5 Tips to protect yourself against a bad contractor

There are so many stories about bad or dishonest contractors that it’s downright scary.

Good contractors often feel like they have to defend themselves because their industry has such a bad reputation.

And on the client side, I’ve seen really smart people get into trouble because they left their business-sense back at the office.  

But you don’t have to fall victim to a bad contractor. It’s surprisingly easy to safeguard yourself so you you can get on with your project with confidence.

1. Find out how long the company has been in business.

Longevity counts in this business! New contractors sprout up all the time. And if they don’t know what they’re doing, they fail quickly.

Five years seems to be a good cut-off point. If your contractor has been in business for more than five years, they’ve learned some hard lessons and survived.

Infographic Here

2. Check references. Really.

Most potential clients ask for references. But very few people actually contact the references. Asking for references shouldn’t be just a formality. Past clients are usually comfortable giving their honest opinion of a contractor. 

So, once you have the references, follow up. To make it easier, prepare a list of questions in advance.

3. Negotiate payment terms

Negotiate a reasonable down payment. In most cases it shouldn’t be more than 20%. But there are exceptions. Sometimes a contractor wants a larger deposit. If your project is going to require the contractor to buy expensive and custom materials right away (like kitchen cabinets or counters) the contractor may insist on a larger down-payment.  

To protect yourself, make this simple and sensible request. Ask the contractor to put in the contract that you will be given a copy of the payment to the supplier(s) within a few days of when you pay the deposit. This way you know your money is being spent on your job.  

Ask the contractor to include a breakdown of costs by trade. This is called a Trade Value Breakdown. And when you have the trade value breakdown, you’ll know where your payments are going.

Next, negotiate for time before the final payment is due. You shouldn’t have to write a check the same day that the workers are packing up their tools.  You should have some time to live with the work before you make that last payment.

4. Protect Yourself

Get certificates of insurance for Liability Insurance and Workers Compensation Insurance. 

Also insist on a signed and notarized lien waiver each time you make a payment. A mechanics lien is easy to file and hard to get rid of.  Therefore, get a signed and notarized lien waiver each time you make a payment. Lien laws vary from state to state but it’s always a good idea to get lien waivers each payment.

And when you make that last payment, get notarized lien waivers from the general contractor and the subcontractors.

None of this is unusual or onerous. If your contractor objects, consider this to be a RED FLAG. If it’s a very small job and the paperwork is more than your contractor can deal with, you can offer to download and fill out a lien waiver for your contractor to sign. 

5. Understand the scope of work before you sign a contract

This is the most important of all!

Make sure the contract includes a detailed description of the work to be performed. This is usually broken down by trade or by room. Of course if the contract is for whole house work like new siding or a new roof, that won’t apply. But, the details should still be there.

Good contractors takes pride in doing a whole lot of things right. They write a complete description of the work in their contracts.

You probably met the contractor at least once to go through the work you want done. Perhaps you met again when the contractor was ready to present a proposal and a contract.

Now it’s time to set up one more meeting. This time talk about the work and only about the work. I’ve seen so many serious misunderstandings that could have been avoided.

You can avoid arguments later on just by going through your expectations before you sign a contract. Make it clear that this meeting is about the work and not about getting you to sign a contract. 

Have the contractor explain every element of the finished work to you.  Ask questions. Take notes. The contract has to have a detailed description of the work to be performed on your house. Go through each item.

Also make sure you understand what is excluded from the contract.

And if you do find yourself in trouble, be sure to check out these tips.

Leave a question or a comment if you’ve had problems with or (even better) great experiences with a contractor. So often it’s just a matter of communication. But, like every other business, there are some bad apples out there.

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  1. I’m happy you mentioned how to request a breakdown of costs by trade from the contractor. Known as a trade value breakdown, this is. You’ll also be able to track your payments once you have the breakdown of the transaction value. My brother wants to construct an apartment building this summer and is looking for a contractor. I’ll be sure to let him know about this so that he can focus his search on the best contractor for the task.

  2. My employer and I are looking for a contractor to build a concrete barrier close to our company’s site, but until we read these helpful tips on your website, we weren’t able to find one. It’s great that you went into more detail about why five years seems like a good stopping point. If your contractor has been in operation for more than five years, they have endured and survived some difficult lessons. This seems like some great advice, and we’ll keep it in mind as we look for a general contractor. Thanks.

  3. It’s great that you talked about checking a contract for a detailed description before signing it. I have an uncle who wants to hire a contractor to help with a construction project next month, so I’ll share your post with him now. Thanks for the tips on identifying a bad contractor on time.

  4. If a contractor charges you a huge amount and does cheap items, then threatens you, can you stop work on the contractor. If they keep going up and the price without a new agreement, can I get someone else to finish all that’s messed up?

    1. Hi Pam. Unfortunately, without knowing much more about the specifics I cannot advise you. In general if a contractor uses inferior products and performs substandard workmanship a homeowner has the right to stop the work. But before doing so a homeowner should always consult professionals: your perception of sub-standard work and/or materials might be a valid opinion. But you need to back that up with the opinion of a qualified outside party.