Be Prepared For Common Contractor Mistakes
Just like with your health, prevention is better than trying to fix the problem after it’s happened. The best way to protect your investment in your home renovation or project is to be prepared and prevent unwanted, unhealthy financial disasters. Some ways to protect yourself while working with a general contractor are:
- Create your own agreement for the general contractor
- Make sure all parties involved are paid
- Control costs
If you’ve already encountered a dispute, skip to the bottom to find out how to handle contractor mistakes/shoddy work.
Before You Hire A General Contractor
For the Federal Emergency Management Agency (FEMA) approved guidelines on how to protect property owners when hiring general contractors, check out their checklist here.
- Get several estimates from different contractors – get a good idea of what it should cost
- Hire locally – better for litigation, they will likely be familiar with local building codes, easier to contact in the future if anything happens
- Hire only licensed contractors – prevent penalties and have legal recourse if needed. Verify that the contractor is licensed.
- Check their performance – ask for a portfolio, ask if they specialize in what you need, BBB rating, Google Reviews, Yelp Reviews
- Check Bonding & Insurance – ask for a certificate of insurance (COI), contact the insurance agency to verify coverage and that it’s in effect
Once You’ve Decided To Hire A General Contractor
Step 1: Create Your Own Agreement
Contractors will have their own forms for you and them to sign. These forms can be fine, but the purpose of the forms is for their benefit. This doesn’t mean that they’re trying to one-up or take advantage of you, nor does it make the contractor bad. The contractor’s agreement is just to protect themselves and their company from bad faith home renovators, miscommunications, and Murphy’s Law. Since the contractor will have a contract drafted for their benefit/protection, why not have a contract drafted for your benefit? Hiring an attorney to help you draft an agreement for you may cost up to $500. Think of that investment as a premium for insurance on your home construction project. Instead of risking your entire project, why not hedge your bet?
Parts Of A Great Contractor Agreement/Contract
- Choice Of Law/Forum Selection – This is a provision that says that any dispute is to be litigated at a location of your choice. The benefit of this provision: protecting you against out of town contractors/suppliers making you across state lines for a suit.
- Give Them A Reason To Finish – Define completion dates, and when timelines for promises to be fulfilled. Create a schedule of payment that allows you to withhold money until the work is completed, and you’ve confirmed payments to subcontractors.
- Pay Upon Completion – Don’t pay upfront. Pay no more than ⅓ of the agreed-upon cost in advance. This also allows you to withhold payment until things are completed to the standard upon which was agreed.
Step 2: Prevent The Contractor From Withholding Payment To Subcontractors
Protect Yourself Against Unpaid Subcontractors. It doesn’t seem fair, but if subcontractors and suppliers are not paid by the contractor, you could be on the hook, even if you already paid the contractor. This is the most common issue you may encounter – a paid contractor who doesn’t pay his/her subcontractors. Protect yourself from the get-go by asking for the names of the professionals your contractor will be working with. To confirm that your contractor has paid his/her subcontractors you’ll want to:
- Request a conditional partial lien release for the construction term
- Request a final lien release at completion
Lien releases are formal acknowledgments from the subcontractors that they have been paid for their services rendered. You will also want to ask your contractor if he/she has a payment bond. A payment bond guarantees subcontractors will be paid by the contractor.
Step 3: Prevent Unauthorized Costs
Ask your contractor to tell you any changes that will change the price of your home project. Get them in writing and have both parties, you and the contractor, sign them. This way you know what to expect and can catch any unapproved/surprise charges. You’ll also want to protect against what is known as kickbacks. Sometimes contractors charge a fee to subcontractors so the subcontractor to get the business. To prevent this, ask for a bid summary. A bid summary should show at least three quotes in every cost category of your budget.
Step 4: Keep A File Of The Job
For future reference and to help you prove your case in any future litigation or insurance claims, keep a log of the progress of the job. Include price changes, time issues and timelines, and damage.
What To Do When The Contractor Does Shoddy Work
If you’ve already hired a contractor who has not fulfilled their duty, or with whom you have a dispute, there are still steps that you can take to protect yourself and/or prevent more issues. Here are the Labor & Industries official Dispute Resolution Options.
Step 1: Stop payment
If you haven’t paid in full yet because you followed the above guidelines, then refuse payment until the job is completed as agreed.
Step 2: File A Complaint
Assuming you hired a licensed contractor, make a complaint with the government agency that licensed the company/general contractor. Many times the agency will help with the dispute. Sometimes just the threat of filing a complaint will coax the contractor into fixing the issue.
Step 3: Take Advantage Of Their Bond
If the bonded contractor leaves the job without finishing, damages your property, does poor/shoddy work, or doesn’t pay the subcontractors who are now coming after you for payment, then look into their bond to see if these are covered. It is likely that these issues are covered by the contractor’s bond. Contact the bond issuer (insurance company). They will obviously want you to prove your case, so be prepared.
Step 4: Take Them To Arbitration
Arbitration is so much better than litigation. A third party will listen to both sides and decide on the outcome. There’s no need for an attorney, so much less expensive, and so much faster than litigation or court. The BBB offers to arbitrate disputes between consumers and businesses for low to no fees.
Step 5: Take Them To Court
If you have to sue, see if the amount you’re looking for is below the small-claims threshold in your state. For very large projects or large monetary losses, it may be worth it to hire a lawyer
Step 6: Get Government Assistance
Did you know that states collect fees when they license contractors? They use these fees to compensate customers who contractors abandoned the job, performed poor work, or defrauded them. To take advantage of this assistance, your contractor has to have been licensed.
Hopefully, you won’t need any of this, but it’s better to have these protections in place and not need them than to not have them and need them. Taking a contractor to arbitration, litigation, court, or trying to get compensation from a bond or government agency is much more difficult than preventing contractor mistakes/fraud from happening. Protect yourself before hiring a contractor.