How to Hire a Home Improvement Contractor

This will be my first post in a series over the next couple of months about “How to Interview Anybody for Anything”.  I have been asked to give a presentation on this topic to a group of professionals in May 2008, so I thought, why not incorporate some of the material into my blog?  Sorry this is long… I am a former Project Manager, and I guess I had a lot to say on this topic…

How to Hire a Contractor

Whether you are hiring someone to build some simple shelves or a company to do a complete basement refinish, finding a reliable and trustworthy contractor is half the battle.  Here are some steps to finding a good contractor.

(1)   Ask Around for a Reference

This may be the easiest and most important step.  Contractors will advertise on television, in the newspaper, in local magazines and on the radio.  Still I would only hire someone by word of mouth.   Ask your friends, neighbors, co-workers, and family if they know of anyone that has completed whatever work you’re looking to have done.  If you feel comfortable about it, ask how much they paid for the work that was done.

(2)  Establish Your Budget

What do you want to pay for this project?  After asking friends and family what they paid for their projects, you can also conduct your own research.  For example, in 2005 a study concluded that the national average cost of a “mid-range” basement refinish was $66 per square foot.¹  Our basement cost about half that to finish, which is why you should also try to get actual costs from people in similar scenarios (new house vs. old house, large basement vs. small basement, etc.) by word of mouth.  Once you gather this information, decide how much you can realistically afford and stick to it.  Once you start meeting with contractors, they will give you lots of reasons and opportunities to spend $10,000 instead of $5,000.  Stick to your guns about your budget.  This can also be a good negotiating tool.

(3)  Define Your Requirements

If you simply want some shelves built, your requirements might be “I want 5 built-in shelves”.  Sketching out a picture is always helpful no matter how small the job is.  Measurements are a plus.

For medium sized jobs like a built-in entertainment center, definitely sketch it out and identify all measurements.  How high off the ground do you want the TV?  How many shelves do you want?  Do you want the shelves to be fixed or adjustable?  Do you want a light at the top of the unit?  Do you want cabinets below?  What style cabinets?  Do you want painted or finished wood?  Answering these questions and sketching a design is a great idea.

For large jobs like an addition, a kitchen remodel or a basement refinish, consider design services.  These services may be part of what your contractor can do.  If you don’t hire a design company, just realize that you will make some mistakes along the way.  We didn’t hire a design company for our basement refinish, and we can live with the mistakes (mostly lighting placement issues, and a seriously painful series of quick decisions we needed to make as the framing was going up).  Anyway if you don’t hire a design company, certainly draw out a floor plan as specific as you can make it (including all lighting, electrical, plumbing, flooring, cabinetry, etc.).

For structural changes that will change the integrity of the building, hire an architect and let them manage the project.  This is for your own safety!

(4)  Interview Prospective Contractors; Obtain a Quote

Here are the most important questions you should ask:

• How long have you been in business? Look for a well-established company and check it out with consumer protection officials. If the business is new, and you’re willing to take the risk, be sure to negotiate a lower price.
• Are you licensed and registered with the state? While most states license electrical and plumbing contractors, only 36 states have some type of licensing and registration statutes affecting contractors, remodelers, and/or specialty contractors. The licensing can range from simple registration to a detailed qualification process. Also, the licensing requirements in one locality may be different from the requirements in the rest of the state. Check with your local building department or consumer protection agency to find out about licensing requirements in your area. If your state has licensing laws, ask to see the contractor’s license. Make sure it’s current.
• How many projects like mine have you completed in the last year? Ask for a list. This will help you determine how familiar the contractor is with your type of project.
• Will my project require a permit? Most states and localities require permits for building projects, even for simple jobs like decks. A competent contractor will get all the necessary permits before starting work on your project. Be suspicious if the contractor asks you to get the permit(s). It could mean that the contractor is not licensed or registered, as required by your state or locality.
• May I have a list of references? The contractor should be able to give you the names, addresses, and phone numbers of at least three clients who have projects similar to yours. Ask each how long ago the project was completed and if you can see it. Also, tell the contractor that you’d like to visit jobs in progress.
• Will you be using subcontractors on this project? If yes, ask how long they have worked for him (ideally more than 5 years). Get names and phone numbers for everyone who will be working on your project and know who is to be contacted when the project supervisor is not around. Ask to meet the subcontractors if possible, and make sure they have current insurance coverage and licenses, if required. Also ask them if they were paid on time by this contractor. A “mechanic’s lien” could be placed on your home if your contractor fails to pay the subcontractors and suppliers on your project. That means the subcontractors and suppliers could go to court to force you to sell your home to satisfy their unpaid bills from your project. Protect yourself by asking the contractor, and every subcontractor and supplier, for a lien release or lien waiver.
• What types of insurance do you carry? Contractors should have personal liability, worker’s compensation, and property damage coverage. Ask for copies of insurance certificates, and make sure they’re current. Avoid doing business with contractors who don’t carry the appropriate insurance. Otherwise, you’ll be held liable for any injuries and damages that occur during the project.
• How much will my project cost based on my requirements?  Obtain a quote in writing with your requirements.

