Realty Times July 11, 2002

Improving Your Home? Have a Good Contractor
by Benny L. Kass

Q. We are considering putting an addition to our house this fall, and have obtained some preliminary plans from our architect. We know that we will need a contractor, and although the architect has given us a name, we want to shop around before making any commitment. This will be an expensive job. What should we be looking for? How do you find a good contractor?

A.Many homeowners are opting to improve their existing house, rather than pay the high price for a new property. Every spring or summer, homeowners decide it is time to make significant improvements to the family home. However, often in the fall those same homeowners find out that the contractor they have hired has not done the proper job, and they are left with headaches, heartaches and mechanic's liens from subcontractors.

Indeed, many homeowners find that while they have paid the contractor 80 to 90 percent of the overall contract price, often the contractor has only completed 50-60 percent of the entire job.

There are a number of steps that you must take in order to assure yourself that you will find a competent contractor. Perhaps the most important step is to have a carefully drafted contract spelling out all of the important terms, conditions and specifications.

I am always amazed at the number of homeowners who sign a one or two page document with a contractors, and then complain about the job that the contractor did. If you want the contractor to do something, it should be spelled out, in writing, in your legal documents. If you will be making separate arrangements to have certain work performed by someone else – for example the installation of a wet-bar or a fancy chimney – this work must be specifically excluded in the job specifications portion of the contract.

First, your contractor must be licensed as a home improvement contractor. And the license must be active in the jurisdiction where your property is located. The fact that the contractor may be licensed in Maryland will not help you if your house is in the District of Columbia or in Virginia. Ask the contractor for the license number, and confirm with the licensing department in the county or city where your house is located that the contractor is in fact licensed in your jurisdiction.

The contract that you use should contain at least the following provisions.

  • A payment schedule that has been carefully worked out and agreed upon between you and the contractor. Regardless of whether you or your bank will be making the actual payments, it is recommended that at least 15% of the total contract price be withheld until the job is totally completed to your satisfaction.

  • Each draw schedule --including the final payment -- must be approved by your architect or a building inspector before the payment is made. You do not have to use an architect, but it is recommended that some independent third party who is knowledgeable about construction be required to sign off before any payments are made. This means that before each payment is made to the contractor, your inspector will physically review the work to make sure that it has been done satisfactorily.

  • What kind of warranty will you get from the contractor? Review the terms and make sure that the warranty provisions are contained in the contract documents. You must get at least a one- year warranty on parts and labor, although this is a minimum, and many contractors will provide you with a longer warranty.

  • Inquire as to what kind of insurance you and the contractor will need in the event someone is injured on the job. It is suggested that you contact your own homeowner's insurance company and they should be able to assist you. You can either increase your own insurance on a temporary basis, or insist that the contractor carry adequate insurance for your job, and give you proof of insurance before the job begins.

  • The contract should spell out the approximate beginning time and the approximate ending time of the job. I often recommend that the contractor be given a bonus for early completion, but be charged a penalty for late completion. Ask the contractor approximately how long the job will take; add two or three weeks to that time period, and then assess a penalty at the expiration of that time period. Many contractors do not like a penalty clause, and this will be a business decision on your part as to whether or not it is included in your contract.

  • The contract should give you the absolute right to terminate the contract if you are dissatisfied with the work. Obviously, you do not have the right to terminate arbitrarily, and you should give the contractor reasonable notice of your intention to terminate so that he or she can attempt to cure any problems that you may have. This termination right is standard boilerplate language in most construction contracts.

  • You should consider using the American Institute of Architect's (AIA) form contract, and you can contact the AIA either on the web (www.aia.org) or at 1-800-365-2724 to purchase one of their standard forms. It should be noted that the AIA publishes numerous form contracts, but the organization should be helpful in assisting you when you call. AIA document A-107, entitled "Abbreviated Standard Form of Agreement between Owner and Contractor for Constructions Projects of Limited Scope" is probably the most useful contract for most homeowners.

  • The AIA form requires that an arbitration process be used instead of legal proceedings in court to resolve any disputes that may arise. While I personally have reservations about arbitration, it may be a cheaper and faster route to take than to litigate. Litigation involves a lot of time, a lot of money, and a lot of stress.

    When the contractor has completed the job and is asking for the final payment, you should insist that the contractor provide you with a release of all mechanic's liens. The general contractor -- as well as all of the subcontractors -- should sign a release of liens form. There have been many cases in recent years where the contractor is paid in full, but does not pay the subs, and the subs then file mechanic's liens against the homeowner. While the laws in all three jurisdictions differ, having to deal with mechanic's liens is a nuisance, and can be avoided by having all subcontractors sign the release form.

    Finally, ask the potential contractor for at least 3 references. Call each reference, and try to visit their property to see the kind of work which the contractor did. Keep in mind, however, the no contractor will give a reference who is not satisfied with the job.

    The contracting procedure described above is time-consuming, but in the long run will go a long way to assist you in avoiding major disputes. Preventive law is as important as preventive medicine; however, many people wait to see their doctor or their lawyer when it may be too late to avoid the problems.


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