How to Find the Right Contractor

What Kind of Contractor Do You Need?

There are various types of contractor licenses including general contractors and specialty contractors. General building contractors usually oversee major remodeling and new building projects and coordinate the specific subcontractors for a job. Specialty or subcontractors usually are hired to perform a single job. For example, if you want only roofing or electrical work, you may want to hire a contractor licensed in that particular specialty.

A general building contractor may also contract for specialty work, but must hold a specialty license for that work or actually have a specialty contractor do the work. If the job requires more than two types of work on a building, then it is appropriate for a licensed general building contractor to contract for and oversee the entire project. For example, if your bathroom remodeling will involve the performance of plumbing, electrical and carpentry work under one contract, a licensed general building contractor should be hired. Under those circumstances, a general building contractor may perform all of the work on a building, or have specialty subcontractors do all or part of the scope of work for which the specialists are licensed.

Do Your Home Improvement Homework: Check the License

Before you sign anything, call the Contractors State License Board to make sure the contractor is properly licensed in the class for the work to be performed, and the license is in good standing.

Check the Contractor's License

Before you sign anything, call the Contractors State License Board to make sure the contractor is properly licensed in the class for the work to be performed, and the license is in good standing.

Licensing regulations change from state to state and it is important to find out if the home improvement project you are about to begin requires a licensed contractor.

Unlicensed contractors pose a risk to your financial security because they expose you to significant financial harm in the event of injury or property damage. Few unlicensed contractors have bonding or workers' compensation insurance.

If you contract with someone who does not have a license, the Contractors Board may not be able to assist you with a resolution to a complaint, and a remedy against an unlicensed contractor may be available only in civil court. This is one more good reason to work only with licensed contractors! Another consideration is that unlicensed contractors may not have the expertise and qualifications to do the job right the first time. You could end up having to hire a licensed, reputable contractor to correct the work-and paying for the job twice.

Ask to see the contractor's pocket license and some additional form of identification. The name on the pocket license should be the same as the name of the contractor or business name the contractor is working under.

It is illegal for one contractor to use another contractor's license, just as it is illegal for someone to use another person's driver's license.

When you establish that the contractor's or company's name matches what appears on the pocket license issued by the Contractors State License Board, and before you sign anything, find out if the license is valid.

What should you ask the Contractor's References

Ask the contractor for local references, and call them to see if they were satisfied with the contractor's work. Skilled contractors will be proud to take credit for their work. If possible, go out and look at finished projects. Some consumers even try to find jobs in progress to see how the contractor works and to speak with the homeowner about work habits, inconveniences, and the sensitivity of the contractor to the living needs of the homeowner. Remember, the person you hire to work in your home will be in and around your home until the job is completed.

When speaking to the contractor's customers, ask such questions as:

In addition to talking with customer references, obtain references from material suppliers, subcontractors, and financial institutions, if possible, to determine whether the contractor is financially responsible.

You may also wish to check the contractor out with your local building department, trade association or union, local consumer protection agency, consumer fraud unit in your city or district attorney's office, and the Better Business Bureau. Call these organizations to see if they have information about the contractor you are considering. Ask how long the company has been in business, and find out if there are any complaints about the firm or other relevant file information.

Ask the contractor for the address of his or her business location and business telephone number, and verify them. A contractor who operates a business out of the back of a pickup truck with a cellular telephone may be difficult to find to complete a job or fix something that has gone wrong after the last bill is paid.

Don't be fooled or pressured by a smooth-talking salesperson. Take the time and effort to make sure that the person or business doing your home improvement is going to perform in a professional manner.

Make Sure the Contractor Has Workers' Compensation and Liability Insurance Coverage

Ask the contractor and verify if the company is insured against claims covering workers' compensation, property damage, and personal liability in case of accidents. Ask to see a copy of the certificate of insurance, or ask for the name of the contractor's insurance carrier and agency to verify that the contractor has the insurance.

Licensed contractors are not required to carry general liability insurance; however, they must include in the written contract a form about liability insurance. The form includes five questions about general liability insurance you should ask your contractor and the answers you should get.

Home improvement contractors must tell you whether or not they carry general liability insurance and that it will protect against third-party bodily injury and property damage. If uninsured, they should be able to explain how they would cover losses that would ordinarily be covered by insurance.

If your contractor damages your property and doesn't carry general liability insurance, you or your insurance policy could end up paying for damages.

If a worker is injured working on your property and the contractor doesn't have insurance, you could be asked to pay for injuries and rehabilitation through your homeowner's insurance policy. Don't let your insurance become your contractor's workers' compensation insurance coverage. Verify your contractor's workers' comp coverage.

Who is a Bonded Contractor?

Some bonds are designed to protect you against substandard work that does not comply with local building codes. Bonds do not assure the financial or professional integrity or competency of a contractor.

Institutional lenders such as savings and loans, insurance companies or commercial banks generally require contractors to secure bonds for large jobs.

