You’ve received bids from several contractors and you think you are ready to get started. Then you start hearing horror stories from family and friends about their experiences with contractors. In turn, you start worrying about how to protect yourself. Don’t let this happen to you.
As an agricultural lender that has financed quite a few construction projects in the past, I’ve compiled a list of tips that can help protect you:
No matter how well you know the contractor or how good their references are – get a written contract. At minimum, the contract should include the following:
Being knowledgeable is one of your best defenses:
This is a simple tool that can protect you in a big way. A lien waiver is a document that you have the contractor and subcontractors sign when payment is made to ensure nothing else is owed to them at that point. Example: Your contractor hires an electrician and he finishes installing the electric. The contractor then wants the money to pay the electrician. A this time, you would have both the electrician and the contractor sign a lien waiver stating that he has been paid in full. This prevents the contractor from collecting from you and never paying the electrician. Without lien waivers, the subcontractors can file a mechanics lien on your property for non-payment.
Notify your hazard insurance carrier prior to starting construction to confirm that the building is insured during the construction period. You may have to purchase a different policy, or add it onto your existing policy, but you want to be sure you have coverage.
Once labor has begun, you will be liable for the work that has been performed and you will have assets at risk once you make the first payment. Insure your investment from theft, fire, and weather related losses.
Get a list of references and call them. If possible, go see the work done for those references. Often people will tell you more in person than they would on the phone.
There are a lot of good reputable builders out there, but by the time you find out that your contractor is not reputable, it is usually too late. Reputable builders and contractors will recommend that you take steps to protect yourself. If they discourage you from taking these steps, there is probably a reason.
Good luck on your next building project.
Kathy Daily is the Managing Director of First Financial Bank’s Farm and Ranch Division. Mrs. Daily has been an agricultural lender for over 25 years.