Feature
by Marci Riseman
My husband and I were stunned and embarrassed to find ourselves the recent victims of a shady contractor who, for over $14,000, installed aluminum-clad windows on our 1890 Victorian property when we had paid for solid wood. Right after we complained, the contractor filed bankruptcy and began operating under a new name. As fraudulent as this use of bankruptcy protection was, and much as it infuriated us, we had no recourse outside of a costly lawsuit (which would put us in line behind nearly 100 other angry creditors who had also been burned by this company). Our attorney advised us it was not worth the money to pursue it.
How could such fraud happen to us, people who have owned and managed residential and commercial property for many years? We run our own architecture firm, we work with dozens of contractors, and we have always thought of ourselves as cautious, sensible, financially conservative people. We had imagined we would be the last people to be burned by a disreputable contractor, because we would never hire them. Right?
The truth is that any of us, whether novice or experienced, can find ourselves in a similar situation. After it happened to us, we looked back and realized we had worked with so many good people that we had become careless. Since then, we have tightened our protocols, and recommitted to being thorough and diligent. We look at the $14,000 we wasted and the additional thousands it will take to correct the problem, as a stark reminder for us to be more diligent in the future. We want
to share with you, the San Francisco Apartment Magazine readership, everything we have learned about working with contractors so that you may avoid such a costly reminder.
Here is a list of things to do before you hire a contractor, as well as things you can do when problems arise—many of which have been our standard protocol for years and some of which we recently learned the hard way.
Before You Hire a Contractor
The best way to find reputable contractors is through referrals from people you trust. But even if a contractor comes highly recommended, make sure you also take the following steps to protect yourself.
Multiple Bids:
When looking for a new contractor to perform work for you, always get at least three bids. If any one is significantly off in either the price and/or description of the work, be cautious. Ask questions about elements that stand out in any particular bid—how a contractor responds to these questions at this early stage can provide good information about how they will respond to your needs in the future.
References:
Every time you hire a new contractor, ask for the names and phone numbers of their three most recent jobs. Call each of these and ask the past customers how satisfied they were with the contractor’s work, if the contractor came in on time and on budget, if they had any problems with the contractor, and if they would hire the contractor again. If possible, see previous jobs they have done to check the quality of their work. If the contractor balks at giving you references, or if the references are old, be suspicious. We thought it was a little odd when our window-replacement company said they did not give out the names and numbers of their customers “for privacy reasons,” but we later understood that they couldn’t give out the names and numbers of their customers because their customers were dissatisfied. Satisfied customers are generally happy to receive calls from new customers of a contractor they have enjoyed working with.
Proof of Insurance:
Ask contractors to provide written proof of both their workers’ compensation and liability policies. (The December 2004 issue of San Francisco Apartment Magazine gives specific coverage guidelines.)
Complaint Research:
Contact the Better Business Bureau (BBB). You can reach the Bay Area office at www.oakland.bbb.org or 510-238-1000 to confirm that there are no complaints against the contractor. If we had done this with our window company, we would have seen that the company had six complaints against them in the past three years.
License, Bond, and Legal Judgment Research:
Contractors are licensed and regulated by the Contractors State License Board (CSLB):
Contact the CSLB at www.cslb.ca.gov or 800-321-2752 to confirm that your contractor has a current contractor’s license and to review any bonding and workers’ compensation insurance information. Consider how long the contractor has had a license, whether he/she is in good standing, and if there have been any judgments against this contractor.
Legal Entity Research:
Real-estate attorney Austin Stewart, of DLA Piper Rudnick Gray Cary in Palo Alto, says it is important to find out what sort of legal entity the contractor is. Although a name may sound like a legal entity, it may just be a DBA (doing business as) for an individual. “The pro to this situation is that there is no liability shield between the individual and the parties who may have a claim against him—he can’t hide behind a corporation. Of course, the individual could still go bankrupt, but this is a much more dire circumstance for the individual than it is for a corporation.” Stuart adds, “If it is a corporation or partnership that looks brand new, or looks like its license has bounced around from entity to entity, look further into their references and financials before working with them.” If you are dealing with brand new contractors, there may be cause for concern because they will not yet have the track record to prove their competence and honest business practices.
Contract:
Insist on a clear, detailed written contract that includes specific descriptions of the work to be done, products and materials to be used, and equipment to be installed, along with any product names, model numbers, quantities and colors, and/or any other specific information that states what you will receive, when you will receive it, how much you will pay for it, and when payments will be made. Specific descriptions now will help prevent disputes later. The contract should state when work will start and end. If time is of the essence, include a clause that charges a penalty to the contractor if the job takes too long. Make sure that you fully understand the contract before you sign it. Confirm that the contract does not limit the contractor’s liability to the cost of the job but to actual damages you may sustain from their errors. “At the very least,” says attorney Stewart, “carve out under that limitation any recovery that you might be able to receive from their insurance company in the event of their mistakes.” If it is a sizeable job, have your attorney review the contract before you sign. An hour of an attorney’s time is well worth it if you run into problems.