Here are other important questions that you could ask:

• How many jobs does your company have in progress right now?
• What is the average number of jobs you do at the same time?
• Do you have any other outstanding bids right now? If these turn into jobs, will your job drop to the bottom of the list?
• How do you manage your jobs on a day-to day basis?
• Who will be on-site and in charge of my job each day? Could you provide their names and contact information? (Consider having a sign-in/out sheet on site for this purpose to know who is on your property at all times.)
• Have you or your company ever been sued before?
• Have you/your company ever caused/been involved in an accident that caused someone to receive hospital treatment or be hospitalized?
• May I please inspect the inside of your truck or car? (Okay, I have never asked this before, but the best contractor I ever hired had the neatest truck I had ever seen. Maybe you could somehow sneak a peak… but don’t get too close in case he is a kidnapper!)
• Do you plan to vacation during my job? If “Yes”, who will manage in his/her absence?
• Who are your top 3 material suppliers? Contact the GM at each place. Is the contractor in good standing?
• Have you ever declared bankruptcy or operated a company under a different name?

Do not hire a contractor that:

• Solicits door-to-door;
• Offers you discounts for finding other customers;
• Just happens to have materials left over from a previous job;
• Only accepts cash payments;
• Asks you to get the required building permits;
• Does not list a business number in the local telephone directory;
• Tells you your job will be a “demonstration;”
• Pressures you for an immediate decision; Don’t sign right away just because they say you get a special price “just for today”.
• Offers exceptionally long guarantees;
• Asks you to pay for the entire job up-front;
• Suggests that you borrow money from a lender the contractor knows. If you’re not careful, you could lose your home through a home improvement loan scam.
• Doesn’t provide any references.
• Asks you to prepay the job or pay in cash to a worker rather than write out a money order or check to the company’s name.
• You have trouble communicating with… or is not accessible nor willing to become so.
• Does not appear to be listening to you and your project’s needs

(5)  Check References

Talk with some of the remodeler’s former customers. They can help you decide if a particular contractor is right for you. Here are some questions to ask:

• Can I visit your home to see the completed job?
• Were you satisfied with the project? Was it completed on time? Was it completed on budget?
• Did the contractor keep you informed about the status of the project, and any problems along the way?
• Were there any surprises?
• Were there unexpected costs? If so, what were they?
• Did workers show up on time? Did they clean up after finishing the job?
• Would you recommend the contractor?
• Would you use the contractor again?

(6)  Select Your Contractor

There is an old school of thought that says you should throw out the highest bid, throw out the lowest bid, and choose who’s left.  That is not a horrible approach, but after going through steps 1-5, I usually have a pretty good gut feeling on who to choose.  Go with your gut, as long as your gut is within budget!

(7)   Define Your Price & Payment Options

Compare bids line by line from different contractors and see if any line item looks especially high (or low), ask about potential differences in materials, or why there is the discrepancy.  Make sure each bid is for the same scope of work. 

Feel free to negotiate the price with your contractor.   Some examples of ways to negotiate a price down include:

• We really need to keep the project under X amount to stay within budget.  Can you do it for X?
• Ask them if there is any additional discounting they can take advantage of with their suppliers. 
• As a last resort say something like… Wow, I am really impressed with your company and would love to work with you.  Can you do any better on the price?

You have several payment options for most home improvement and maintenance and repair projects. For example, for larger projects you can get your own loan or ask the contractor to arrange financing for larger projects. For smaller projects, you may want to pay by check or credit card. Avoid paying cash.

It is very important to remain in control of your money during the project. If you pay too soon, the contractor can skip town with your money. If you do not pay soon enough, the contractor will stop working on your project. These are items that must be clearly stated in the contract. There is no standard payment plan for a remodeling project. There are typical payment plans however in which a deposit is paid when the contract is signed, generally 1/3 of the total cost of the project as stated in the contract. The second payment of 1/3 is given at the half way mark and the final payment at job completion. However, deposit is more than adequate.

