HIRING CONTRACTORS
	APRIL 2004

by Chris Scott
Photos by Brad Shifflett

All of us know personally of horror stories having to do with home-construction projects gone amiss. Perhaps the prize for the most horrible experience goes to Ed & Debbie Martin of Brentwood, which follows.

Backyard Nightmare
The big moment that the Ed Martin family had longed and planned for throughout the preceding year had finally arrived. The soldier was returning from battle. Friends and family members poured in for the long-anticipated gathering in the spacious backyard of the soldier’s inlaws.

However, the celebrants had to be crammed into the house because the backyard looked worse than any battle zone that the returning soldier had seen during his time in Iraq. Piles of dirt and gravel, rubble, broken pieces of boards, and discarded equipment lay scattered around the backyard like debris from some sad earthquake. Not only was it unusable for any social purpose, the yard had become an ugly and dangerous area. Any government inspector would have put yellow tape around the whole place.

Four months before, a contractor had looked at Ed’s plans for the yard, assured him that he could do the work, signed a contract, taken $10,000 in payment, and then destroyed the yard as effectively as if he had used tanks and bombs.

After working a couple weeks on the destruction, the contractor abruptly quit work. When Ed finally contacted him, the contractor claimed that he wasn’t feeling well. In a later conversation he claimed that his mother died and he had to go to her funeral.

The contractor later returned for a short time to resume his destructive activities, then abandoned the project again, claiming that he had contracted brain cancer. Finally, he returned and worked for a few days only to depart, saying, once again, that his mother had died and he had to go to her funeral.

Unless his mother had experienced a resurrection miracle and was, therefore, able to die and have funerals on two separate occasions, the contractor apparently needed a system to manage his excuses. He obviously was not able to keep his clients straight and to remember to which clients he had given which reasons for not finishing their work.

Finally, the contractor told Ed he just couldn’t do the project, picked up his tools, and left with the $10,000 still in his pocket.

Ed ran into a neighbor a few months after this and told him the story of the contracting disaster and described the man who had, for $10,000, destroyed his backyard.

“Oh, you mean the guy dying from brain cancer?” the neighbor asked. It turned out that the contractor had done the same thing to the neighbor several years before. He had taken him to the cleaners for $5,000, and left the job unfinished using the same brain cancer excuse with him.

Ed Martin had to retain the services of two other contractors before his backyard was returned to usable condition. One of the contractors said, “This is the fifth job we’ve had to clean up after the mess this guy has left.”

Ed says that the incredible contrast between the awful backyard and the soldier’s glorious return was difficult to deal with.

The Worst of Times
Many home improvement projects go bad because, for one reason or another, the contractor failed to keep the commitment he made to his clients.

We should emphasize that these bad cases are the exception. For example, both of the contractors whom Ed hired to clean up after the disaster performed their work flawlessly. They did what they said they would do on the date that they said they would do it.

Hell or High Water
Sometimes unprincipled contractors will make bad-faith agreements, agreeing to do work that they know they will never complete. In most cases, however, contractors go into projects intending to satisfy their clients, but problems occur when they get into a situation where they realize that they are going to lose money.

A contractor’s problem with a job might sometimes be through no fault of his own — trouble with hired help, equipment breaking down, inclement weather, or some other factor out of his control gets the project into trouble.

At other times the job might have turned out to be more difficult than the contractor imagined, for some reason.

In any case, of course, the contractor has a great, or even overwhelming, temptation simply to violate the agreement that he has made with the other party. If the contractor is a highly principled individual, of course, he will finish the job according to the terms of the agreement, even if he’s losing money.

We homeowners get ourselves into a lot of trouble, however, by entering into agreements that rely upon contractors to behave in a highly principled manner.

Most contractors are hardworking people with high integrity and would probably do the right thing for a client simply because it is the right thing. However, if we are wise we will enter into home improvement projects, as far as possible, with a contract that includes ironclad provisions ensuring that the right thing for the contractor to do on our project is also the one that will best ensure his remaining in business.

Some people trying to contract for your home improvement projects, as in Ed Martin’s experience, really are con men, who will agree to anything just to get your payment. Here are 13 simple things homeowners can do to protect themselves from the horrible experience the Martins had.

13 Simple Things Homeowners Can Do to Protect Themselves

1. Don’t try to get something for nothing
We homeowners can get into problems through simple greed by asking too much for too low a price. We can serve ourselves well if we decide that any proposal that seems too low-priced to be true, probably isn’t true.

