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How to Select a Contractor

For most people building a home or renovating one top-to-bottom can be the most significant and stressful thing done in a lifetime. There are almost as many success stories as there are nightmares. All too often homeowners get sucked into a relationship with a contractor only to learn that they have a contractor with charisma but not building skills. Projects can start out at one estimated cost and end up costing thousands or tens of thousands more than they planned.

As a homeowner trying to improve your family’s home, you face a significant challenge. Many contractors are reputable, but there are also an alarmingly large number who either lack the capabilities they claim or who systemically take advantage of customers. Finding a contractor a trusted friend or relative has used is a good idea as you at least have some relevant first-hand experience. But no two jobs are alike and the contractor who built Cousin Ralph’s garage may not be very good at renovating your kitchen or building your new home.

People have often asked me how they should select a contractor for their “once in a lifetime” project. There is no simple method or formula, but there are some “Do and Don’t” suggestions:

DO - get all estimates in writing and make sure the scope of work is exactly what you want. Make sure there is a plan. Contractors who claim they will plan as they go scare me as it is unclear if they even know what they are going to do.

DON’T - sign cost-plus (open ended) contracts where you do not know up front how much the job will cost. While renovation can always uncover conditions that cost more, the contract needs to have clear language for what happens when the contractor discovers conditions that must be mitigated.

DO - read the contract carefully and even pay a lawyer to review it if the overall cost is a big number. Also insist that the contract have language allowing you to terminate it for reasonable cause. Make sure that if you terminate (fire) the contractor you will get all money back not spent directly on materials and labor.

DON’T - provide a large deposit of more than 20%. Deposits are usually necessary, but they should be just enough to do the work needed before the next payment. If the contractor insists on a large (more than 20%) deposit, consider using a managed escrow account so the contractor can only use that money for expenses on your project. Don’t let the contractor use your deposit to pay bills from his last job. That is a nasty downward spiral that almost always results in contractor failure. Don’t let them say deposits are non-refundable. There needs to be reasonable conditions for returning deposits. You shouldn’t be forced to walk away from a deposit if the job can’t be completed or you decide to terminate the contract.

DO - check a contractor’s references, look at any reviews, and check the Better Business Bureau for any customer complaints. You must do your due diligence when vetting a contractor just like you would an employee. In many counties the list of permits taken out by each contractor is public information. Look at the kinds of permits pulled and talk to the owners of those projects who he didn’t list as references. They may have an earful for you!

DON’T - hire an unlicensed contractor! Check with the state licensing authority - usually online - to see the licenses held, how long the contractor has been licensed, and if there are any complaints against those licenses. The laws in most states clearly require that anyone who agrees to work for a fixed price (a contract) must have licenses, or hire other licensed contractors, for all the work being done. Unlicensed contractors may offer to work by the hour with you paying for materials. While that sounds like it could be beneficial, the individual hasn't taken a test and will not be legally responsible for the work.

DO - watch the work being done every day. Be wary of a contractor who will bring materials to the job site, but not workers. Insist that the work area be cleaned at the end of each day. Look at the trash pile where it might be easy to detect that the workers are wasting materials or making mistakes and throwing away bad work. That is a sign that they must be carefully watched and that when money for materials runs out the project will be upside down in terms of cost and money to pay workers.

DON’T - oversee a large project (new home construction or major renovation) alone. Hire a project manager or consultant who has extensive construction experience to help watch your contractor. It’s worth the extra money to have a professional looking over the shoulder of your contractor. A good project manager will learn very soon that a contractor is incompetent and will help you take steps to terminate the contract before you have a large ugly mess. A good PM will also help the contractor make the right choices in how to complete a challenging part of the project or mitigate existing conditions the contractor might not be familiar with.

DO – insist on knowing who all subcontractors are and also insist on having each of them provide a lien release when their portion is done, and they have been paid by the general contractor. Each person who works on your project may have the right to place a lien against your home. Only a written lien release from each one will ensure that you will not have to pay any of them before you sell your home.

To make sure you project is a success story take your time, review everything, make sure you have safety valves in the contract so you can stop the work if it isn’t going as planned, and hire professionals to help you oversee the contract (a lawyer) and the project (a project manager). You will find that getting that help is money well spent.

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