Home improvement is one of the areas in which consumers are often disappointed. One way to prevent problems is to take time with the contract. Even if it is a small job done by "locals," there are a few steps that you should take to make sure the job does not become more than you bargained for. Many experts recommend interviewing three bidders before hiring a contractor. This may not be practical for many low and moderate-income persons. But, if possible try to get estimates from at least two contactors, even if only by telephone. Frequently, the jobs are small and the cost of the job is relatively modest. Here are some tips that will help every homeowner.

First and most important - a written contract Insurance Building Permits Contract Terms to Watch Closely Don't make the final payment until …

First and most important, have a written contract. Contracts are mutual promises between two parties. You, the homeowner, will be asked to pledge to pay for services and materials required for the job. A written contract will spell out how the work should be done, the materials and the payments. No matter what the size of the contract, put it in writing. This will help to make the process easier. A written contract will also help you to enforce the agreement if anything goes wrong. Even if the contractor is someone you know, this will be a business relationship. And you should treat it that way. Contracts don't have to follow any set form. But if you can't understand a term or provision, ask for an explanation before you sign.

Insurance is another important consideration. The contractor must have accident and liability insurance for him (or her) self and all of the others who will work on a job. Get a copy of the contractor's current liability insurance certificate.

• First, you need to be protected from anyone who is injured on the job who might sue you.

• Second, you need to be protected from any damage that the contractors may cause to your property. Look at your house insurance policy. Call your agency if you are not sure if injuries on the job will be covered by your homeowner's policy. This is your backup if the contractor's insurance does not cover injuries or damages.

Remember that some jobs will require building permits. Make sure that you and the contractor are clear on who will apply for the permits and pay the fees. Even if you are able to make changes now without a building permit, you will have a problem when you try to sell the property.

Contract Terms to Watch Closely

• Square foot pricing - It is difficult to compare the costs of square foot bids. These bids do not detail the specific items such as the size of the framing boards. This means that you cannot be sure about the quality of the work and materials that each contractor has in mind when s/he makes the bid. If one person plans to use lower quality materials, you will be unable to see this when you compare square foot price bids.

• "Allowances" - These are amounts that a contractor will include to estimate for certain items that are not detailed in the bid, such as light fixtures. If the actual costs are higher than the "allowance" estimate, you must pay the difference. This will increase the overall cost of the contract. One way to avoid this problem is to pick out the items you want in time for the bid. Another way to avoid losing control of the costs is for you to shop for the general prices of the things that you are not yet ready to select. Write down the general cost of the items, such as light fixtures, that are like the ones you want. If you get more than one bid, keep in mind that each bid will be based on different assumptions about the allowances. This means that it will be harder to compare bids.

• "Fixed Price" vs. "Time and Materials" Contract - These are two different ways in which the contractor can bill you.

  • "Fixed price" bids are considered to be standard in the industry. A fixed price means that the contractor has investigated all of the items related to the project. The contractor agrees that a certain price will cover all of the time and materials.

  •  A more uncertain agreement is called a "time and materials" contract. This is an agreement in which the contractor charges you as the job goes along. The contractor will charge you for his/her time and materials plus an added amount for profit. If it is a time and materials contract, make sure that the contract includes a maximum cost or "cap" on the price for the job. An open-ended "time and materials" contract can be an invitation to an unscrupulous contractor to run up the costs of the job.  See the Markupandprofit website for issues to consider prior to signing a "time and materials contract".
    

  Be very careful if the contractor is not clear about which type of contract he intends to use.
  

• Payment Schedule - The contractor will ask for partial payments at certain points during the job. The Maryland Home Improvement Commission recommends that you do not put down more than 30% of the total fee. Also be careful about paying for more work than the work that has actually been completed. Small contractors may ask for an "advance" in order to purchase materials. Avoid paying for work that has not been yet completed. If the contractor fails to complete the job, you will need the money to pay someone else to complete the work that was left unfinished.

• Change Orders - If you have an agreement that covers a set list of tasks and materials for a set price, you will be charged for any changes. It is a good practice to make these changes in writing. This allows both of you to agree about the change and the cost of the change.

• Resolving Disputes - A lawsuit is one way to solve a dispute. But it can be expensive and take time. It makes sense to make sure there is another way to solve any disagreements. This is particularly true if the job is a small one and everyone involved is a person of modest means. Your Options to Resolve a Dispute with a Contractor.

Don't make the final payment until:

• the "punch list" (the list of final odds and ends) is done;

• you receive copies of the warranties for any appliances, fixtures, roof shingles, etc. and

• you are told, in writing, by each subcontractor that s/he has been paid.
  
  
  Source: Adapted from the October 2003 issue of "This Old House" Magazine article with Maryland research and editing by MLAN and Suzanne Hood, attorney at law, Easton, MD.
  
  Last date legal review 02/29/08 (PLL/M.A.J.)

  Is this legal advice? This site offers legal information, not legal advice.  We make every effort to ensure the accuracy of the information and to clearly explain your options.  However we do not provide legal advice - the application of the law to your individual circumstances. For legal advice, you should consult an attorney.  See our section on Finding Legal Help. About this website. The Maryland State Law Library, a court-related agency of the Maryland Judiciary, sponsors this site. The website was developed (1999-2007) as part of an access to justice initiative by the Maryland Legal Assistance Network (MLAN) in collaboration with a number of legal services providers serving low and moderate income Marylanders.  In the absence of file-specific attribution or copyright, the Maryland State Law Library may hold the copyright to parts of this website. You are free to copy the information for your own use or for other non-commercial purposes with the following language “Source: Maryland's People’s Law Library – www.peoples-law.org. © Maryland State Law Library, 2007.”

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