Question: I signed a contract with a general contractor last September. The contractor was going to remodel the back end of my house, for a fixed price of $125,000. For six months, everything seems to go well, the work appeared to be of good quality and the various crews were working continuously. Then, about four months ago, things changed. The contractor no longer returned my calls (nor those of my architect), and no work has been done in my house since last May.

I am left with unfinished plumbing, electrical, and interior carpentry work. I sent the contractor a certified letter (which he received) demanding that he call me, but he never did.

To make matters worse, I have paid him for work not done. I believe he has been paid for approximately 75 percent of the contract price, but has done less than 60 percent of the contract work.

What recourse do I have?

Answer: It will not be a consolation to you, but unfortunately, you are not alone. As real estate prices keep rising, many homeowners make the decision to improve their current home, rather than buy a new one. As a result, it is now difficult to get a good contractor who can start working immediately on your job.

You really have only two alternatives: file a lawsuit against the contractor, or recognize that you made a serious mistake and just go ahead and find another contractor who will finish your job -- even if it costs you a lot more money.

There are a number of steps which you should take before you sign a contract with a home improvement contractor.

1. Try to get at least two or three bids for your job, especially if it will involve a considerable amount of money. This is not easy in today's market, but it is an important first step. Do not jump at the lowest bid; there are too many unscrupulous contractors who will purposely low-ball their bid, knowing full well that they will not be able to finish the job and break even -- let alone make a profit. Indeed, that may be why your contractor has been ignoring you.

2. Check references. If a contractor gives you names of other homeowners for whom he worked, call them. Try to physically inspect the work that the contractor did for these other consumers. Keep in mind, however, that the contractor will only give you the names of friendly, happy customers; I know that your name will not be given as a reference by your contractor.

3. Contact private and government agencies. Call the Better Business Bureau to determine if there have been any complaints against the prospective contractor. Check with the local consumer protection agency in the jurisdiction where your house is located. Is your contractor licensed as a home improvement contractor by your local jurisdiction. Many states (and the District of Columbia) specifically require that home improvement contractors obtain a license to do this kind of work.

4. Do not sign a one or two page contract, especially if the job will cost more than $10,000. The American Institute of Architects (AIA) has a number of good form contracts, and you should insist that your contractor use one of these forms. The AIA is located in Washington, D.C. and can be reached on the web at aia.org, or by phone at 800-AIA-3837.

There are a number of critical issues which any home improvement contract must contain:

• When will the work begin and when will it be completed? Many homeowners will offer a bonus to a contractor for early completion, but will impose a daily late fee if the job is not completed by a date certain.

• Payment schedule -- also known as a draw schedule. Your contract must spell out how the contractor will be paid. For example, at the beginning of the job, you will pay X percent (usually 10 or 15 percent of the total contract price). This will enable the contractor to buy the necessary materials so as to start working on your house. When a portion of the work has been completed (i.e. electrical) the contractor will get another check. A complete draw schedule is required for all home improvement contracts.

• Final payment. I always recommend that a portion of the total contract price be withheld until the work is completely finished. Although I prefer a 15 percent retainage, at the very least it should be no less than 10 percent of the contract price.

• Termination. The contract must contain language giving you the right to terminate the contract if the contractor is not performing. Generally, the homeowner will be required to send the contractor a letter, advising that if the work does not resume (or if certain items are not completed) by a date certain -- usually 10 or 15 days from the date of the letter -- the contract will be terminated. At that time, the homeowner is free to find another contractor to complete the job, and charge the original contractor should the costs exceed the original contract price.

Now, let's get back to your question. You should immediately send another letter to your contractor, formally terminating the contract. Find another contractor (using the steps discussed above) and get bids. You will need these bids should you decide to file suit.

Once you have these bids, you have to make a business decision: is it really worth filing suit against the former contractor? Litigation is expensive, time-consuming and uncertain. And even if you obtain a judgment against the contractor, will you be able to collect? You should understand that there is no cash register at the back of the courthouse. Devious contractors know how to protect their assets.

Finally, you should determine from your local government permit and license department if your contractor has a valid, current home improvement contractors license. Many states have very strong laws dealing with unlicensed contractors. For example, in the District of Columbia, if you have given your contractor at least $300 up front, and the contractor does not have a license, you are entitled to a full refund of all of the moneys you paid him -- even if he has completed the job and you are satisfied with the work.

But once again, collecting on a judgment is often more difficult than obtaining that judgment from a judge.

Hopefully, there is a lesson here that has been learned and you will be able to protect yourself in the future.

Published: August 29, 2005

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