2/28/11: When Remodeling Protect Yourself
By: Benny L. Kass
You are planning major renovation to your home. There are many steps you have to take in order to adequately protect yourself.
First, do you need an architect? That’s a difficult question to answer. The architect can assist you with developing the appropriate plans, but this comes at an additional cost. Many legitimate home improvement contractors – while not licensed architects – can serve the same function, at little or no additional cost to you. Equally important, it’s the contractor that will be doing the job, and invariably you will find that changes have to be made. So quite often, the architect’s plans have to be modified when the job is ongoing.
Next, how do you find a good home improvement contractor? In my experience, word of mouth from friends and neighbors is your best bet. Interview at least three contractors; ask for references and personally inspect the jobs they did for others. Keep in mind, however, that you will only get good references. Obviously, no one will give you names of those who will bad-mouth the contractor. You should also contact your local Better Business Bureau to determine if any complaints have been filed against the company you are considering.
Finally, you – or your attorney – should review the court records in your jurisdiction to determine if there are any lawsuits pending against the contractor. This information is now publically available from your local courts, and even available online (search “court cases in X state), although some are accessible only by attorneys.
When you have selected the contractor, before you sign any contract, call the licensing board in your state, county or city. You want to make sure that the appropriate licenses have been issues – and are current.
Negotiate the price of the job. Will this be a fixed price or a time-and-materials contract? The latter means that you will be paying the contractor an hourly fee for the work done by the contractor and the subs that work on your house. If it is a time-and-material contract, make sure you get in writing the maximum hourly rates, and a statement in your contract that you will get a weekly statement of how many hours were worked that week, and by whom. I have been involved in cases where the contractor padded his hours; we discovered this when the homeowner said he was at home one day and no one showed up – despite the fact that he was billed for 6 hours.
You need a written contract. Many contractors use what I call the “two page special”. This is a simple contract which merely states who the contractor is, a very general description of the work to be performed, and the total cost of the job.
This is not in your best interest.
The American Institute of Architects (AIA), headquartered in Washington, D.C., publishes a number of contract forms for use by homeowners, architects and contractors, and you should insist that your contractor use one of these forms. One such form is A105, a standard agreement between owner and contractor for a residential or small commercial project. Form A107 – which is more comprehensive – can also be used for projects of limited scope.
Why use an AIA form? Because it contains many provisions that will protect you. For example, what warranty will you get? Any changes in the scope of work must be in writing. There will be a schedule of when you have to make periodic payments. What happens if the contractor walks off the job? What rights do you have if you are dissatisfied with the quality (or timeliness) of the job? And, perhaps the most important provision: how much money should you hold-back (retain) until the job is finished, you are satisfied, and you get a written release of liens from the contractor and all subs. I like to see a 15 percent retention of the total price, but in any event no less then 10 percent.
The AIA can be reached on the web at www.aia.org, or by phone at 1-800-AIA-3837.
You now have a good contract, and the work has begun. When it is completed – at least in the eyes of the contractor – you are not happy with a number of items. What can you do?
The AIA contract provides for arbitration of such disputes. You can contact the American Arbitration Association (www.adr.org) or by a toll free call to 1-800-778-7879, to get more information about the process and the costs involved. If there is an arbitration requirement in your contract, you cannot file a lawsuit. And in many situations, arbitration may be much less expensive – and faster – than the court system.
What if you did not follow my advice and do not have a good contract. You are unhappy with the work and stop making payments. The contractor walks off the job, and now you are forced to find someone else to make the necessary corrections and finish the project.
You now learn that your contractor did not have the appropriate home improvement contractor license. The laws vary in metropolitan Washington.
District of Columbia: The laws here provide the best consumer protection in the area. If you have paid an unlicensed contractor $300 or more up front, you are entitled to get back all of the moneys you paid him or her. It does not matter that you knew the contractor was unlicensed when you first started the job, nor how good the job is. According to DC law, no person shall accept payment for a home improvement contract in advance of full completion of the work without a home improvement license issued by the District Consumer and Regulatory Affairs Department. The public policy of the District is to penalize contractors who do not have that license.
Virginia: the Virginia Board for Contractors issues different classes of licenses, depending on the dollar amount of the job. For example Class C contractors can perform work on single jobs that are greater than $1,000 but not more than $7,500, and yearly not to exceed $150,000 for all jobs.
It is a misdemeanor, punishable by fine (and perhaps jail) for a contractor that does not have a license. Additionally, it may be a violation of the Virginia Consumer Protection Act, which allows recovery of treble damages and attorneys fees if the homeowner is successful in court.
Maryland: as in the District of Columbia, unlicensed contractors are not entitled to recover if they sue the homeowner for breach of their contract. The Maryland Home Improvement Commission regulates and supervised contractors. It is a misdemeanor not to have a license, and upon conviction, the contractor can be fined up to $1000 or imprisoned for up to 30 days.
Conversely, if the contractor is licensed in Maryland, homeowners can recover up to $20,000 from the Home Improvement Guaranty Fund for losses caused by poor or incomplete work.
Before you sign up with a home improvement contractor, do your homework. To many homeowners have found themselves having paid 80 or even 100 percent of the contract price and the contractor has walked off the job having done less than 75 percent of the work. Careful planning – and with a fair and balanced contract, you will be in the driver’s seat.