What to Look for in a Contractor's Contract

olldbobbi Question about the payment schedule. I've heard everything from the "1/3" rule to the "no payment up front" rule. I've even been told that by law a contractor in California cannot ask for or expect any money up front.

Do these law vary by state, or is there a nationwide law?

hometipster Some excellent advice. There are quiet a few online service now that help you avoid rogue / cowboys through systems whereby the contractors are recommended by other satisfied customers which I think is a great idea.

Kenny Grono Bobbi P
Laws do vary from state to state. In Pennsylvania a contractor cannot request more than 1/3 up front plus special order materials costs. I generally request 20% plus special order costs. I have had banks stipulate as a part of a homeowner's loan that there could be no up front money. This is asking the contractor to finance the project and involves risk I'm not interested in taking. Every state and situation is different. When in doubt, consult a lawyer.

olldbobbi Thank you, Kenny! Another question, if you don't mind, let's say we give a contractor 1/3 up front, and he disappears, or his quality isn't up to par. What is our recourse? I know complaints can be filed with CSLB and BBB, is there anything else?

And I think more importantly, what can we do to protect ourselves from having this happen? Besides getting a physical address, which is mentioned above. The fact that they are licensed and insured doesn't guarantee the homeowner protection under these circumstances. I hope I'm making sense!

Kenny Grono Bobbi P
The best thing to do is talk to several of their past clients, who had work of a similar scale done. Although they're not going to give you the names of the people who weren't wild about them, talking to their clients will give you a sense of how the contractor handles his/her business. A contractor who disappears with someones money is not going to be in business for long. So if they are established and have happy customers, that is a good sign.

serryjw I'd like to know if I can buy/pay for products and only pay for labor. I've sourced everything I want and know the quality.

Linda We vary payment schedules according to the type of project and the customer.. If it is an existing customer, we may start work without money first. For jobs up to 4 or 5 days, we typically ask for half down, rest on completion. If we aren't doing the work immediately, we'll wait until a day or two prior to starting the job to pick up the color list and the downstroke. The majority of the jobs we do are painting, so half down covers all of direct material costs and the indirect costs of working - gas, lunches, supplies, equipment. and the second half covers labor and profit. For jobs like flooring or tile installation, we either expect the customer to provide the material or we'll ask for a separate materials payment. If we are feeling a bit unsure about the customer, w'll write a contract and ask for a 1/3 down at signing and then 1/3 the day we start work with rest on completion. The first day we do prep work and then buy the material only after we get the second payment.

We work on a handshake for most small jobs and expect the customer to provide us with a list of colors and locations when we get more than a couple colors. For larger jobs, we write up a scope of work but prefer that the customer writes the color list because the act of actually writing down the information requires a mental commitment from the indecisive. It is much harder to say "that's not what I wanted" when the instruction is in your own handwriting. That's not to say we don't allow changes, but if additional materials are needed, we expect the customer to pay.

olldbobbi Linda, that's a good sound policy, especially the part with the customer's own handwriting. But, where are you located? I believe location makes a difference, too.

Seattle Staged To Sell Very important blog. I give the same advice to my clients.

My own sister didn't follow the advice and she ended up in the court. She had paid for the services that were not done and the contractor vanished in the middle of the job.

I think part of the problem was, my sister and brother-in-law decided to remodel their home, when my brother-in-law was going through chemo treatment and they didn't have the energy to check the background of their contractors.

This is why I always tell people, please don't take on a project, while you are going through some serious and difficult times. If the focus is not there, mishaps will happen.

Thanks for the blog.

jannapfeil What about requiring proof of payment to subcontractors working on the project?

olldbobbi I think all and all, the homeowner is so vulnerable here. There needs to be some kind of a system where we are more protected against unscrupulous contractors and shoddy workmanship. Perhaps a contractor's bond, if the job is more than $10,000? We def need more protection here.

riconsd Up front money, you are kidding right. That is the biggest danger signal. Contractors get paid for work completed FULL STOP. Otherwise it is just a parts and labor job with a pretty bow. If a contractor can't work till the first draw than the job is to big for them. But I will say special orders are different as long as it is not lumber, drywall, nails...

