How to Work With a Contractor and Not Get Ripped Off

Green Architect

Earlier this week we told you how to find a good contractor &mdash well, finding a contractor is one thing, but ensuring the construction process is a relatively smooth experience is another. For tips, we once again turned to green architect Nathan Kipnis to find out how to work with a contractor, and not get ripped off!

How does a homeowner ensure that they don't get ripped off during a construction project?

  • Get it all in writing &mdash always draw up a contract before the work begins (AIA contracts, others).
  • Include a start date and estimated completion date in the contract.
  • Some people choose to include a clause that gives a discount to the homeowner if the work isn’t done on time, and will give the contractor a bonus if they finish early. The bonus is generally required to perhaps help the contract stand up in court, but the idea is to make sure the project gets done in a reasonable amount of time. The problem we have found in the past is that the smaller the project, the less likely the contractor is to do this – some contractors refuse to do this at any scale. However, if dates are given for completion and there is no penalty, there is no 'teeth' to the contract to enforce this.
  • Make sure your contract specifies that any additional charges or expenditures must be authorized by you in advance, in writing and signed by both parties.
  • Cost overruns will happen, and you should set aside up to 15-20% extra money for the unexpected. In other words, you should not do the project without some sort of contingency funds available to cover an unexpected item, or an item that you want to add 'as long as we're doing this project'. The more complete the plans are, the lower the extras to the project should be, but it is very rare for a project to not have extras in one form or another.
  • Ask if the contractor is fully insured, and ask to see the papers. Ask not only to see their insurance, but also ask to be added to their insurance as a 'named additional insured'. Again, contact your insurance agent to go over what requirements are needed to satisfy your unique situation.
  • Specify that the contractor is responsible for getting the necessary permits for the work (except the owner is responsible for obtaing the general building permit).
  • Obtain a written guarantee of the workmanship and materials. There should be a part of the contract that provides at least a one-year warranty for the project labor. Generally the material warranties (and equipment warranties) would be the responsibility of the different manufacturers.
  • Agree on who’s responsible for clean-up and garbage removal. The level of final clean up is generally 'broom finish,' which is not quite to a final move in cleaning level. Keep that in mind, as you still need to have the project final cleaned by someone.

Where can a homeowner find examples of good contracts to use and do they need a lawyer to get involved?

  • Contracts for construction can be purchased from numerous websites, and I would recommend that an attorney experienced with construction contracts review the contract before it is signed:
  • The AIA (American Institute of Architects)
  • Construction Books Express
  • The Contractors Group

Everyone hears the horror stories of workers smoking in the house, using the house bathroom, something is broken, etc. How can this be avoided or dealt with on the job site?

Spell the rules out clearly at the beginning of the project – put it all in writing. I have seen these rules posted on site, in multiple languages. If there is a truly a problem and it is clear who did it, you can withhold the amount of the problem from their payments.

What if the homeowner doesn't like the work a subcontractor is doing, should they say something or wait to talk to the general contractor?

The correct 'chain of command' is critical to maintain during the job. Even if you want to be nice (or be critical) to a subcontractor, do not give them any directions at all. If there is an architect involved in the project, they should be the central go-between for the general contractor and the client. If for some reason an architect is not involved, the owner should communicate directly and consistently with project foreman, who is the general contractor’s representative. The foreman's name should actually be noted on the contract between the owner and the contractor as the contact person from the contractor's office.

What if the homeowner see something wrong, unsafe or illegal happening on the job site - what should they do?

If something is not being done per the construction documents, the owner should immediately contact either the architect or the foreman (see above). Regarding something unsafe, the owner and the architect are not responsible for job safety. That is the responsibility of the general contractor. There are times when something is unsafe to the point of immanent danger, at which point it might make sense to act immediately. I can't really be more specific than this, but job safety is completely the responsibility of the general contractor.

When is the homeowner responsible for payments?

  • Some contractors require a down payment – I don't recommend a down payment, but on smaller projects it is not uncommon to hear that they request it. My concern is if a down payment is provided, and no work gets done, then they have your money. If you do agree to give them a down payment, I would require that the full down payment come out of their first pay request.
  • Stagger payments and tie them to specific stages of the project, so you can hold back if the work is progressing slowly, and outline this payment schedule in the contract. On smaller projects it is not uncommon to have payments connected to 'monument' points of the project. For example, once demolition, excavation and the foundation work is complete, a payment might be due. Having an architect on the job to ascertain if the amount requested is correct is well worth it. You don't want the contractor to ever get ahead with their payment requests relative to the work in place.
  • Use a retainer: we actually prefer to retain 10% of the amount requested. In other words, if $10,000 is requested for a certain element of the project, say concrete work, we would retain 10% of that ($1000) and pay the contractor $9000. That way, there is 10% of their money withheld at the end of the project. You are in a much better situation at the end of the project holding 10% of their money. The 10% could be reduced down to 5% if it made sense to do that. We have found in rare situations that some contractors have a hard time finishing up the last 10% of the project. Holding that amount back ensures that they remain very interested in your project.
  • Don’t ever pay cash, it’s recommended to pay by check or credit card and get a receipt.
  • Utilize 'waivers of lien.' Liens are a form of security interest that can be filed by a contractor or a subcontractor. It is intended to be a penalty to owner if the owner does not pay the contractor. However, situations can come up where you pay the general contractor but the general contractor does not pay the subcontractor. Waivers of lien are certified documents that state that the general contractor and separately each of the subcontractors and material suppliers have in fact received their payments and are waiving their 'lien rights'. It is very important to obtain waivers of lien from the general contractor, each subcontractor and their corresponding material suppliers for each payment provided by the owner. If not, you could have a lien filed against you even if you paid the general contractor correctly.

Who decides when the job is substantially complete, and what if there is a disagreement?

The architect (if it is not an architect, they are generally referred to as the 'owners representative') signs off on the project as being 'substantially complete' (i.e. when the project is completed to the point that it can be used for its intended use). This is not the same as 'final completion', which is when 100% of the work is complete. In other words, you can be substantially complete if you have all of the parts of the project working correctly, but perhaps there is a door knob that is backordered, a few of the HVAC grilles are not yet installed, or some touch up paint needs to be done. The items yet to be completed are compiled in a 'punch list'. The value of the punch list, as determined by the owner’s representative/architect, can be provided to the general contractor. The retainage that was withheld (10% or 5%) can be released often holding back 150% of the value of the items on the punchlist – this is done to ensure that those last few items are completed by the general contractor. If the general contractor, for whatever reason, does not complete these items, then the owner has 150% of the value of them to go out to hire someone to complete that work.

For More Information, See: How To Find a Good Contractor

Thanks Nate!

Nathan Kipnis, AIA, is the principal of Nathan Kipnis Architects, Inc., which is recognized as one of Chicago’s premier green and sustainable architectural practices. He has received several awards and distinctions including having his design built for the ‘Green Homes for Chicago’ international design competition. He was honored with the 2007 Environmental Stewardship Award from the City of Evanston and recently was awarded ‘Home of the Decade’ from Natural Home Magazine for the Sturgeon Bay Vacation Home. Mr. Kipnis is currently a co-chair for the Renewable Energy Committee for the City of Evanston’s Climate Action Plan and has been working towards bringing an offshore wind farm off of Evanston’s shoreline.

(Image by Rachel Wray)