What to Know Before Hiring a Contractor
When it comes to hiring a contractor, it is important to do your homework and get everything in writing. You are ready to begin the process once you have finalized all blueprints and construction documents. This will help you obtain accurate and comparable bids. As you prepare to hire a contractor, it is important to do some background checks on your potential contractors.
Before entering into a contract, be sure to look into the backgrounds of the potential contractors. This helps protect you from unscrupulous contractors and shoddy workmanship. A little extra work up front saves enormous headaches and cost down the road.
Obtain Multiple Bids
Start with a thoughtful approach for finding a contractor. A good rule of thumb is to obtain at least 3 competitive bids for each contractor you are looking to hire. The bid should include full disclosure of all costs as well as timeframes, availability, and full contact information.
For each contractor who has provided a bid, ask for 3 referrals from former customers and then follow up with them. See the quality for yourself and ask each referral about their experience with the contractor.
Only hire a licensed contractor who is bonded and insured. Insurance should cover general liability, property damage, and also include worker’s compensation for all employees.
Perform an Internet search to see if any red flags are raised with your potential contractor. Contact the Better Business Bureau to check for complaints and see how they have been resolved if there are any.
A good construction contract protects both parties from missed expectations, performance gaps, and unforeseen cost overruns. When hiring a contractor, look for the following terms to be included in the document:
Description of Work
Outline exactly what work is to be completed. Reference the appropriate plans and designs as appropriate. The work description should also include the specifications of the materials to be used and the standards of quality to be enforced. Find out if your contractor will be using sub-contractors and require they be subject to the same terms and conditions.
Permits & Approvals
The builder or contractor should obtain any necessary permits to ensure any exposure related to code compliance or safety belongs to the contractor. Determine who will pay the fees for any permits or testing required.
Identify when the construction should begin, and when it should be completed. Build in a buffer of around 10-20% of the time expected depending on the complexity of the work. Some delays are permissible, and those should be outlined. Consider adding an incentive for early completion, but also to build in penalties for delays.
Inevitably something will come up after the contract has been signed which changes the scope of work to be completed. A good contract will outline exactly how to handle change orders, and should require written consent of both parties. Change orders typically outline any changes to the work being performed or the materials used. The change order should include any impacts to cost and timelines.
Most contractors do a good job cleaning up after themselves. However, just in case, it is a good idea to outline your expectations with respect to site clean-up.
If a contractor is not paid for their work, they are legally justified in filing a mechanics lien on your property to recover their money when the property is sold. In extreme cases, a court can mandate the sale of your home to payoff contractors. A contract should outline the notice period required for liens and the manner in which they will be administered. Be sure to have contractors sign a lien release once their portion of the work has been completed.
Breach of Contract & Cancellations
Identify what constitutes a breach of contract and how they will be handled (arbitration, attorneys, who is responsible for fees). Also, identify under what conditions, if any, a contract may be cancelled (for example, within 3 days of signing).
A contract should include a total price and the detailed breakdown building up to it. The contract should also outline the compensation schedule. Never pay cash. Typically, only a small down payment should be provided (i.e. 10% or less) prior to the beginning of construction. The majority of the payments should be phased to keep in line with the progress of construction. Don’t let the payments get ahead of the work. Lastly, the contract should include a holdback clause to ensure all punch list items have been completed before the final payment is made. Only after sign-off should the final payment be made.
Use a sign-off checklist to be sure both parties are clear on what job completion means.
Outline what warranties are included with the work being performed. Some warranties are governed by statute. Others are offered by good contractors who stand behind the quality of their work.
Tips When Hiring a Contractor
Listed below are a few additional considerations and tips to keep in mind when hiring a contractor.
Keep detailed notes on all conversations with contractors. File receipts and purchase orders. Keep copies of all bids, contracts, and notes from performing due diligence. Also, keep a record of all payments made to the contractor.
Taking pictures before, during, and after construction is a good idea to help document and remember how things looked before work commenced. It also helps document the quality, techniques, and infrastructure of the project before they are covered with finishes.