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Hiring a Contractor

Where to Find a Contractor?

If you are ready to build your dream home, then you will need to hire a contractor. There are many ways to find a reputable and experienced contractor for your project. The best place to start is by asking friends, neighbors and family members for referrals. You can also get referrals from your architect as well as local trade and building associations. It is a good idea to interview at least three contractors before you hire one

Steps to Take Before Hiring a Contractor

There are a lot of hardworking contractors that are trustworthy and professional. Unfortunately, there are a few that are not. Here is a list of steps to take before you hire a contractor:

License Verification

Before you hire a contractor, ask to see a copy of the contractor's pocket license. Licensed contractors carry their pocket license with them and are accustomed to providing it upon request. Write down the name and number on the license and verify the information with your state's licensing authority. In California, the Contractor's State License Board has a website that allows consumers to verify which of the 43 different licenses the contractor holds, the status of the license, the business address, a summary of the legal actions filed against the contractor and whether the contractor is bonded and insured.

Check References

When you interview prospective contractors, it is a good idea to confirm their experience with projects like the one that you are planning. Ask each contractor to provide the names, addresses and phone numbers of at least three homeowners for whom they did similar projects. Ideally, you should meet with the homeowners to view the completed work and ask questions to determine whether they are satisfied with the work and whether it was completed on-schedule and according to the price set forth in the contract. It is also a good idea to ask how the contractor handled disagreements and whether corrections were made when requested by the homeowner.

Rather than limiting your investigation to the references that the contractor provides to you, it is a good idea to ask the contractor for the addresses of his current projects. You should visit at least one of the sites and speak with the homeowner to determine whether the job is progressing on-schedule, on-budget and whether the homeowner is satisfied with the work.

In addition to asking for customer references, ask the prospective contractors for references from at least one supplier and one financial institution. Reputable contractors have lines of credit that allow them to purchase materials. You will want to call the supplier and financial institution and confirm that the contractor's account is in good standing.

Check Record With Better Business Bureau

Many contractors are members of the Better Business Bureau and you can quickly view their complaint record and rating online.

Verify In-Force Insurance Policies

When you meet with prospective contractors, ask them to provide you with a copy of the declarations page for their workers compensation, liability and automobile insurance policies. If a worker is injured or damage is done to neighboring property or utility lines, then you will want the contractor's insurance policy to cover it. Otherwise, you may find yourself liable for the injury or damage. Once you select a contractor, be sure to call the agents for the policies to ensure that they are in force. You should also ask to be named as an additional insured under the liability policy. Doing so will obligate the insurance carrier to notify you if the premium on the policy is not paid. It will also give you rights as a co-insured in the event of a claim.

Bids

Solicit at least three bids from qualified contractors. When you receive the bids, compare the line item costs. After you do a comparison, give each contractor an opportunity to explain and justify the differences in their bids. It is important to understand the reasons for the differences because often times a higher bid includes more expensive materials or building methods.

When reviewing the bids, you should also pay particular attention to the completion time that is proposed in the bid. If you are financing the construction costs, then an earlier completion date will save you money on interest and your monthly housing expense if you are paying rent or a mortgage during construction.

The Contract

Once you select a contractor, you will need a written contract. Beware of signing a contract drafted by the contractor. Such contracts often include biased, one-sided clauses that are intended for the protection of the contractor. You should consider including the following terms in your contract:

1. Scope of Work - detailed breakdown of costs and specific materials.
2. Fixed Price - Construction lenders often require a "fixed price" contract to ensure that construction will be completed within the approved budget. A "fixed price" contract should include all materials and labor and depending upon the contractor, it may also include offsite costs for soils testing, engineering fees, plans and permits.
3. Insurance - the contractor should be obligated to maintain workers compensation, liability and automobile insurance throughout the project.
4. Payment - a detailed schedule of payments should be included in the contract. It is a good idea to condition payments on lender inspection and disbursement of funds.
5. Completion Date - the project should have an expected completion date. You may want to include a clause that requires the contractor to pay the interest on your loan and any additional housing expense if the project is not completed on -time.
   

This is not intended as a complete list of terms and you may want to consult with an attorney before you enter into a contract.