2. Check out the contractor’s license
Make sure the contractor has a valid license to work. Ask him to show his license to you and then write down the name and number. To be doubly sure, you can check the validity of the license through the CSLB (Contractors State License Board). You can check them by personal name, business name, or license number at www.cslb.ca.gov/consumers. There are about 278,000 contractors licensed by the State of California, so you should be able to find one. You can check the credentials of salesmen who try to sell you home improvements, as well, since the CSLB also licenses home improvement salespersons.

3. Get more than one bid
Try to get at least three bids for any major project. Some contractors, sensing that a potential client doesn’t understand the cost of a project, will charge many times a normal rate. A friend of mine did an improvement project in his backyard, paying $14,000 for the same type project I had done in my backyard for $3,500.

4. Check references
Once you have determined that a contractor is licensed, get a few references from him and call the people up.

5. Talk to your neighbors
Probably the most common way to choose a contractor is to accept the references from neighbors and friends about a service they were really pleased with. If you are putting in a swimming pool and one of your neighbors put one in last year, ask them what contractor they used and what kind of experience they had with him.

6. Insist on a valid contract
“You can always trust people,” someone once observed, but then added “... to behave in their self-interest.” The goal is to try to get a contract for a project that guarantees that the contractor’s best interests will always be to finish the work in an acceptable fashion. Make sure that the contract is clearly written and describes the work to be done as specifically as possible.

7. Have a lawyer read the contract
The best thing you can do for yourself with any contract, of course, especially for high-cost projects, is to have a lawyer read over the contract before you sign it. Lawyers’ fees can be prohibitively expensive, but might be worth the cost in the peace of mind that the service can provide. And it could end up saving you thousands of dollars. I once was sued by another person over some wildly frivolous matter having to do with a dispute that was actually between him and another party. When I contacted a lawyer for help, he made the cogent comment, “This wouldn’t have happened if you had let me read the contract before you signed it.”

8. Make the contract as thorough as possible
If you don’t have a lawyer read over your contract, make sure that it contains unambiguous and complete descriptions of the work to be done and the cost of the work. When appropriate, specify brands, models, and colors of all fixtures, appliances, etc. Be sure the contract includes start and finish dates, and a payment schedule. In addition, the contract should ideally include the following:

• The contractor’s agreement to secure any required building permits.
• A statement that the contractor’s carries commercial general liability insurance.
• A Notice to Owner concerning contractor’s liens.
If you are confused about the last bullet point, read the section below, “Protect Yourself Against Liens.”

9. Don’t be afraid to walk away from a suspicious contract
Sometimes we sign up for something that we later realize was a bad decision. Perhaps it was an unwise impulse or we learned something later that makes us fearful about a contract we signed. In many cases “buyers remorse” is simply a matter of our native common sense reasserting itself after the effects of a high-pressure sales pitch wears off. Fortunately, the law provides a loophole permitting us, within three days, to back out of any home improvement contract that we signed anywhere except in the contractor’s own office.

If you have second thoughts about any contract you signed for home improvements, all you have to do is send the contractor a note that you intend not to be bound by the contract. Don’t let anybody fool you about this, you can do that without any penalty or obligation.

10. Don’t pay too much down
Learn this important fact, if you don’t already know it:

California regulations for home improvement contracts limit any downpayment to 10 percent of the total value of the contract or $1,000 WHICHEVER IS LOWER.

If the project being contracted on is a swimming pool, the downpayment is even lower — not more than $200 or 2% of the cost WHICHEVER IS LOWER.

A red flag should go up in your mind right away if any contractor ever tries to get you to pay more. Ed Martin’s unscrupulous contractor asked for $10,000 downpayment so he could buy the materials that he needed for the project and to pay subcontractors. But the cost of materials and services was not Ed’s problem before delivery was made.

If you have a contractor who tries to stick you with a request like that, run away!

Contractors who are running their businesses according to professional standards maintain contracts with suppliers and subcontractors for goods or services that permit proper cash flow. This whole area is their problem; don’t let unscrupulous contractors ever make their cash flow problems, your problems.

11. Make payments in the right amounts and in the right order
A contract for large projects can have steps in payment, with final payment due at the completion of the work. Except for a small downpayment, under no circumstance should you ever pay a single dollar for work that has not yet been completed. Never make the final payment of the contract before completion of the final step of the project. There are a number of ways to protect yourself in any home improvement project, but the best way of all is the leverage that comes from the contractor’s desire to get paid. He will most certainly do the work if that’s the only way he is going to get the money.

Also, be aware that you are never required to pay any sales commissions in a lump payment. If such commissions are part of the contract, pay them pro rata as part of your payments on the contract itself.