Also check that their insurance is current some less than scrupulous will show a Cert from the 1st Q when your in the 4th Q.

Want to see a contractor cringe use an AIA contract.

patscats2 Get personal references and ask for phone numbers/addresses of previous customers. My husband is a self employed contractor and all his work is by word of mouth. He does excellent work and has never had to advertise for business in 23 years.

Unfortunately we've had to hire others to do different jobs around our own home and learned quickly not everyone has the same work ethic as my husband. How some of them stay in business is beyond comprehension.

The main things my husband's customers love about him is he's punctual, starts a job on the day stated in the contract and finishes within the time frame given. Cleans up after himself daily, does extra's at no charge, uses quality products and will not garantee cheaper products if that's what the customer wants, i.e., paint. He'll only use Benjamin Moore. His estimate indicates what the customer is paying for speicifc things and doesn't just pick a number out of the sky and give a vague number. He can tell his customer how much they are paying for supplies, labor, nails, screws etc. If a customer wants to go buy the materials he is fine with that, it saves him time. I wish evey contractor could be like him.

olldbobbi patscats2, your husband sounds like a peach. I wish all contractors were like him too.

One year my mother (very prim and proper) hired a contractor to install ceiling fans in all the bedrooms. She was away on one of her trips so I stayed to babysit the contractor. He did excellent work; and cussed a blue streak! He dropped the f-bomb continuosly. I was so glad my mother wasn't home as I had recommended him to her, and she would have found a way to make it my fault!!!

I wonder....when contractors do work for commercial customers, do they require up front money? I doubt it, and I don't know why homeowners should have to do that either!

patscats2 Oh Bobbi, I'd have died with that guy around. I would have run him up the street with the mouth!! LOL I don't know about commercial customers as my husband only does residential work. I would think payment would be the same for both. Unless it's a real big job that will last weeks, he asks for cost of materials up front, then balance when job is finished.

3D-Tile-Design - Bertram Tasch Hello patscats2,

Sounds like your husband is my brother. ☺ I do almost exactly the same like him. I think a good contractor loves his job (I say on purpose loves and not likes) and not only the money which he gets for it. To get money is important otherwise you wouldn't survive however the money is not the main reason why I am doing what I am doing.

I am setting tiles now from from my early childhood. My Father took me one day with him to a client where he was tiling a bathroom. First it was interesting for me, then I started to like liked it and shortly after I already loved it to set the tiles. And many many years ago it turned into a passion.

I always like challenges and I love it to build outstanding and unique tile installations. The customers wishes, her needs and also how to accomplish it, is always my main priority. When I am done with my work, I want to be proud of what I've created and my customers should be always happy for what they get for their money. This makes me feel very good. And I always enjoy to work for customers which are looking for highest quality and not only for the cheapest offer.

Regards.

3D-Tile-Design - Bertram Tasch
Maple Ridge, BC (Greater Vancouver)
http://www.3D-Tile-Design.ca

Karli Goldsack Detailed contracts are extremely important.
Just one point to note - something has got to be protecting the contractor as well.
In the trade I work in it is more a case of chasing the client for payments than the client chasing us for completion...

Remember that the contractor is taking a risk also by taking on an unknown client (that's why there isn't often up front payments for commercial jobs - because you generally know the company reputation and what their payments are like).

So there has to be trust both ways.

Kenny Grono Riconsd,

If a contractor is willing to work with no money up front that is also a red flag. A good contractor should not have to take that risk. It is not about having the capital, it is about risk.

patscats2 In reading these comments it brought to mine an incident that happened when my husband referred a particular plumber to one of his good customers. His customer called him very upset stating that the guy refused to give him an estimate in writing, etc. My husband was so embarrassed that this plumber was being such an ass with his customer. So he called him on the phone and read him the riot act. The next day the plumber had a typed estimate in hand to give the customer. After this incident if someone asked my husband for a referral of someone in another trade he told them he didn't know anyone. He couldn't trust anyone to treat his customers like he did and didn't want to recommend a jerk.

