Understand the Contract Before Signing

For home remodeling project or, in the case of fire victims, a home rebuilding, the experts say you should get written bids from at least three contractors working from identical plans and specifications so you can compare prices and contractors.

This will mean some work on your part, because, as we wrote last week, it’s important that you check the license, references, insurance and bonding of any contractor you ask to bid on your work.

Discuss the bids in detail with each contractor and make sure you understand the reasons for any variations in price. Sometimes a higher price may be worth it if the materials to be used are of higher quality or the work is more extensive.

For example, if you are having your kitchen remodeled and one bid is based on installing prefabricated cabinets in standard sizes and another bid is based on installing custom-made cabinets, the prices will not be comparable.

Beware of any bid substantially lower than the others. It probably indicates that the contractor has made a mistake or is not including all the work quoted by his competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid.

Don’t forget the old adage, “If the offer sounds too good to be true, it probably is!”

The Contract

Although you might assume that a “contract” should look like a contract, anything you sign could be used by a contractor as authorization to go forward with your project. This means that any bid you sign may become the contract. Do not sign anything until you completely understand what you are signing and agree to all the terms.

Assume nothing. Be sure to ask questions until you fully understand the contract and what the work will look like. Before signing anything, you may wish to discuss the proposed contract, plans and specifications with an attorney.

Get Everything in Writing

The contract binds you and the contractor to the project. Since a written contract protects both you and the contractor, all agreements should be put in writing. It should include everything you have agreed upon and the extent of the work to be done. Get all oral promises in writing and spell out exactly what the contractor will and will not do. If you intend to do some of the work yourself or hire another contractor to do it, this also should be written into the contract.

Read the contract carefully before you sign it. If you have any questions or don’t understand something, ask before you sign. Never sign a blank or partially blank contract. Get a copy of the contract as soon as you sign it and keep it for your records.

Be sure the financial terms of the contract are clear. The contract should include the total price, when payments will be made and whether there is a cancellation penalty.

On any home improvement job you should expect to make a down payment. California law requires that the amount of the down payment for any home improvement contract, other than for construction of a swimming pool, may not exceed $1,000 or 10% of the contract price, excluding finance charges, whichever is less. The down payment for a swimming pool shall not exceed $200 or 2% of the contract price, excluding finance charges, whichever is less.

After you have a signed contract, and even after work has already begun, your contractor may offer suggestions that will change your original ideas for the work. On any added work, substitutions of materials or equipment, or changes in the completion date, make sure that clearly worded and signed “change orders” reflect this.

Three-Day Cancellation Period

The law requires a contractor to give you written notice of your right to cancel a contract within three business days of signing it, provided that it was solicited at some place other than the contractor’s place of business or appropriate trade premises; your home, for instance.

Use those three days to review the contract again. If something bothers you, don’t be afraid to cancel the contract. If you do cancel, by all means call the contractor; then make sure your cancellation is in writing. Sending the cancellation to the contractor by registered mail will give you a record of its mailing date and of its receipt by the contractor. Thereafter, you can work out the problem with your contractor, if you prefer.

If you have any concerns, see an attorney right away. Make sure all the contract terms are in writing and that you understand and agree to everything in the contract.

Make Sure Everything You are Paying for is in the Contract

The contract should specify all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply. For example, the contract should say “Install oak kitchen cabinets, manufactured by Company XYZ, model 0381A, as per the plan,” not just “Install kitchen cabinets.”

Make sure your contract includes everything you feel is important to the job, including complete clean up and removal of debris and materials, and special requests such as saving lumber for firewood or saving certain materials or appliances. Also give instructions regarding pets, children or areas where materials may not be stored.

Warranties

If a warranty is offered by the contractor for labor and materials, be sure to get it in writing. The warranty should specifically state which parts of the work are covered and the duration of the warranty. You should also request any written warranties offered by the manufacturers of materials or appliances installed by the contractor.

California law limits the period within which a complaint may be filed against a contractor to three years from the day when the act or omission occurred. This statute of limitations may be extended if there is an express, written warranty issued by the contractor.

If such a warranty has been breached by the contractor, the Contractors State License Board has authority to act on a complaint during the entire duration of the warranty. However, the board has no authority to enforce a warranty given by a manufacturer or material supplier.

Scheduling the Work

Your contract should specify an approximate starting date and completion date for your project. However, external factors such as the weather or the availability of supplies might cause delays.

Scheduling the Payments

Make sure the payment schedule is based on the contractor’s performance. Never let your payments get ahead of the contractor’s work, and make sure the contract provides for a “retention.” A retention is a percentage of each payment or of the total job, ordinarily 10%, which you retain until the job is completed.

Never sign a completion certificate until all the work called for in the contract has been properly completed. Lenders usually require a signed completion certificate before they will release the last payment.

A final caution

Before you sign anything, call the Contractors State License Board office in your area to make sure the contractor is properly licensed in the class for which work is to be performed and the license is in good standing. You should also ask about the contractor’s disclosable complaint history and any prior legal actions that may have been taken against the contractor.

Complaint history information is available from the CSLB in Southern California by calling (800) 321-2752.

Free Booklet on Hiring Contractor

For a free copy of “What You Should Know Before You Hire a Contractor,” call the Building Industry Assn. of Southern California at (909) 396-9993 or write to BIA/Firehelp, 1330 S. Valley Vista Drive, Diamond Bar, Calif. 91765.