Bonds may be classified as:

Contractor's License Bonds

All contractors are required to have a contractor's license bond of $10,000. This bond is not a guarantee of performance or competence, or of the contractor's financial responsibility. In fact, this bond is often not enough to cover the multiple complaints made against it. (The contractor's license bond might vary from state to state.)

Contract Bonds

A contract bond guarantees both job completion and payment of all labor and materials. In general, the bonding company will not have to pay more than the face amount of the bond.

Bonding requirements may keep a new contractor or a contractor with a poor track record from bidding on desired jobs. Bonding companies will not take a risk without verifying the technical and resource capabilities of the contractor. For a contracting business to qualify for bonding, it must practice sound business techniques.

Get Competitive Bids for the Project

A bid is an offer to do work. It is advisable to get at least three written bids using identical plans and specifications so you can compare prices and contractors.

Solicit at least three bids for the work you need; do not automatically accept the lowest.

If you are like most homeowners, you may not be familiar with the current price of building materials and labor costs. The three-bid rule helps you decide if the bids are reasonable or not.

Make sure all bids are based on the same set of specifications, materials, and scope of work. Discuss the bids in detail with each contractor, and make sure you understand the reasons for any variations in price. Sometimes a higher price may be worth it, if the materials to be used are of higher quality or the work is more extensive. For example, if you are having your kitchen remodeled, and one bid is based on installing prefabricated cabinets in standard sizes while another is based on installing custom-made cabinets, the prices will not be comparable.

Please note: A license number on a bid or contract does not necessarily mean the license is valid. Although an unlicensed contractor may give you a low bid, the risks of possible financial and legal consequences you may face outweigh any benefits a lower bid may seem to offer.

Beware of any bid substantially lower than the others. It probably indicates that the contractor has made a mistake or is not including all the work quoted by his or her competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid.

Don't forget the old adage,

"If the offer sounds too good to be true, it probably is!"

Don't Sign Anything-Until You Understand & Agree

Although you might assume that a "contract" should look like a contract, anything you sign could be used by a contractor as authorization to go forward with your project. This means that any bid you sign may become the contract. Do not sign anything until you completely understand what you are signing, and agree to all the terms.

Be sure to ask questions until you fully understand the contract and what the work will look like. Before signing anything, you may wish to discuss the proposed contract, plans and specifications with an attorney.

Get It in Writing

One of the best ways to stop problems before your home improvement project begins is with your contract. The contract binds you and the contractor to the project. Since a written contract protects both you and the contractor, all agreements should be put in writing. It should include everything you have agreed upon and the extent of work to be done. Get all oral promises in writing, and spell out exactly what the contractor will and will not do. If you intend to do some of the work yourself or hire another contractor to do it, this also should be written into the contract. Be as specific as possible.

Your contract must include a Checklist for Homeowners that specifies how to check out your contractor and how to check out the contract.

Never sign a blank or partially blank contract. Get a copy of the contract as soon as you sign it, and keep it for your records. Both you and the contractor are bound by everything set down in the contract, so read it carefully before you sign. If you have any questions or don't understand something, ask before you sign.

Be sure the financial terms of the contract are clear. The contract should include the total price, when payments will be made and whether there is a cancellation penalty. On any home improvement job, you should expect to make a down payment.

Make Sure Everything You are Paying for is in the Contract

The contract should specify all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply. For example, the contract should say "Install oak Natural Stone Countertops, manufactured by Company XYZ, model 0318A, as per the plan," not just "Install kitchen cabinets as discussed."

Make sure your contract includes everything you feel is important to the job, including complete cleanup and removal of debris and materials, and special requests like saving lumber for firewood or saving certain materials and appliances. Also give instructions regarding pets, children or areas where materials may not be stored.

After you have a signed contract, and even after work has already begun, your contractor may offer suggestions that will change your original ideas for the work. The contract should clearly state your final agreement and accurately reflect everything involved in the work being done by your contractor. If you have added work, substituted materials or equipment, or changed the completion date, make sure that clearly worded and signed "change orders" reflect this.

Describing the Job
the Good, the Bad and the Ugly

Scheduling the Work

Your contract should specify an approximate starting date and completion date for your project. For example, the contract should read "Begin approximately April 20 and end approximately April 30," not "Complete the job in 10 days." This eliminates the possibility that the contractor will take 10 days to finish the job but spread them out over the span of a year. However, external factors such as the weather or the availability of supplies might cause delays.

Scheduling the Payments

Make sure the payment schedule is based on the contractor's performance. Never let your payments get ahead of the contractor's work, and make sure the contract provides for a "retention" - a percentage of each payment or of the total job, ordinarily 10 percent, which you retain until the job is completed.

Never sign a completion certificate until all the work called for in the contract has been properly completed. Lenders usually require a signed completion certificate before they will release the last payment.