2B Design Excellent article Kenny. Very sound fundamental advice. As you stated though it's just a "starting point". I've been designing/building very custom remodels (high design some call it) in the LA area for 15yrs.+. I would have found a new profession long ago if I didn't love doing it as stated by 3D Tile and others. That's because remodeling is very difficult. If I were hiring a architect or builder that would be my #1 criteria for selection. For a big job you should have multiple meetings before signing your life away in order to get to know who your working with and to iron out the details. BobbieP, the simple/best approach is to ask the contractor "why"? or "for what"? If there's a legitimate reason the contractor will be glad to explain, in detail, the reasons. There is almost never a legitimate reason for paying a contractor a huge some of money before he has built anything as stated by rinconsd. If they need $20,000 before they start, then its probably to buy a new truck or a down payment on a cabin in Big Bear. I've seen many people(incl. friends and family)get ripped off by the unscrupulous type who, in California, greatly out number those who are good at and love their work.
My simple solution to the vulnerability of the customer(as well as the contractor) is to get many payments of small increments. Why not write a check every week?(for a big job)That way your never risking a large amount of money and the contractor is never risking more than a weeks work. If my memory serves me, in California, the max. down is the lesser of 10% or $1,000.
Contracts are great but, they're only as good as the details stated. That's because contractors are licensed professionals at writing contracts. Most homeowners will only sign one contract in they're lifetime. Guess who's going to come out on top. I like the statement about the AIA contract. I tried that in the early days and scared off a couple good potential clients. (blew their minds)
Bonus Advice: don't hire a new home builder to do a remodel. It will cost you an arm and a leg because it is much more difficult. Don't hire a guy who list his services as commercial, residential, painting, roofing,....
Insider Info: Contractors pay referral fees to; realtors, mortgage brokers, past clients, etc. Unless the referral comes from someone you know personally and you've seen the work it means almost nothing.
If it smells like a rat....

Jill Ty We own an electrical contracting company. I find it very interesting to read the points of view from the homeowners.
I would like to also comment from a contractor point of view. We have worked for customers when we have had a contract stating exactly what is to be done. It is also the homeowners responsibility to remove any items that many be in the way of the contractor. It is the homeowners responsibility to make sure the area is free and clear for the contractor to work. We cannot get to your ceiling to install lighting if you have furniture all around the room with nowhere to put our ladder. Yet, we have seen homeowners get angry when we have to move their furniture! A homeowner needs to remove any breakables as well. When a contractor is working and installing new material, chances are, pieces of whatever are going to fall. Even the most meticulous contractor cannot control where things land. A homeowner needs to use some common sense.
I have also noticed a lot of comments about paying a contractor. We ask for money upfront because we have been scammed out of money by homeowners. We have had people pay us and then cancel the check before it clears the bank. We have had people file for bankruptcy, knowing they can't pay us, but still having us do the work. We have heard every excuse in the book. We have people that have not paid us for 6 months or longer. So I ask, why is that fair? It is extremely time consuming to file a charge or complaint against a homeowner. WE can put a lien on a house, but only after it goes to court. All of this takes time, and most companies don't have the man power to do this. I can personally say that we have been out over $50,000 due to customers not paying us. Is that fair?
I understand there are a lot of "fly by night" type of contractors out there. However, there are alot of us that are honest, pay for our insurance, keep our licensing up to date, take the required continuing education as required, and pay our taxes. We are honest contractors and sometimes get tired of being lumped into the same category as the liars and cheats.

riconsd Kenny,

Draws have been in place before George Baily opened the Building and Loan. In other words its Standard Business Practice. My family owned a construction co. from 1936 to 1985 and we never took money up front. Risk is part of being in business for oneself, and in construction is offset by the power to place a lien. Multiple builds and one wall remodels my checkbook never opens till 10% is complete.

