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How to Interact with Contractors

By James I. Marasco  |  Partner

Now that Spring is in the air, sprucing up the house may be in order. Unfortunately, less people are seeking a career in the skilled trades industry. As a result, its became tougher and more expensive to find someone to tackle residential home repairs. In some parts of the country, it’s nearly impossible to secure help. This also offers the opportunity for people to take advantage of the situation and defraud unknowing customers.

Construction fraud involves deceit in the performance of construction work. Contractors either fail to adequately perform the services that they were paid for or never provide them at all, while being paid. Every day unsuspecting homeowners fall prey to cunning contractors. The losses could be staggering. Homeowners need to be aware of the risks and how to safeguard against them before heading down this path.

Finding a Contractor

For projects that are large and complex, it may make sense to hire a general contractor (“GC”) who will manage all aspects including the hiring and supervising of specialty subcontractors, secure the proper building permits and arrange inspections. For smaller projects or those who are more confident in their abilities, a person can act as their own GC. Start by doing some research.

  • Commercial home improvement websites contain listings of contractors, along with posted reviews. Be careful of the sites you are relying on. Make sure they are objective and not just paid advertisement sites for contractors to list themselves.
  • Rely on friends, family, neighbors or co-workers who have used a contractor in the past and had a positive experience. Inspect the work that was performed.
  • Search for the contractor online and see if there are any negative postings that would cause concern.
  • Find out how long they have been in business and whether they perform the work themselves or subcontract it out to another individual or company.
  • Check their qualifications like licensing, insurance and even financial wherewithal. Some states require licensing – check your local building department or consumer protection agency to find out about requirements in your area. You can check online for judgments or bankruptcy filings involving the contractor.
  • Meet them in person and talk with references.

Retaining a Contractor

Once the list of potential contractors has been narrowed, the following should be considered:

  • Request a written estimate. Ensure whether it includes/excludes materials and other costs and the stages when payment is expected.
  • Inquire about building permits and whose responsibility this falls to and when.
  • Request certificates of insurance that cover personal liability, workers compensation and property damage.
  • When checking references, inquire about unexpected costs, the duration of the project and whether they cleaned up after themselves.

Working with a Contractor

Once the contractor is selected, further protect yourself by:

  • Secure a written contract and ensure that the following is included:
    • Detailed description of services provided, materials used and other specifications.
    • Total price including whether state sales tax is or is not applicable.
    • Payment schedule including down payment required, if any.
    • Timing of project.
    • Applicable warranties.
    • Permit responsibility, use of subcontractors and responsibilities for cleanup.
    • Right to cancel within a certain period.
  • Avoid paying contractors in cash and secure written receipts if doing so.
  • Limit your down payment and schedule payments around certain completion milestones.
  • Keep all receipts and important communication.
  • Take pictures throughout the project, including the beginning and end.
  • Utilize a “punch list” or listing of cleanup items that need to be addressed and have both parties sign off once completed.
  • Don’t make final payment until you are completely satisfied.

Warning Signs

To avoid becoming a victim of a construction scam or fraud, be on the lookout for:

  • Storm chasers or people who appear at your door after a storm or unsolicited and offer to provide services.
  • Only accept cash for payment.
  • Pressure the customer for an immediate decision.
  • Wants to be paid upfront.
  • Not listed in local directories.
  • Offers things like “I have some materials left over from another job and can discount this”, “your job will be a demonstration” or offers a lifetime warranty.
  • Financing agreements that the contractor is arranging.
  • Signing documents without reading them.

Resolving a Problem

If you find yourself involved in a problem with a contractor or home improvement scam, first try to resolve it with the contractor. If that falls through, seek help from your local home builders association, state attorney general, local consumer protection office or personal attorney. Don’t hesitate taking action. The sooner you address, the greater your chances are of recovering your losses.

About the author Jim Marasco:   Jim is a Partner at EFPR Group, LLP and one of the Founding Members of StoneBridge Business Partners, an affiliated consulting firm.  He is a member of the firm’s Business ValuationLitigation Support & Forensic Services Group and other nontraditional accounting services.  Jim has been with EFPR Group for over 20 years and is a full-time management consultant traveling extensively throughout the country. He has helped safeguard some of the largest Fortune 1000 companies from fraud and abuse and has assisted in the identification and recovery of millions of dollars back to the affected parties. His experience is mainly concentrated in the healthcare distribution and franchise fields, where he has worked with over fifty of the top franchisors in the U.S.  In addition, he has worked closely with the Catholic Church in the U.S. for the past five years assisting in their compliance efforts to ensure the safety of children within the church.  Jim is also a court-recognized expert, lecturer and author on varying subjects of fraud and forensic auditing. 

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