Do you verify your contractor?

Question

Hello All,  just wanted to see how you verify your contractor.  If they are a sole proprietor you need to file a 1099 right?  How do you require them to verify their SS?

Thx!

J Scott · Answer

Just download from the IRS website and print it out.  It's just a form to collect data so you can send them their tax forms at the end of the year.

Sure, they could provide the wrong data to you, but they sign it, so if they give you the wrong data, you're off the hook if they don't get their tax forms from you at the end of the tax year because they gave you bad data.

As others have said, they should have their insurance company fax you the info.  You'll notice there's a standard form for indicating general liability and workmans comp policies, and you'll end up with a stack of them from your contractors if you do it right.  Keep them on file, and whenever they expire, have your contractors get the insurance company to send to you again.

Generally, if the contractor stops paying or cancels his insurance during the term listed on the form, the insurance company will contact YOU, so you know that one of your contractors is currently uninsured and you can take preventative measures if you choose.

http://www.biggerpockets.com/renewsblog/2010/02/17/whats-in-a-contract-contractors-rehabbing-real-estate/

Sam M. · Answer

Luis,
                    I agree some may "require" a 10% down but that is only to either lock in the contract or they have cash flow issues. Even if they "require" 10% it is always negotiable. The piont is never take on another persons cash flow issues when doing business.

Maybe that is all just because I live in a state where the only requirement for being a contractor is a pulse and $70.00.

Gota love it!
                    
                     50% of the contract would be a max and I would only pay it when materials were delivered not as a down payment for the contract
                    
                     I am not kidding about the tires. I had a friend pay his drywall taper by buying him a set of tires then had a hard time getting the guy to come and finish the job. The guy just wouldn't show up. (for weeks)

Sam M. · Answer

The W-9 you can give it to them and have them fill it out or ask them to give you a completed copy since it as a standardized form. Before I incorporated I kept copies with me in my truck to make it easy.
 As to insurance they call their insurance company and give them YOUR information (company name, address, contact person and fax #) the insurance agent will fax you a copy of their "certificate of insurance" which will state limits of liability, policy start and end date etc.

As to a breakdown of materials it depends on the contract. Most of the time the owner or contractor does not know the amount I paid for materials but it is a reasonable number. I can see how this could be hard to determine if one really had no clue as to what materials cost. It only really matters where the scope of work will be stretched out over a month or longer.

A chimney might be as high as 50% materials but again that is a small job and I would NEVER expect to get paid before the work was completed nor would I pay someone before the work was complete. (â€œSubstantially completeâ€ in my verbiage)

Sam M. · Answer

All the above! Also with the small guys NEVER fall for "I need money up front" even if they do need new tires. I've seen way to many people burned this way.
 On a job where there is several thousand dollars in materials I get a check when the materials are delivered but only for the amount of my materials + markup.
 The only way to be certain you have a good contractor is to check thier work often until you develop a relationship.

Luis A. · Answer

You do the W9 so you get their tax id and mailing address. You are required to file a 1099 declaring payments over $600 in a year,  you have made to any independent contractors. By having the W9 now you have the information you need to file the 1099.

Independent contr, agr. is what establishes them as independent contractors and not your employees. That way you are not responsible for paying their taxes, SS or medicare.

If they have a license, in my state you can verify the status of their license in the webpage of the Secretary of State.

It really does not matter what the cost of materials is, keep your eye on the contract total. If they absolutely require payment before starting I would suggest anywhere from 10% to 1/3 of contract total. Probably 50% would be the highest I would go for upfront payment.

Mark Updegraff · Answer

Thanks for your responses J & Sam!
          
          Now you've got me thinking about the random contractor I just paid 2500 to install a new chimney liner / repair chimney.  There is still hardware on my roof from when they started 3 weeks ago...  I should probably have started here before writing a check to "Handyman". :-/  
          
          I'll head there now and see if I took a hard one... you would have thought I learned after hiring a CL tool to do some interior work which they botched.  School of hard knocks is always best avoided.
          
          So to clarify:
          I'm at irs.gov now, it looks like 1099MISC is the form.  
          
          1. So I order a W9 and gather this information from them (they fill it in). 
          
          2. They provide me with some information on their insurance co and I call to verify that it is correct.  Do you look up the entity of the insurance co to make sure that isn't bogus?  Or he calls the insurance and has them fax me something?

3. I inspect recent job sites and talk to the owner(s).
          
          4. Sign a contract (I have one from BP ) 
          But what is a 'Independent Contractors Agreement'?
          
          Thanks so much guys!!!  I feel like a tool :-/ and ready not to!
          
          PS - how much money do you give them to start the work?  Just materials plus markup?  Do they provide the receipts for materials for you to review?  Does it have a breakdown of materials and markup?  if so what is the percentage markup?

J Scott · Answer

I have all my contractors:

- Fill at a W9 (this has their SS# or Tax ID and is used to generate the 1099 at the end of the year)

- Provide proof of insurance -- this should come from their insurance company, not from them.

- Provide proof of business or trade license, if applicable.

- Provide a couple references, including recent jobs that I can drive past or talk to the owner/investor who had the work done.

- Sign a contract (including Independent Contractors Agreement) before starting any work.

Do you verify your contractor?

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