Based on all the laws that protect consumers from unscrupulous contractors, I would say there is a larger risk of a bad contractor then there is of a dead beat client. Holding the purse strings tight is really the only strategy most people have in this process.

I have a feeling that we are just going to disagree on this and the COG (customers own goods) but 2 out of 30 ain't bad. Look forward to the next 10.

BTW the contract should provide for proof of payment to subs such as a Waver of Lien when the draw for the sub happens.

patscats2 Jill, I hear your frustration, but like attorney's, contractor's are lumped into a bad category sometime because of the bad ones and it's something that comes with the job of providing a service.

In the case of customer's having common sense and moving furniture, etc. My husband will inform the homeowner when things need to be moved or cleared out and if they don't do it then they have to pay for his time to get it done. So it's much cheaper for them to do it themselves. He's gone to remodel kitchens only to find the homeowners had not emptied the cabinets as instructed by him to do so. What can I say, some people are lazy.

As far as being scammed, that's why my husband operates a very small business that consists of him and his helper. He likes to work for people who come recommended by current customers. He's only gone out to give estimates or do work for strangers a couple of times and it was not good experiences.

Ladies, have you ever called for a contractor only to be told your husband had to be present in order for the contrator to come out and give an estimate? Yes, I've had that happen to me. I laughed so hard at the guy when he said "your husband has to be home for us to come out and give the estimate." I thought I was transformed back 50 years. HA!! FYI, it's Capial Improvement for those of you who have them in your area. Stay clear of them.

Kenny Grono Riconsd,

I hear you, and we probably will end up disagreeing, but I'd like to make another point: My upfront deposits generally work like this: 5% when we put the job on the schedule, and more, another 10 or 15% when we load in and begin work. There is a lot that happens before we start work at the house, and I am generally scheduling work months in advance. The deposit is a good faith commitment. I don't believe the ability to take someone to court for non-payment on a small job or to file a lien on a larger job negates the good a deposit does. The day in court or time spent filing paperwork is money lost even before there is a verdict.

My policies are not in place because of bad experiences. I've always been paid by my clients. Before I work with a homeowner, they speak to my past clients and visit projects in progress until they feel comfortable. As I can't do the same, a deposit lets me know the client is committed and frees me up to do my job without unnecessary concerns.

Karen Wilkins I am so glad I read this article - we're evaluating bids on a remodel that will run around $25,000, and one of my favorite contractors (based on our meeting) asked for 65% deposit. I've had no experience with this, so that didn't seem strange to me - now it makes me think I definitely need to check those references!

riconsd Kenny,

There are many ways to run a successful construction co., and I am truly happy your works so well. My recalcitrance to upfront payment probably has more to do with my disappointments in societal changes, a person word isn't even worth the breath used to deliver it any longer, than any other one thing.

Defining the payment schedule helped, and I may even pay a small "retainer" to hold a spot on the work schedule in the future but the first draw wouldn't happen till 15% of the work was completed. Compromise ;) ?

jillybeansisme I have no issue with a deposit as long as it is reasonable according to the job. I do recommend people get contracts and NOT sign them for at least 24 hours so that they can read and reread them and understand them fully before committing to them. I also recommend using Licensed Bonded Contractors and check with the State Contractor's Board. You also need to understand the definition of Contractor. For example, the guy who build my house was a General Contractor. I looked at some of his projects. Well, I thought I researched things well but what I didn't know is a Remodeler holds a General Contractor's license. After the fact it turns out he never built a house from scratch (hey, but he read about it) and the jobs he showed me weren't built from the ground up by him they had some remodelling done by him. Fortunately, the State Contractor's Board got involved and I got a beautiful home. Learned alot and will not make the same mistakes twice. I know I need to ask different questions than I did when I do my next project!