Product Research:
If your contractor will be using a specific product, make sure that he or she is an authorized dealer and installer for that product (otherwise the manufacturer’s warranty may be voided). Ask the contractor for manufacturer’s cut sheets so that you can see photos and drawings of the product you will be buying. Research the product company’s Web site to learn all you can about the product and its warranty, so if anything seems incongruous you can ask questions and clear up problems before you make an expensive mistake. Not until we had the wrong windows installed at our property did we contact the manufacturer and ask questions about what we had ordered. We found that the windows specified as “solid wood” in our contract with our installer only come in aluminum clad. If we had caught this problem before signing the contract, we would have saved thousands of dollars and months of frustration.
Insist on a Permit:
If your contractor says it is not necessary to get a permit to do work for which the city requires a permit, be suspicious. The penalties for not obtaining a permit are quite steep. In addition, a contractor’s desire to work without a permit may indicate his or her desire for quick money (since obtaining a permit takes time), which in turn may indicate a problem. And contractors who try to avoid the building department may have poor relationships with that department—another red flag.
Deposits:
The Contractors State License Board recommends that a deposit be no more than 10% of the contract price or $1,000, whatever is less. If you are using an expensive custom product or piece of equipment, it may be acceptable to pay a higher deposit on the product or equipment itself.
Payment:
If a contractor asks for cash, be wary. Competent contractors in business for the long-haul can wait for a check to clear or a credit card payment to go through. Contractors operating on a cash basis are likely not reporting their income to the IRS, which is a sign that other aspects of their business are not above board either. Confirm that your contract specifies a schedule of payments and only make payments as work is completed. And finally, don’t pay in full until you are satisfied with the work. On the day our windows were installed, we saw them being taken off the truck and thought, “That’s not right. Those don’t look like the wood windows we were shown in the showroom.” We called the salesperson, who assured us that the windows were wood. Foolishly, we allowed the windows to be installed and paid our bill. We should have refused the windows and not made the payment unless the company provided the windows we actually paid for. In our architecture practice, we advise our clients to include a schedule of payments in the contract, which are made when certain predetermined benchmarks are hit, while reserving 10% of each payment to be released only after the client is satisfied with the contractor’s work. (If only we had held our own contractor to the higher standards to which we hold our clients’ contractors.)
Trust Your Gut:
If something seems strange about the contractor or the way she or he operates, trust your intuition for you are probably right. When we thought it was odd that the window contractor did not provide references, we should have found someone else to work with. When we thought the windows looked wrong, we should have trusted that we know a wood window when we see one and refused the delivery.
Perhaps this is my most important advice. If your contractor balks at any request that you make from the above list, consider it a red flag and move on.
What to Do When Problems Arise
First of all, try to talk with your contractor about your concerns. A simple miscommunication can often be resolved between sensible people. If, after trying to resolve the problem directly, you realize that in fact you are dealing with someone dishonest or if your problem is simply too vast and unwieldy, here are some other routes to try.
Determine your Goals:
Is your goal to get your money back, get the work completed, or try to make certain the contractor never works again in this town? Clarify and prioritize your intentions before you proceed and be reasonable in your expectations.
File a Complaint with the Better Business Bureau:
After you have tried unsuccessfully to resolve your complaint with the contractor, file a complaint with the BBB. Sometimes simply receiving a complaint from the BBB is enough to get the contractor’s attention. If not, the BBB may be able to help you reach a compromise. At the very least, the complaint will be registered in the contractor’s BBB record, alerting the next person who does their research.
File a Complaint with the Contractors State License Board:
The CSLB handles complaints about fraud, misrepresentation, failing to complete contractor work, failing to maintain required records, working without proper licensing, and withholding money from subcontractors. They offer mediation and arbitration services for qualifying cases. If either mediation or arbitration is unsuccessful, the CSLB may investigate the case. If a violation is established, the CSLB may suspend or revoke the contractor’s license and the contractor’s ability to operate, and, if the violation is severe enough, may involve the district attorney’s office.
Call Your Attorney:
Review the situation with your lawyer and find out if it makes sense to sue your contractor, or, at least, check with your lawyer if a threatening letter would be sufficient for helping you reach a resolution. If your complaint involves damages of $5,000 or less, consult the CSLB regarding information about filing an action in small claims court.
Spread the Word:
Alert your friends and colleagues about what you have been through so they can avoid the same mistakes—and the same contractor.
The Last Word
During the job, keep a written record of all conversations with the contractor regarding scheduling, problems, changes, and any other factors that may arise, as well as what work is getting (or not getting) done. Having a thorough written record of what happens on a day-to-day basis can go a long way toward avoiding disputes with your contractor. If things begin to go wrong, your records will be essential in clarifying, and ultimately resolving, a bad situation.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Marci Riseman is the owner of Pomegranate Design & Development, a real-estate development, management, and consulting firm in San Francisco. She can be reached at (415) 826-8860 or marci@pomegranate.to. Copyright © 2005 by the San Francisco Apartment Magazine. All rights reserved.