February 6, 2006
COMMENTARY: Hammer out the details | Tips on negotiating with a contractor for a smooth home construction project
By Kelly Mcdonald
Attorney, construction law, Murray Plumb & Murray, Portland
If you're thinking of building or adding on to your home, consider this nightmare scenario: You sign on with the lowest-bid excavator, who promises to dig and install the foundation. He does some work, you give him a chunk of your hard-earned cash, and he promptly disappears. The concrete guy hasn't been paid, the work the excavator did is lousy and will have to be redone, and suddenly your $40,000 foundation has turned into a $70,000 foundation. You need a larger bank loan, and it's going to take two months more to finish the project.
Constructing your home can be exhausting and frustrating. Fortunately, there are some simple precautions you can take before embarking on a construction project to help avoid your dream home from becoming a nightmare.
Do your research
The best way to avoid a problem contractor is to avoid hiring that person in the first place. Get three references from the contractor for previous jobs ˆ and call them. Make sure the work was up to par and that the job got done efficiently and on time.
Price isn't everything, and sometimes you get what you pay for. Sure, there are some great deals out there, but if a contractor is offering you a price 30% less than the competition, you should be cautious. It might be cheap because he won't do the job right or stay on schedule.
Every contractor should have at least $1 million in commercial general coverage insurance. Make sure you get a copy of the policy. If the contractor wants you to pay for supplies up front, that's also a warning sign. Lumber yards will generally give the contractor thirty days to pay. Finally, use your common sense: Is this a person you want to have in your house and with whom you want to do business?
Put it in writing
Every residential job worth more than $3,000 is required, by law, to have a written contract. Maybe you don't want to spend the time putting a contract together? This is for your benefit. You are the inexperienced one who should appreciate the protection a contract is going to give you. Don't want to pay a lawyer? Download a model home construction contract from the Maine Attorney General's Office. It's Chapter 18 of the Consumer Law Guide, available at www.maine.gov/ag.
In the contract, make your expectations clear so everyone is on board. Say precisely what the contractor should do and shouldn't do, along with the dates by which each significant step should be started and finished. Spell out when payments are going to be made and in what amounts. Together with the contractor, you can always change all of this later. If there's a dispute, though, you want as much documentation as possible.
Every construction job has changes, both large and small, so print out a few dozen change orders from the website above. When necessary, use those forms to spell out exactly what each change is, how much it will cost and how much time it will add to the project. Keep your copy of the contract and all the change orders together.
Use payments as incentives
If you've paid a contractor $48,000 on a $50,000 job and the work is half done, what are you going to do if the workers walk off the job? Sure, you've got a contract and you can sue. In the meantime, though, your money is gone and you don't have a roof over your head. Avoid that by making the sequence of payments fit the progress made on the house. Many contractors ask for a third up front. It is illegal for them to ask for more than that, but it doesn't have to be that much. Pay $10,000 down and additional amounts as materials are delivered and progress is made. Make sure you retain a good-sized chunk as incentive money, though. That's the final check you write after walking through the construction area and making sure everything is done, from fixing a squeaky board to sweeping the floors.
What if something goes wrong?
In general, if you have a problem, you want to start with the simplest solution. The first approach is to talk through the problem with the contractor in order to minimize the cost and time you'll have to spend on a remedy. Make sure you are clear during this conversation about what you want and what you're willing to give up. Mediation, the next level of complexity, uses a neutral mediator who will try to guide the two of you to an amicable resolution. Arbitration, a further step, is a form of trial. Each of you presents your argument to a "judge" (the arbitrator) who makes a decision. Finally, litigation is the most complex and expensive option open to you ˆ it's a long and frustrating process. You should consult your attorney to determine which option is most appropriate for your particular situation.
Most home construction jobs go well. Unfortunately, quite a few end with angry homeowners and empty wallets. Thinking ahead could save you a lot of unhappiness.
If you're thinking of building or adding on to your home, consider this nightmare scenario: You sign on with the lowest-bid excavator, who promises to dig and install the foundation. He does some work, you give him a chunk of your hard-earned cash, and he promptly disappears. The concrete guy hasn't been paid, the work the excavator did is lousy and will have to be redone, and suddenly your $40,000 foundation has turned into a $70,000 foundation. You need a larger bank loan, and it's going to take two months more to finish the project.
Constructing your home can be exhausting and frustrating. Fortunately, there are some simple precautions you can take before embarking on a construction project to help avoid your dream home from becoming a nightmare.
Do your research
The best way to avoid a problem contractor is to avoid hiring that person in the first place. Get three references from the contractor for previous jobs ˆ and call them. Make sure the work was up to par and that the job got done efficiently and on time.
Price isn't everything, and sometimes you get what you pay for. Sure, there are some great deals out there, but if a contractor is offering you a price 30% less than the competition, you should be cautious. It might be cheap because he won't do the job right or stay on schedule.
Every contractor should have at least $1 million in commercial general coverage insurance. Make sure you get a copy of the policy. If the contractor wants you to pay for supplies up front, that's also a warning sign. Lumber yards will generally give the contractor thirty days to pay. Finally, use your common sense: Is this a person you want to have in your house and with whom you want to do business?
Put it in writing
Every residential job worth more than $3,000 is required, by law, to have a written contract. Maybe you don't want to spend the time putting a contract together? This is for your benefit. You are the inexperienced one who should appreciate the protection a contract is going to give you. Don't want to pay a lawyer? Download a model home construction contract from the Maine Attorney General's Office. It's Chapter 18 of the Consumer Law Guide, available at www.maine.gov/ag.
In the contract, make your expectations clear so everyone is on board. Say precisely what the contractor should do and shouldn't do, along with the dates by which each significant step should be started and finished. Spell out when payments are going to be made and in what amounts. Together with the contractor, you can always change all of this later. If there's a dispute, though, you want as much documentation as possible.
Every construction job has changes, both large and small, so print out a few dozen change orders from the website above. When necessary, use those forms to spell out exactly what each change is, how much it will cost and how much time it will add to the project. Keep your copy of the contract and all the change orders together.
Use payments as incentives
If you've paid a contractor $48,000 on a $50,000 job and the work is half done, what are you going to do if the workers walk off the job? Sure, you've got a contract and you can sue. In the meantime, though, your money is gone and you don't have a roof over your head. Avoid that by making the sequence of payments fit the progress made on the house. Many contractors ask for a third up front. It is illegal for them to ask for more than that, but it doesn't have to be that much. Pay $10,000 down and additional amounts as materials are delivered and progress is made. Make sure you retain a good-sized chunk as incentive money, though. That's the final check you write after walking through the construction area and making sure everything is done, from fixing a squeaky board to sweeping the floors.
What if something goes wrong?
In general, if you have a problem, you want to start with the simplest solution. The first approach is to talk through the problem with the contractor in order to minimize the cost and time you'll have to spend on a remedy. Make sure you are clear during this conversation about what you want and what you're willing to give up. Mediation, the next level of complexity, uses a neutral mediator who will try to guide the two of you to an amicable resolution. Arbitration, a further step, is a form of trial. Each of you presents your argument to a "judge" (the arbitrator) who makes a decision. Finally, litigation is the most complex and expensive option open to you ˆ it's a long and frustrating process. You should consult your attorney to determine which option is most appropriate for your particular situation.
Most home construction jobs go well. Unfortunately, quite a few end with angry homeowners and empty wallets. Thinking ahead could save you a lot of unhappiness.
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