construction Law Attorney Today
If you're a property owner or contractor who needs help understanding the rights and obligations that come with your construction contract, the team at Volpe Law, LLC, can help. Call our offices today or contact us online to request a free consultation.