Working With Contractors

With home sales slow or non-existent, many homeowners have decided to stay put and make improvements or additions. These means hiring a general or specialist contractors to install new bathrooms, kitchens, floorings, pools, roofs and more means extra care must be spent in all phases of the project to insure a successful project.

The first step to any successful project is to obtain multiple bids for the work. This will help establish a fair price for the work. Failing to bid the project means that the price offered by the first contractor could be substantially higher than necessary. In addition, having multiple contractors can provide multiple views on the project and possibly better ways to complete the work.

Choosing a contractor should not be based solely on lowest price. Other factors that should be measured include the warranty offered, the experience level of the contractor, the brands and materials to be used, the experience level with the local municipality and the contractual terms.

Once the contractor is chosen, the owner must research the contractor’s license status and level of complaint, if any, before the contract is executed. Florida has a simple web site that allows a contractor’s license to be verified. Simply surf to myfloridalicense.com, and select verify a license. Input the contractor’s name or number and specialty and construction industry under the license category to see the contractor’s license. Once the license is found, at the bottom choose view license complaint to see if the contractor has any past or pending complaints.

The contract is the next important step to a successful project. Many contractors use the AIA form contract which is a fair contract for both parties. Contracts can be fixed price or cost plus, which means that the cost of the materials plus an agreed profit, usually 10 – 20%. Issues that owners should have addressed in the contract include a penalty for late performance, retainage (usually 10%) of the contract price to cover completion issues, detailed warranty terms, proper insurance coverage (liability, workmen’s compensation and builder’s risk), and detailed plans and specifications setting forth exactly the work to be performed. The contract should also address who pays for permits, insurance, change orders and special equipment.

The Contract should include a draw schedule for when the contractor receives payments. The initial payment, or deposit, should not exceed 20% of the contract price. Many contractors receive too large deposits, and then run into trouble costing the owners financially when they have to terminate the contract. The remaining draws should be tied to performance by the contractor, either by percentage, such as five draws at twenty percent of the work completed intervals, or based on milestones, such as permit, demolition, rough-in, framing, rough final and final. The contract should also allow for inspections during the construction, especially at draw requests and a final inspection and completion of a punch list for post completion work.

As part of any job, a contractor should provide a Notice of Commencement which is a recorded document that tells sub-contractors, suppliers and materialmen the nature of the project and the owners name and address. Generally, a permit for improvements cannot be obtained unless the contractor submits a duly executed and notarized Notice. In addition, a certified copy of the Notice must be posted at the work site. Florida law is very specific and strict about these requirements, and failure to comply can result in substantial financial problems for owners.

During the construction phase, the owner may receive Notices to Owner from sub-contractors, suppliers and materialmen. These are warnings designed to notify an owner that if the pays the contractor and the contractor fails to pay the sub-contractors, suppliers and materialmen, the owner remains liable for payment and in fact can end up making a double payment should the contractor breach the contract.

In order to avoid this problem, the owner should insist, as a condition to any payment to the contractor, that the contractor provide a partial release of lien with list of all sub-contractors, suppliers and materialmen that the contractor has used affirming that all of have been paid; and partial or final releases of lien, as applicable from all sub-contractors, suppliers and materialmen. Following this procedure will avoid potential problems including liability for double payments.

Once the contractor completes the work, the owner should obtain the following before making any final payment: (1) A final release of lien from the contractor and all sub-contractors, suppliers and materialmen; (2) A copy of the certificate of completion from the county or municipality showing that the work has been inspected and approved; (3) A Notice of Termination terminating the original Notice of Commencement (not crucial, but if there is a planned sale or refinance within a year of starting the work it will be required); (4) A copy of all warranties, including warranties from the manufacturers of items installed and from the contractor; and (5) A punch list setting forth any and all remaining work that needs to be completed.

Following this procedure will lead to a successful home improvement without too many headaches. The key to any successful job is to properly plan and implement the project and to only work with contractors willing to provide these items. If a contractor says he does not work this way, my suggestion is to move on, as failure to follow these procedures can only lead to problems and additional financial costs.