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D.  HOME IMPROVEMENT AND BUILDING CONTRACTOR ABUSES

Americans spend over a hundred billion dollars a year on building renovation and home improvements. The Better Business Bureau (BBB) says it receives more contractor-related complaints than any other form of complaint. Abuses include salespeople pressuring consumers into signing inadequate contracts that fail to incorporate oral promises and contractors using inferior materials that do not satisfy building code requirements or overcharging for jobs that are never satisfactorily completed. Whether you employ a general con- tractor or a specialist such as a plumber or carpenter, you can enforce your rights.

Choosing the right contractor can save you a great deal of grief

Deal only with a licensed contractor. Most Departments of Consumer Affairs and/or Better Business Bureaus require that contractors be licensed. Some require that contractors post a bond and sign affidavits before issuing licenses. A license does not guarantee reliability or competence, but it is a step in the right direction. Contact the above agencies to discover whether a contractor is licensed. Inquire whether any complaints or lawsuits have recently been lodged against the contractor.

Ask for references from customers and suppliers. Confirm all references.

Get a written estimate. The estimate should include a description of materials to be purchased (color, size, weight, and grade). Try to obtain written estimates from several contractors to make valid comparisons. Some contractors charge for written estimates, so be sure you know how much the estimate will cost before asking for it.

Recognize common schemes. You can avoid being exploited by recognizing common illegal practices:

• Farming out work to unqualified subcontractors: Inquire who will actually do the work before you hire the contractor, and include this in the contract.

• Low-price bait ads: Unscrupulous contractors sometimes agree to provide inexpensive work but send an "engineer" to persuade you to accept a more expensive package.

• Rebates, discounts, or gifts: If you are relying on promises of gifts (such as a free television) when accepting a contractor's bid, include this in the contract. The contract should state you will receive the gift or rebate.

• "Lifetime guarantees" on building materials: These may not be enforceable by law.

• Exorbitant financing expenses: Dishonest contractors sometimes charge outrageous finance and interest fees.

Once you have selected a contractor, include all important terms in a written agreement.

• The contractor's name, address, license, and telephone number should appear in the contract.

• The starting date of the job and the expected time of completion must be stipulated. If time is of the essence, the agreement should state that all work must be completed by a definite date. Include a penalty if the job is not completed on time-for example, 20 percent reduction of the contract price. Be sure the contract includes all the terms, duties, responsibilities, and conditions you discussed with the contractor. Under the Statute of Frauds, the law presumes that all discussions and oral agreements are incorporated into a written document; in most cases, judges will not hear testimony about what was agreed to orally when there is a written contract.

  A couple was advanced $500 by a contractor to purchase aluminum siding and other improvements. After signing the contract, the couple discovered that they were obligated to pay 84 monthly installments, which totaled $4,000,for a $1,900job. A1ways check your arithmetic and be aware of all hidden financing and interest expenses before accepting a home improvement loan from a building contractor.

• Specify that the contractor must procure all permits required by law--certificates of insurance for workers' compensation, public liability and property damage. Insist on copies of these permits 48 hours before work begins. The contract should also state that your deposit will be returned immediately if copies of those documents are not received.

• The contract should contain a detailed description of all materials to be used, including quantities, brand names, and model numbers. The contract should also specify that the materials to be used are fully warranted, that labor and materials are guaranteed against defect and poor workmanship, and that all defects will be corrected at no extra charge.

• Make sure there are no hidden charges in the contract that will increase the cost of the job. For example, the contractor should agree to move equipment or furniture back to its original location, clean up debris, post a performance bond and return all unused materials to you at no additional cost.

• The manner of payment should be clearly spelled out. Keep the initial deposit as small as possible. Some states limit the down payment to 10 percent. Be sure payments are spaced to cover work completed-that is, when 50 percent of the work is completed, no more than 50 percent of the payments should have been made.

  Make sure you understand everything in the contract before you sign.

• The method of financing should be clearly spelled out. Federal law requires that consumers be informed of all financing charges, the annual rate of interest expressed as a percent, the amount of each installment, the number of payments, and the penalties for late payment or default. Scrutinize all financing terms and figures.

• There must be a complete description of the actual work to be performed, and that work should comply with all applicable local, state, and national codes and standards.

• If specification sheets were given in the estimate, be sure the contract mentions that they are attached to the contract and made a part hereof.

• If the contract refers to plans, specify those plans in detail and mention that they are part of the contract attached hereto and incorporated herein.

• Specify what, if anything, you are doing yourself so as to avoid confusion.

• The contract should have a three-day cancellation notice. This is also called a "notice of right to rescission."

• Make sure you understand everything in the contract before you sign. In fact, if the contract seems sophisticated or if large payments are involved, it may be wise to retain the services of a lawyer to review the contract and negotiate key terms on your behalf

• Ask for an exact, signed copy. This maybe either a carbon copy of the original or a photocopy, provided the contractor's original signature appears on your copy.