Here are some additional tips:

• Try to limit your down payment. Some state laws limit the amount of money a contractor can request as a down payment. Contact your state or local consumer agency to find out what the law is in your area.
• Try to make payments during the project contingent upon completion of a defined amount of work. This way, if the work is not proceeding according to schedule, the payments also are delayed.
• Don’t make the final payment or sign an affidavit of final release until you are satisfied with the work and know that the subcontractors and suppliers have been paid. Lien laws in your state may allow subcontractors and/or suppliers to file a mechanic’s lien against your home to satisfy their unpaid bills. Contact your local consumer agency for an explanation of lien laws where you live. 
• Some state or local laws limit the amount by which the final bill can exceed the estimate, unless you have approved the increase. Check with your local consumer agency.
• If you have a problem with merchandise or services that you charged to a credit card, and you have made a good faith effort to work out the problem with the seller, you have the right to withhold from the card issuer payment for the merchandise or services. You can withhold payment up to the amount of credit outstanding for the purchase, plus any finance or related charges.

(8)  Obtain a Written Contract

Contract requirements vary by state. Even if your state does not require a written agreement, ask for one. A contract spells out the who, what, where, when and cost of your project. The agreement should be clear, concise and complete. Before you sign a contract, make sure it contains:

• The contractor’s name, address, phone, and license number, if required.
• The payment schedule for the contractor, subcontractors and suppliers.
• An estimated start and completion date. Interim dates are not required, but will help you determine if the project is on schedule or not.
• The contractor’s obligation to obtain all necessary permits.
• How change orders will be handled. A change order – common on most remodeling jobs – is a written authorization to the contractor to make a change or addition to the work described in the original contract. It could affect the project’s cost and schedule. Remodelers often require payment for change orders before work begins. Realize too that some contractors are flexible about change orders, and this isn’t necessarily a bad thing. We built into our basement refinish contract that we required unlimited reasonable design change orders per our request at no additional charge (for a fixed amount of cash that we paid him)… we did this, basically because we had no design. We live life on the edge – haha – our basement turned out great though.
• A detailed list of all materials including color, model, size, brand name, and product. (Or as detailed as possible.)
• Warranties covering materials and workmanship. The names and addresses of the parties honoring the warranties – contractor, distributor or manufacturer – must be identified. The length of the warranty period and any limitations also should be spelled out.
• What the contractor will and will not do. For example, is site clean-up and trash hauling included in the price? Ask for a “broom clause.” It makes the contractor responsible for all clean-up work, including spills and stains.
• Oral promises also should be added to the written contract.
• A written statement of your right to cancel the contract within three business days if you signed it in your home or at a location other than the seller’s permanent place of business. During the sales transaction, the salesperson (contractor) must give you two copies of a cancellation form (one to keep and one to send back to the company) and a copy of your contract or receipt. The contract or receipt must be dated, show the name and address of the seller, and explain your right to cancel.

(9)  Sign-off on the Job

Before you sign off and make the final payment, use this checklist to make sure the job is complete. Check that:

• All work meets the standards spelled out in the contract.
• You have written warranties for materials and workmanship.
• You have proof that all subcontractors and suppliers have been paid.
• The job site has been cleaned up and cleared of excess materials, tools and equipment.
• You have inspected and approved the completed work.

(10)           Close the Job

Keep all paperwork related to your project in one place. This includes copies of the contract, change orders and correspondence with your home improvement professionals. Keep a log or journal of all phone calls, conversations and activities. You also might want to take photographs as the job progresses. These records are especially important if you have problems with your project – during or after construction.

If you have a problem with your home improvement project, first try to resolve it with the contractor. Many disputes can be resolved at this level. Follow any phone conversations with a letter you send by certified mail. Request a return receipt. That’s your proof that the company received your letter. Keep a copy for your files.

If you can’t get satisfaction, consider contacting the following organizations for further information and help:

• State and local consumer protection offices.
• Your state or local Builders Association and/or Remodelors Council.
• Your local Better Business Bureau.
• Action line and consumer reporters. Check with your local newspaper, TV, and radio stations for contacts.
• Local dispute resolution programs.

Sources:

1 – Basement Remodels Find Space for Living; Bob Vila – http://www.bobvila.com/HowTo_Library/Basement_Remodels_Find_Space_for_Living-Basement-A1475.html

2 – Home Sweet Home Improvement Facts for Consumers from the Federal Trade Commission – http://www.ftc.gov/bcp/conline/pubs/services/homeimpv.shtm