In this report
Overview

Choosing a contractor

Last reviewed: June 2009

Don't count on newspaper advertisements or the phone book. The best contractors don't have to advertise. They get work through satisfied customers' referrals. Consult friends and neighbors who have had work done. Another source is the National Association of Home Builders (www.nahb.org). After a little pointing and clicking, you can bring up contact information for local builders' associations in your region. These in turn, usually have member directories to help you find a contractor. Kitchen-and-bath shops or other suppliers may try to steer you to contractors they use regularly, but don't feel you must use one of them.

Call the Better Business Bureau or a local consumer-affairs agency for complaint histories of the contractors you're considering. One or two gripes shouldn't necessarily induce you to look elsewhere. But be wary of a contractor with more problems than that. You'll also want to check with the appropriate agency to see if the contractor is properly licensed and insured. Some states or counties as well as many large cities or townships license contractors; other jurisdictions require them to be registered. As a rule, licensing entails passing a test to measure competency, while registering involves only payment of a fee. If a problem arises, a government agency may be able to pursue a licensed or registered contractor on your behalf.

Licensing won't guarantee success, but it indicates a degree of professionalism and suggests that the contractor is committed to his or her job. The same holds true for membership in or certification by an industry group such as the National Association of the Remodeling Industry (NARI), the National Kitchen & Bath Association, or the NAHB Remodeling Council—usually a sign of someone who is in business for the long run and not the quick buck. NARI will even try to resolve disputes between member contractors and homeowners, if requested.

When checking references, ask whether the contractor is insured and, if applicable, licensed to do the work. If, for example, someone gets hurt or your neighbor's property is damaged by an unlicensed or uninsured contractor, you could wind up paying. It's wise to know what your homeowners' insurance covers before work starts.

No matter how you find potential contractors, be sure to ask for a list of previous customers; then call them or, better yet, visit their homes to look at the work. Ask some penetrating questions such as these:

  • Would you hire this contractor again?

  • Were you satisfied with the quality of the work?

  • How did the contractor handle cleanup each day?

  • Was the contractor easy to talk to?

  • How did the contractor handle differences and work changes?

  • Was the job completed on time and at the bid? If not, why not?

You might also ask the contractor for a list of his or her building-material suppliers. Call them to see if the contractor has an account or pays for items upon delivery. Most suppliers are willing to extend credit to financially reliable contractors.

Do you need a general contractor?

Typically, if your job requires more than three subcontractors, a general contractor may be a good idea. A general contractor can free you from such burdens as maintaining a work schedule, obtaining necessary permits, and resolving disputes with suppliers. He or she will have more leverage than you do with subcontractors, since you're only a one-time job. In a tight labor market, that could be important. A general contractor may get discounts at lumberyards and supply houses. Whether or not these savings are passed on to you or retained as part of the contractor's fee is something that should be covered in the contract.

Evaluating bids

Industry groups recommend that you get a written estimate from at least three contractors. An estimate should detail the work to be done, the materials needed, the labor required, and the length of time the job will take. Obtaining multiple estimates is a good idea. An estimate can evolve into a bid—a more detailed figure based on plans with actual dimensions. Seeking more than one bid will increase your odds of paying less. Once agreed to and signed by you and the contractor, a bid becomes a contract.

The cheapest bid isn't always the best. Homeowners who accept a rock-bottom bid may wind up less satisfied overall than those willing to pay more. One bidder may be using smaller-diameter copper tubing or cheaper tile. He or she may also be bidding on exactly what you say you want, without making it clear that your pre-World War II house may also need new wiring and water lines, which will cost extra.

Make sure all bidders are bidding on the same specifications and job description. Take the time to choose materials and fixtures yourself, since you may not always like or agree with the contractor's selections. The term "comparing apples to oranges" may well have been invented during the bidding process.

Know your plans. It can be costly to change job specifications after the work has begun. Revising your plans can add substantially to cost overruns, with changes resulting in lengthy delays. A less-than-straightforward low bidder is counting on these changes to make the job profitable.

Negotiating a fair contract

A contract spells out all the terms of the work, helping you and the contractor minimize misunderstandings and wasted effort caused by poor instructions. It should include the contractor's name and address, license number, a timetable for starting and finishing the job, a payment schedule, names of subcontractors, and the scope of work to be done.

Other basic items include a specification of materials and equipment needed, demolition and clean-up provisions, approximate start and finish dates, terms of the agreement, and room for signatures and the date. Watch out for binding arbitration provisions that limit your right to sue in the event of a dispute.

An excellent addendum to a contract is the contractor's statement of what isn't included. This will include the assumptions the contractor has made about your job, such as that the existing wiring and plumbing lines are adequate, that the homeowner will pay for all trash removal, that the subflooring is sound, that the existing baseboards and window trim will be usable, and so on.

Do your homework and specify the materials and brand names of all the products, appliances, and fixtures to be used. The contract should also give the contractor the burden of obtaining all building permits. Most municipalities have a building code; the person who obtains the permit is usually liable if the work doesn't come up to code.

It's common to pay for a project in stages over the course of the work, especially as key materials and supplies are delivered. Try to limit the down payment to 10 percent or less. Contractors who ask for a substantial amount up front may use your money to hire help to finish their previous job, leaving you to fume at delays. In some states, it's illegal to require large deposits. Some projects, however, require deposits on components that have to be made to order—kitchen cabinets, for instance. In such a case, a higher down payment may be required and justified.

Your contractor should agree to resolve problems that arise during the course of work rather than afterward. They might readily fix sloppy plastering or a leaky roof as soon as it's pointed out but be less willing to fix it later on. That's a good reason to hold back part of the final payment until after a job is completed. You can negotiate such terms and include them in the contract. Withholding the last 5 to 10 percent of the money for 30 days isn't an unreasonable stipulation.

Never make the final payment until you have obtained signed mechanic's-lien waivers or releases from all subcontractors and suppliers. These are basically receipts acknowledging payment for goods and services; they free you from third-party claims on your property in the event that you pay the contractor but he or she doesn't pay subcontractors or suppliers.

Spotting a questionable contractor

A warning signal should sound in your head if you encounter any of the following:

  • A contractor who makes unsolicited phone calls or visits. Be especially wary of people who offer a bargain price, claiming that they're doing a job in the neighborhood and have leftover materials.

  • A contractor whose address can't be verified, who uses only a post office box, or who has only an answering service and no separate listing in the telephone book.

  • A contractor who isn't affiliated with any recognized trade association.

  • License or insurance information you can't verify.

  • A contractor who can't (or won't) provide references for similar jobs in your area.

  • The promise of a hefty discount—but no mention of the total cost of the job.

  • The promise of a deep discount if the contractor uses your home as a "demo."

  • High-pressure sales tactics or threats to rescind a special price if you don't sign on the spot.

  • A contractor who tries to scare you into signing a contract by claiming that your house puts you at peril (i.e., "Your electrical wiring could start a fire if it isn't replaced.")