The Magical Trick to Dealing with Contractors?

15 Replies

If I knew the answer to this question, I'd be a lot better off.

Sadly there are many, many untrustworthy contractors. I live in the land of South Florida where the worlds most shady contractors congregate.

In the past 5 years, I've lost in excess of $50,000 to thieving builders and handymen. I've heard of people losing much more. 

I'm currently embarking on several renovation projects from medium size, to major. 

I've attained various bids and many of the contractors specify payment terms as 50% down payment to start and 50% upon completion. Now there is no way on this planet I'm going to give someone a 50% down payment, especially when that equates to tens of thousands of dollars.

I am trying to work out the best way to structure the contract that leaves me with the least amount of chance of being ripped off. I was thinking of breaking the work into components and paying at intervals For example-

$10,000 renovation job

I pay X amount for purchase of materials to start, then I pay X amount for successful completion of each phase

Eg, I pay $1000 for paint and then once painting is completed I release another $1000.

Then I pay for $1000 for tiles and release another $1000 once tiling is completed.

One handyman I'm working with agreed I'd pay for materials upfront only and then pay him for his work once he completed. This is a 4 day job. Today (day 1) he asked for a cash advance tomorrow (day 2) as he is short of cash. My guess is to be strong and say no?

Speaking as a former contractor.  I think you need to find a better grade of contractor. I honestly don't think a guy who needs to borrow gas money from you is a good choice.  He appears to be irresponsible with money.  Would you rent to him? 

@Nat Chan  

Don is right: you need to find a better grade of contractor. Referral is probably the best method. 

The " secret" to finding them is to make sure your prime focus is on quality and not just cost. That will enable you to identify quality-minded people. People who take pride in their work, are professional in their manner and manage their affairs well.  You have to be willing to pay what quality costs. 

Originally posted by Art Allen:

@Nat Chan 

Don is right: you need to find a better grade of contractor. Referral is probably the best method. 

The " secret" to finding them is to make sure your prime focus is on quality and not just cost. That will enable you to identify quality-minded people. People who take pride in their work, are professional in their manner and manage their affairs well.  You have to be willing to pay what quality costs. 

 So go with the highest bid and you're guaranteed the best outcome?

Not necessarily.  You should buy the materials directly, from the contractors material list if you prefer, and have them delivered.  Then pay pay for the labor in increments.

@Nat Chan

No:  to do that is still to be primarily focused on cost and price.  Focus on quality.  The quality of a contractor's work is a reflection of his character.  If he is conscientious enough to care about his work and his clients, he will be a person of integrity.  Ask around...look at their work and how they manage their business.  The good thing is: once you find such a person, it will lead to other such persons (birds, feathers, flocking, etc).

A contractor such as I describe will not necessarily be more expensive but if he is: so be it. It costs what it costs.  You just have to factor that into your equation.  For example: with most of the subs I use (electrician, plumber,etc) I don't even price shop.  I've known them for years and trust them.  I'm sure, in some cases, I could probably get the work done for less but I don't care.  They do what they say they are going to do and the work is done right.  No headaches; no stress.

For the big money renovations.....Why not a licensed contractor? Easy to research in Florida. Www.myfloridalicense.com. Ask the contractors for their license #. All trades should be licensed. The licensed contractor should provide you an insurance certificate. The contractor can file a lien on the house until paid in full. You will get a release of lien on final payment. These kind of contractors are usually honest if all the scope and $$ terms are agreed and signed. These contractors want to protect their license in Florida. 

Originally posted by @Chris O. :

For the big money renovations.....Why not a licensed contractor? Easy to research in Florida. Www.myfloridalicense.com. Ask the contractors for their license #. All trades should be licensed. The licensed contractor should provide you an insurance certificate. The contractor can file a lien on the house until paid in full. You will get a release of lien on final payment. These kind of contractors are usually honest if all the scope and $$ terms are agreed and signed. These contractors want to protect their license in Florida. 

 Chris, thanks so much for the fantastic resource. This was exactly what I needed.

For a large renovation project could I propose to pay nothing upfront, prior to work commencement and then pay weekly installments as work progresses, with the final payment released after the city inspection? E.g-

Project cost- $30,000

Completion time- 6 weeks

Weekly installments- $3000 (paid at the end of each week)

Final payment of $12,000 due upon city inspection approval

This takes a huge risk off of me and the licensed contractor has the security of being able to place a lien on the property if I fail to pay.

@Nat Chan  Here's a BP Blog that I wrote some time ago on Contractors. 

Hiring a Contractor  

As for payment, get an itemized cost breakdown, along with a construction schedule, that way you know what exactly is supposed to be happening on the job at any given time, and what the costs associated with it are.  You should seek legal advice as to any contracts, payment arrangements, lien releases, etc. that you are dealing with. 

@Nat Chan  

All great advice.  I have some additions I would like to make.  It seems as if Florida has a similar set up to Oregon.  The Contractors Board that is overseeing licensing contractors is a good way to double check the contractors you are looking to hire as well as get some names.  As part of the oversight here, they will keep records of which contractors are current in both their licensing and their liability/workmans comp insurances.  In addition they will keep records of complaints, litigation filed and any other filed disputes.  Check for associated records to see if they make a habit of just changing names when they get caught.  You ALWAYS want to use licensed contractors.  It is one of the main ways you have legal recourse if something goes wrong.

I have also written a blog on finding contractors

Contractors - The Final Frontier!

Happy Hunting!

In Maryland its customary for the client to sign the contractors contract ,  the contract by law must state the cost , time of completion , license number  plus a lot more . Draw schedule is always negotiable . On large jobs a performance bond could be required by the customer , but this cost will be added to the contract by the contractor .  

If you lost 50K to builders and handymen , either you arent vetting the contractors very well , or there is more to it .  

@Nat Chan  

I never understood why contractors would ask for a large deposit to start a project, here in California your limited to what can be asked up front generally up to $1000 or 10%, which ever is less.

I never give deposit, most contractors that we deal with have a clear and well define scope of work, attached with a detail schedule of values (Especially for large projects that run a couple of months) and a construction schedule complete with milestones.

The Florida contractor licensing board doesn't track contractor's insurance.  Make sure your certificates of insurance come Directly from the insurance agency, then call to verify.  Subcontractors/suppliers can file a Notice To Owner up until 45 days after they start, or until full payment has been made by the owner to the GC, whichever occurs first.  This assumes the owner/GC files a proper Notice Of Commencement, otherwise the timelines get expanded.  An owner needs to know Every sub and supplier on their job, that the GC is supposed to pay, verifying payment and getting releases from them as draws are paid.

someone once suggested to go to Home Depot (or a similar store) as early as 6am and introduce yourself to any contractor you find buying materials (got this from one of the BP podcast). His point, was that such contractors are likely to take their job seriously and should be reliable. Although I have not tried this out, it appeals and make perfect sense to me. The introduction should be your first step, as I will advise you go throught the normal process of obtaining refs and following up.

@Nat Chan  Is there an established, local building supply place in the area where you're doing your work?  These are often a little more expensive than the big box stores, but they also tend to be well integrated into the building community.  And a bit more customer-focused, as a result of having a smaller pool.  If you source your materials there, you can get an inside scoop on plenty of contractors in the area, and it's a good way to get connected with a good one.

I am going to court next Thursday to try to get my money back from a contractor that required 50% up front. This is a small contractor (I work with his Dad) who I have used before but has lost his license in my city. He delivered material but could not do the job without a license and just puts off paying me my balance. I had someone else do the job with the materials.

My thoughts are I wonder if I could have just put the money in escrow? Maybe a Attorney?

Anyone done this before?