12. Keep a log of the project
Get a folder and put into it everything having to do with your home improvement project, including:

A summary of the project with all relevant information, including addresses, phone numbers, start date, finish date, contact information for subcontractors, suppliers, etc.

• A copy of the contract.
• Bills, invoices, and canceled checks.
• Lien releases from subcontractors and vendors.
• Plans and specifications.
• Copies of any notes or correspondence with your contractor. Make notes of every conversation containing time of the conversation and any agreements. Pictures of the stages of the job as they are completed.

13. Secure and file any warrantees
Get copies of the warrantees for any of the products installed in your home improvement projects. Such things as swimming pool cleaners, filters, pumps, garage-door openers, etc. Put these someplace where you can find them later.

Protect Yourself Against Liens
The topic of liens is inherently confusing, though acquiring a basic knowledge of how these work might save you thousands of dollars.

Mechanics liens and contractors liens are legal provisions designed to protect vendors and subcontractors against being defrauded by clients unable or unwilling to pay their bills. Mechanics liens enable vendors to collect for unpaid materials and contractors liens enable subcontractors to collect for unpaid services.

In the proper context, these lien laws are wonderful tools that provide small businesses with a legal clout equivalent to the economic clout that large businesses naturally have. For example, a contractor building a large facility might subcontract with a small company to install the windows for the facility. The large contractor, in that situation, is prevented from defrauding the small contractor because, under the lien laws, the large organization who signed the contract will be forced to pay for services and materials if the contractor doesn’t pay them.

These lien laws are misapplied by suppliers and subcontractors as tools against homeowners. Without protection, the homeowners in some cases are forced to pay twice for the same materials. Our friend, for example, paid thousands of dollars to a contractor to have her driveway paved. A few months later she got a bill in the mail for $2,000 to reimburse the readymix company for the materials that the contractor had used.

The poor woman had already paid the contractor for the materials, but he had never paid the readymix plant he got them from. So, since our friend hadn’t protected herself from such a thing, the readymix company was able to bill her for the materials, under the provisions of the mechanics lien laws.

This kind of trouble can happen to anyone who fails to secure lien releases from the subcontractors, laborers, or suppliers that your contractor works with. That’s the reason why subcontractors are required to provide you with “Preliminary” or “Pre-lien” notices of your potential liability. For example:

YOUR FAILURE TO MAKE SURE THAT WE ARE PAID MAY RESULT IN A LIEN AGAINST YOUR PROPERTY AND YOUR PAYING TWICE.

TO AVOID A LIEN AND PAYING TWICE, YOU MUST OBTAIN A WRITTEN RELEASE FROM US EVERY TIME YOU PAY YOUR CONTRACTOR.

You can protect yourself against this kind of threat, by any one of the following. (Some of these will probably require the assistance of a lawyer):

• When making payments for every part of the project, require your contractor to provide you with unconditional “Waiver and Release” (lien release) forms signed by each material supplier, subcontractor, and laborer involved in that portion of the work for which payment was made.
• If you don’t want to pay a lawyer you can buy these “Waiver and Release” forms from business or stationary stores.
• Ask the contractor for a payment and performance bond, which guarantees completion of the project and payment of the subcontractors, materials, and laborers.
• Require that payments be made directly to subcontractors and material suppliers through a construction control.
• Make separate checks to the contractor and material providers.
• If you do this, get from the contractor a list of the material suppliers supplying materials for your project.

The Other Side
We’ve been talking about protecting ourselves against the dysfunctional experiences that area homeowners have had with unprincipled contractors. However, we should emphasize again that these scoundrels are in the minority. The majority of contractors carry out home improvement projects in a highly professional manner.

Ed Martin, who recounted the Backyard Nightmare experience at the beginning of the article, had only high praise for the two contractors who subsequently finished off his backyard in a beautiful fashion. He said that Rich Hoppe, from Future Landscape and Concrete and Briant Stone, from Custom Design Patio Covers, both performed admirably.

“They did exactly what they said they would do and completed their work exactly to the agreed-upon schedule. They were both a pleasure to work with.”

Thankfully, most of the contractors we do business with will be like these two bright examples. It is unfortunate that bad performers in any industry have the ability to taint the entire industry with their unprofessional behavior. This is due to the old principle of the house that is on fire attracting more attention than the thousands of homes that aren’t burning.

Any good contractors will be glad to have us protect our interests. In most cases, they will be glad to do a good job and will appreciate the opportunity to do so. Afterwards they will also appreciate us acknowledging the quality work that they did.