DEAR TIM: My house was severely damaged by a natural disaster. My husband and I hired a contractor who was referred by a friend and whose state license is in good standing. We visited other smaller jobs to review his work. We signed a contract with him to perform $250,000 in repairs. He has taken all of our money and only 1/3 of the work is complete, much of it against code. What should we have done to avoid this nightmare? J.C.
DEAR J. C.: After reviewing all of the details of your story, I can see that this person was a con artist from the start. All of the facts that you have presented indicate that this individual was not capable of performing a job of your scope. Furthermore, it appears that he had every intention of stealing your money. He has no honor and makes life miserable for all honest, stable, and trustworthy contractors.
Some state laws permit contractors to ask for and accept deposit money the day the contract is signed. In many cases, deposit money forwarded by a homeowner to a contractor is nothing more than a loan. You put yourself and your money at great risk if you advance money to a contractor for no good reason. Some contractors use deposit money to pay the bills of other jobs currently in progress. This business practice is often referred to as under-capitalization. In other words, their financial gas tank is running near empty.
Contractors deserve advance money in certain instances. For example, they may have to order custom non-returnable objects such as kitchen cabinets or custom windows or doors. A build/design firm may want the cost of the design work and the building permit covered as these items can only be used on your job. Design and planning costs can be negotiated during the bidding process. Costs for custom materials can be verified by asking for copies of the quotes from suppliers. Honest contractors generally will not hesitate to provide you with these numbers.
I also noticed that you allowed the contractor to begin work without finished, detailed plans that were approved by your local building department. This was a critical error on your part. It is vitally important to have finished plans and specifications BEFORE the contract is signed. The plans should be an integral part of the contract documents. An investment of $250 or so with a attorney to review your contract would have been very prudent. The contract could have contained language telling the contractor that all work must be performed in accordance to the plans and specifications.
Payments of additional monies as the work progresses must be tied to specific progress points. You can agree to pay weekly or monthly for work that is complete and satisfactory. To aid you in determining what is a fair price to pay at each of these times, a detailed cost breakdown of the job costs is required. Had you obtained this breakdown of costs on your job, the money to pay for the yet unfinished work would still be in your possession.
I suggest that you contact your local building department as well. Often these agencies provide written progress reports during construction. These reports tell you whether or not the work is being completed in accordance with the building code laws. Make the contractor submit these reports, if they are available, at each request for payment.
In addition, be sure you receive notarized affidavits from each person who has worked on your property or material supplier who has delivered materials. If your contractor has not yet paid these people, your nightmare is just beginning.