Valley Glen Inc I'm a contractor in california the law saids 10% down payment max. if you are doing an small bath remodel that takes 2 weeks maximum, what do i suppose to get with 10%, a bit of tile, some fixtures and finance the rest?. or take 6 weeks to complete this project. I think people needs to do their home work and check referals and contractor's credentials. Most credited contractors will not risk their livelihood (License) for few Hundred dollars. if you don't get a good feeling about your contractor when you meet in person simply don't hire him, remember he will be "in" your house for days, weeks and sometimes months. i think people should give enough money to get materials for the project to get going and give weekly payments based on progress or make 4 or 5 payments based on the inspection cards. 10% retainer for final payment after Punch list it's completed is reasonable after all thath's probably half of the contractors profit and it will be a big incentive for him to finish sooner than later.

RemodelWest Folks in the state of CA a contractor may collect 10% or $1,000 whichever is LESS as a down payment. Typically a residential project is more that 10K so you should never be paying more than $1,000 as a down payment. Furthermore a contractor may not collect more than what work as actually been completed during construction. This can get a little gray. In CA a contract must state the start and completion dates. Ask for a construction schedule indicating the progress payments before signing the contract. If they can't provide that run! CA has a some resources on line for you all and even if your not in CA why not ask for some of these provisions in your contract.

K.O.H. Construction Corporation Bobbi P , all our customers are either referrals or past customers. We use the pay as you go system, which is. Several small payments as the work progresses. Any change order is paid in full in advance. This makes the customer completely aware of cost. A down payment of 2%-4% is required for start up cost. We are insured and bonded on every job. This allows a recourse for the client.

nreeve You should add a cancelation stipulation...

Kenny Grono Good point nreeve,

This is required in some states, like Pennsylvania where we work.

funjunky You can go online to your state's Department of Business and Professional Regulation and look up any contractor by name. If he is licensed with the state, it will show his license status and any consumer complaints that have been filed with the state. Also, if you do have a serious issue with a contractor, this is the best place to file your complaint

schierau1 Definately recommend a proper contract and background check, don't JUST rely on a referral and think that because you trust the person who reffered, that the contractor they referred is good for it... it was referenced above by someone that there husband has stopped giving referrals to customers because of this.

I have a rental suite and follow a strict process for screening tenants including work and previous landlord checks and credit checks and proper interviewing questions, and have yet to have any problem tenants. Had I followed this process for contractor I may have avoided the following:

Last year my lawn/gardening contractor (who has been awesome), referred a buddy who does inground irrigation systems. His buddy came right over and was pleased I agreed to have him start. It was a 'good deal' as it was cash (nothing upfront, but 2/3's once the work was started and 1/3 at completion)... well he agreed to start a certain date and only showed up about 5 days later (not a huge deal except it was prime growing time and we wanted the irrigation going). He said it would take a couple days initially, but each time he'd show up or send some kid, dig for an hour and then take off..I called, texted etc.. daily to push him to get it done...it was very painful dealing with him and each time he was 'appologetic'...he also smelled of booze each time I saw him. He got the work done in 3 to 4 weeks after his buddy (my gardener) kept giving him crap for doing this to me.

Once the work was done, the programming was completely messed up and watering was not set up properly, I had to keep hounding him every couple days. He'd always promise to come a certain time or day and everytime he did not show up till mutiple calls/texts and several days after... needless to say, my previously beautiful lawn which was the nicest on my block ended up drying up and looking one of the worst. This year my gardener/lawnkeeper is doing extra treatments (some complimentary) to get it back to where it should be. He also has mastered the irrigation system and said I can call him anytime instead of his buddy to deal with any issues or breakdowns including parts.

So it is now ok, but was definately not worth the headaches and time sucked up or damage to the lawn. Next project is a deck and I am definately proceeding with caution on this one and interviewing multiple contractors and checking their work and references. I will ensure a proper contract is implemented as well.

Hope this helps anyone thinking of hiring a contractor on a leap of faith.