Everything You Need To Know About Hiring A Contractor Part 3 Of 3

Part III: Contractor Contracts 101

After you've compiled a list of contractor candidates, detailed in part I of this series, and completed your research on potential contractors, detailed in part II, it's time to talk contracts.

Remember the number one rule for every project: Insist on a written contract, even if not required to by your state.

Your contract should specify who the parties are in the contract, what the job is/what work will be done, where the job is, when the work will start and end and what the cost will be.

The contract should be complete, concise and clear. It should include all of the following information:

• The name, business address, phone number and license number (if required) of the contractor.

• The agreed upon payment schedule for all workers, including the contractor and any subcontractors and suppliers. It is highly recommended that the payment plan include paying the contractor some money up front, some while the project is ongoing and the last payment when everything is completed to your satisfaction. If the contractor wants all of the money up front or asks for a very large amount of money down, these could be signs that he has financial troubles or even something worse. Do not sign a contract with that person. Also, make sure you do not pay in cash and that you get receipts for all payments you make. See the "Understand your payment options" section below for more specifics.

• A statement that it is the contractor’s responsibility and obligation to obtain any permits needed/required. It is ultimately your responsibility that the proper building permits are obtained for your project, so make sure that your contractor will apply to your town to get all of the necessary building permits if you don't want to be tasked with it yourself.

• Estimated dates for when the project will start and when it will be completed.

• Details on how you and the contractor will handle “change orders.” These are common and are authorizations from you, in writing, to make changes or additions to the project as detailed originally in the contract. Changes can affect the cost and schedule of the project. Payment for the change order is often required before work on that change starts.

• Warranties for workmanship and materials. The names of the parties honoring the warranties (such as the contractor, the manufacturer and/or the distributor) and their addresses must be in the contract. The contract should also include the limitations of the warranty and the length of the warranty period.

• What is or is not the job of the contractor. For instance, is the contractor going to clean up the site and haul away the trash and, if so, is this service included in the price? Ask your contractor for a “broom clause,” which makes all cleanup work, even stains and spills, the responsibility of the contractor.

• A detailed list of all materials that will be used, including the product, the brand name, the model number, the size and the color.

• A statement in writing reserving your right to cancel the contract within 3 business days if the contract was signed anywhere other than in the contractor’s permanent place of business, including in your home. This is known as the Federal 3-Day Cooling Off Rule. The contractor is required to give you a copy of your contract or a copy of your receipt, and two copies of the cancellation form during the sales transaction. You keep one copy of the cancellation form and send the other back to the company. The contract or receipt must show the name and address of the contractor, must explain your right to cancel and must be dated.

• Any promises the contractor makes to you orally should be added to the written contract.

Always read the contract before signing it.

Understand your payment options. For most home projects, whether improvement, maintenance or repair, you have payment options. You could get a loan. Your contactor may be able to arrange financing for you. However, be very careful if a contractor suggests that he/she could finance your home improvement project or knows a finance company that could. Take the finance agreement to an attorney or other informed person to review it to make sure it is in compliance with the State and Federal Truth-in-Lending Act. There have been consumers who thought they were signing an agreement to have something installed in their homes and in fact, they were taking out a second mortgage on their homes.

If it’s a small job, you may choose to pay by credit card or check. Do not pay in cash. If you finance the project, make sure you have a fair interest rate and a payment schedule you can meet. Also:

• Try to schedule your payments around the completion of certain phases of the job. This way, if the work is not being down on schedule, there is also a delay in the payments.
• Try to keep the amount of the down payment limited. Some states do this for you by limiting how much money a contractor can ask for up front. You can learn about the laws in your area by contacting your state or local consumer agency.
• Find out if there are laws in your state or locality limiting how much the final bill can exceed the original estimate without your approval of the increase. You can learn about laws in your area by checking with your local consumer agency.
• Never sign an affidavit of final release or make the final payment until you know that the suppliers’ subcontractors have received their payment and until the work has been done to your satisfaction. As stated above, there may be lien laws in your state or area that allow suppliers and subcontractors to file a “mechanic’s lien” against your home in order to get the money for their unpaid work/bills. Your local consumer protection agency can help explain the lien laws for your state or locality.
• If you pay by credit card and are not satisfied with the merchandise or services charged, after making a good faith effort to work out the problem with the contractor/subcontractor/supplier, you can withhold payment from the credit card issuer. This withholding can include the outstanding amount of the merchandise or services plus finance charges or other related charges.