Inconveniences

In most cases you will be living in your home while work is being done on it. You should be aware of the many inconveniences that may occur. Exterior walls may be taken down, water and/or power shut off, or bathroom and kitchen facilities temporarily disconnected. Dust and debris might also damage your furniture or other personal possessions. Before work begins, ask your contractor what inconveniences will occur, and then plan for them. That way, both you and your contractor can avoid conflicts when inconveniences do occur.

Keep a Job File

You should keep a file of all papers relating to your project. It should include:

1. The contract and any change orders.
2. Plans and specifications.
3. Bills and invoices.
4. Canceled checks.
5. Lien releases from subcontractors and material suppliers.
6. Letters, notes, and correspondence with your contractor.
7. Pictures of the job in progress.

It is also a good idea to keep a record of each subcontractor who works on your project, the work performed, and length of time on the job. When material suppliers make a delivery, write down the name of the company, the date, and a general description of what they delivered. When you receive preliminary notices from subcontractors or suppliers, make sure you receive lien releases. Check them against your list. That way you will have a record of who has and has not been paid.

Permits, Plans and Specifications

Your contract should call for the work to be performed in accordance with all applicable building codes. Keep in mind that building codes only set minimum safety standards for construction; they do not protect you against poor quality work.

As a general rule, a building permit is required whenever structural work is involved or when the basic living area of a home is to be changed. For example, if you have a home with an unfinished basement, and would like to finish off a portion of it for a family room, you would need a building permit in most jurisdictions because you have changed the basic amount of living space in your house by converting storage space to "livable" space. In some cases, separate permits for electrical, heating and plumbing may be required.

The contractor should obtain the necessary building permits. This should be spelled out in your contract; otherwise you may be held legally responsible for failure to obtain the required permits.

Zoning regulations differ from place to place, so if you are planning any alterations or additions to your home, your contractor should check with the zoning authorities to determine what permits or permission you need to proceed with your project.

Make sure that you have copies of the signed contract and of the plans and specifications for your project. Resist the temptation to verbally make any changes to the contract or to the plans and specifications. Make sure all changes are in writing and are signed by you and your contractor.

The permit for your job, along with the project plans and specifications, must be posted on the job before the work begins. Check to make sure that they are.

Inspections

Make sure your contractor gets all necessary building permits from your local building department. Homeowners are not required to sign building permits unless they are performing their own work personally. A frequent practice of unlicensed contractors is to have the homeowner secure an "owner-builder" building permit, erroneously implying that the property owner is providing his or her own labor and materials personally.

The building department will inspect the work when it has reached a certain stage and again when it is completed to make sure it complies with various codes and regulations. The contractor is responsible for arranging for these inspections. The main reason for building permits and inspections is to ensure the health and safety of the occupants of buildings. They are not made to determine the quality of work.

You should, if at all possible, be present when inspections are made, ask questions, and make frequent inspections yourself.

When a project is completed, the building department will make a final inspection, so don't make the final payment to the contractor until the building department inspector has signed off on the job. You may also make a final inspection, or "walk-through," with your contractor, to be certain there is nothing you or the contractor have overlooked.

A Word of Warning

Anyone who talks you into being your own general contractor, or "owner/builder," may be doing you no favor. "Owner/builder" describes a situation in which the homeowner becomes the general contractor. As an owner/builder, you (not the person you hire) assume responsibility for the overall job, which may include such things as state and federal taxes, workers' compensation, building permits and other legal liabilities. Unless you are very experienced in construction, it is best to leave these matters to your licensed contractor.

Legal Considerations . . . Liens

For a large remodeling job that involves many subcontractors and a substantial financial commitment, you should protect yourself from liens against your home in the event the contractor does not pay subcontractors or suppliers. Depending on local laws, you may be able to add a release-of-lien clause to your contract, requiring the contractor or subcontractors and suppliers to furnish a certificate of a waiver of lien. Another solution is to pay your contractor by joint checks. When the contractor presents you with a bill for materials or labor, make the check to both the contractor and the supplier or subcontractor.

If you are financing your project, the bank or lending institution may require that the contractor, subcontractors and suppliers verify that they have been paid, before releasing funds for subsequent phases of the project.

Preliminary Lien Notices

Shortly after your job commences, you will probably receive preliminary lien notices from subcontractors and material suppliers. Don't panic! This does not mean that a lien has been filed against your property. The law requires you to be furnished with these notices to alert you that those persons have worked on or have supplied materials for your job and expect to be paid. These persons may have what are called mechanic's lien rights.

Mechanic's Liens

The law provides that those who furnish labor or materials to your home can record a "Claim of Lien" or "Mechanic's Lien" against your home if they are not paid. Even if you have paid your general contractor in accordance with the contract, if he or she fails to pay any subcontractor or materials supplier who performed work or supplied materials in connection with your project, you still run the risk of having a mechanic's lien filed against your home. You could be required to pay a bill twice to keep from losing your home in a foreclosure proceeding.

You can protect yourself from unwarranted liens by identifying subcontractors and materials suppliers in your written contract and getting signed conditional lien releases from the subcontractors and suppliers. After you've made a payment for work or materials, get signed unconditional lien releases.