Hiring a Contractor & Signing a Construction Agreement 

Written By Alex Iosa, November 1, 2008*

As our homes age, they will soon need to be updated or repaired.  Minor updating or repairs can usually be done by a handy homeowner.  However, when it comes to any major repairs  or  updates, it is best to hire a Professional Contractor, no matter how handy we may think that we are.  The following is a list of guidelines to consider when hiring a Professional Contractor

Hiring a Contractor 

A Professional Contractor is a contractor that is licensed and insured.  It is always best to hire a contractor that is licensed and insured.  A licensed contractor is required to be state certified and or licensed to work in local municipalities.  All contractors are required to be insured (General Liability Insurance & Workmans Comp.).  A License and Insurance is a helpful sign to a Homeowner that the Contractor is competent.  Ask to see a Contractors' up to date License, General Liability Insurance and Workmans Comp Certificates.  Any Professional Contractor will be more than happy to show these to you and will appreciate you hiring a contractor that is Licensed and Insured.  If a Contractor is offended that you asked to see these items, delays showing them to you or tells you that they are not necessary for the project, chances are, they are not Insured and do not have a License.  Make sure that all Subcontractors working for the Contractor on your home are also Licensed and Insured.  

Do not hire a Contractor that asks to be paid in Cash.  Chances are that they are not Licensed and Insured.  If paying with a Check, make the payment to the Company Name.  All Professional Contractors will accept payment through their company to pay their Business Taxes.

Obtain all estimates in writing and ensure that both parties are in Agreement with the work to be completed through a written Construction Agreement (Contract).  Unfortunately, gone are the days where work can be done with a handshake.  The more that is in wriwritten, the better and it will allow for a more fluid working relationship between both parties.  This will also help keep from having surprise extras at the end of the project.  A diagram of the project will help immensely... "a picture is worth a thousand words."

Get multiple estimates for all projects.  This will allow you to compare estimates.  Make sure that all of the Contractors are bidding on the same items of the project.  Some Contractors estimates will have everything included in it, while others may be less expensive with items left out.  Read through each thoroughly!  The cheapest is not always the best. 

Ask a Professional Contractor about their "Change Order" policy.  All major construction projects will have some changes made to it.  Some Contractors will use "Change Orders" as a way to take advantage of a Homeowner through price gouging.  Some Contractors have a "Change Order" process fee on top of the cost (labor & materials) to make the change.  Find this out up front.  All "Change Orders" should be in writing and signed by both parties before the extra work begins.

Find out the Professional Contractors reputation.  Ask to see photos of work completed.  Contractors that are proud of their work usually have pictures of it.  Ask for a list of references:  Most Professional Contractors that have been in business for a while will have a list of references.  Find out a how long a Professional Contractor has been in business.  A Contractor that has been in business for a long time, usually has a good reputation.  If they did poor quality work, they would not be in business long.  An exception to this, would be that there are many new Contractors that are just getting started in the industry that have the potential to be very reputable and are looking for an opportunity to start their careers. 

Ask a Professional Contractor about the employees and Subcontractors that will be working in your Home.  Chances are that you will be unable to be at Home at all times while work is being done to your House.  You want to be assured that the people working in your Home can be trusted with your personal valuables. 

Ask a Professional Contractor about his payment schedule.  This payment schedule designates how much the payment is and when it is due.  Sample payment schedule for a large project:  Downpayment of  $________ (20% of project) due upon start of project; Payment #2 of $________ (30% of project) due upon completion of _________;  Payment #3 of $________ (30% of project) due upon completion of _________; Final Payment of $________ (20% of project) due upon completion of project.  Be very cautious when a Contractor asks for a large down payment.  Do not make the final payment until all work is completed or the Building Department Final Inspections have been made.

Do Not Hire a Contractor that wants you to obtain the permit.  Most items will require a permit from the Local Building Department.  Any reputable Professional Contractor will obtain and pay for all Permit Fees needed for the project.  This Permit, once obtained, must be posted on the jobsite.  The permitting process is in place to ensure the Homeowner that they are getting quality work that is inspected by a certified Building Inspector and complies with the State and Local Building Codes.  

Signing a Construction Agreement

Like the Estimate, make sure that the Construction Agreement is highly detailed and lists specifically the scope of the project. The more detail, the better!

Read the Construction Agreement very carefully, not just the scope of the work, but all of the fine print.  If any items are unclear to you, please consult a Construction Attorney.  A good Construction Agreement not only protects the Contractor, it also protects the Homeowner. All of the Contractor's contact information should be included on the Construction Agreement. 

Make sure the contract includes the Payment Schedule.

Make sure that the Construction Agreement contains a Warranty and time frame. 

Make sure the Construction Agreement states that the work will be completed in a reasonable amount of time.  If it can be agreed upon, state a date of completion. 

After a payment is made, ask for a written Release of Lien from the Contractor, supplier and Subcontractors.  If the Contractor is reputable, obtaining only the Final Release of Lien is acceptable.  The Release of Lien states that the Contractor, suppliers and subcontractors have been paid for the services provided.  This will keep from having a Mechanic's Lien from being placed on the property.  If you recieve a "Notice to Owner" from any sub-contractor or supplier, you must get a Release of Lien from them before final payment. 

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