• Be sure a bona fide officer (president or vice president) of the company negotiates the deal and signs the agreement.

• Be sure the contract is complete and can be modified only in writing provided both parties sign a written amendment.

• Include a hold-back clause allowing you to retain a small amount of money, perhaps 10 percent of the contract price, to be paid only when the job is completed to your satisfaction.

• Consider inserting an arbitration clause to expedite the handling of disputes. Arbitration is a quick and inexpensive alternative to formal litigation (see Chapter 7). For example: "Any case or controversy arising as a result of this Agreement, among the parties to this Agreement or the subject matter hereto, shall be settled by arbitration in (location) under the then prevailing rules of the American Arbitration Association. The decision of the arbitrators shall be final and binding."

• Be sure that Truth-in-Lending language appears in the contract, setting forth your payments, the interest rate, the terms of the loan, and other details if the contractor or other source is financing the project for you. Be sure that the amounts are accurate.

• Pay by check to document the payment. If something goes wrong, you can stop payment. If you must pay by cash, get a signed receipt stating the amount you paid and what it was for.

Don't let the contractor or salesperson rush you into making a decision. In many states, the law allows you to cancel the contract within a specified period (typically three days)for any reason without penalty. Some states even require that a cancellation notice be attached to the contract. To find out about the applicable "cooling-off period" in your state, contact your nearest Better Business Bureau or attorney general's office for more details.

There are several things you should do while the job is in progress. First, consider taking out extra insurance in case accidents happen to the contractor's employees or passersby. Also, remember to match payments to the progress of the job.

Observe work to be sure the job is being done properly. Complain immediately about defective materials or shoddy workmanship. If you obtained financing through a lending institution, or are financing the job yourself, you may be able to withhold installments until the problems are corrected. Send a letter to the contractor stating the reasons for your dissatisfaction as well as clarifying what you contracted to receive and what you are now receiving (see Figure 2.3). Most contractors are anxious to receive final payment and will try to be accommodating if your demands aren't unreasonable.

Consider the following points after the job is completed:

• Do not sign a completion certificate until the job has been completed.

• Insist that the Notice of Completion be filed in your county. This may ensure that your liability is at an end and that the waiting period has started in which suppliers, subcontractors, and others can file liens in the event of nonpayment. Since these notice periods usually extend for only 30 days, start the clock ticking.

• Do not make final payment until you are satisfied with the job and the contractor has provided you with releases from suppliers and persons employed on the job. Dishonest contractors sometimes pocket the money and fall to pay third parties, and the purchaser is often liable.

• Your local state's licensing board can verify the contractor's license and assist you in the event problems arise. If you have made final payment and are dissatisfied with the job, speak to a knowledgeable lawyer.

You can also send a formal written complaint to the local Department of Consumer Affairs, the BBB, the regional office of the FTC, or your state attorney general's office (see Figure 2.4). These agencies frequently conduct formal investigations. The advantage of filing a complaint with an appropriate agency is that it may not cost you anything to obtain satisfaction. For example, in some states the complaint division of the department of consumer affairs has the authority to schedule a hearing and impose penalties. These include fines, restitution, and orders requiring the contractor to complete the job in a satisfactory manner (or lose his or her license).

Along with your complaint, include copies (never originals) of all pertinent documents. This may include the contract, letters of protest, advertisements, guarantees, sales literature, and other correspondence. If possible, include photographs to demonstrate the current condition of the premises.

If you do not receive satisfaction through these agencies, you can sue the contractor in small claims court if the amount in dispute is under $3,000 or hire a lawyer and sue the contractor in a regular court.

The same basic rules apply when hiring an architect as when hiring a contractor. Never hire an architect without first interviewing him or her. Examine the person's academic and professional experience and credentials. What professional associations does the architect belong to? Is he or she licensed, bonded, or registered with the department of education in your particular state? Some states require formal registration and testing to ensure competence.

Smart consumers always review samples of the architect's work. Obtain references and speak to people who had previously hired the architect. In addition to customers, this includes contractors, builders, landscapers, and planners who worked on job sites with the architect. If possible, look at the actual homes or offices.

Always ask for a written estimate of fees and compare several architects' fees before making your selection. In addition, request a written contract and make sure it contains the following provisions.

• All work will comply with existing federal, state, and local building codes and zoning laws. The architect will indemnify and hold you harmless from any losses caused by the negligence or omission of his or her work.

• Time is of the essence. The architect will prepare the drawings or plans within a specified time.

• You will be able to request reasonable modifications of the drawings or plans at little or no cost after receiving the initial set of plans.

• The architect will attend planning and zoning sessions on your behalf, if required, at little or no charge. Be sure you know how those charges will be computed.

• Full and final cost of the architect's work is specified.

• Full payment will not be required until satisfactory completion of the work.

If the contract is sophisticated or if a considerable fee is involved, it may be wise to retain the services of a lawyer familiar with architect law to review the agreement and negotiate additional terms on your behalf.