I can't tell you how often a homeowner calls me with this story:
My spouse and I entered into a construction contract with
Acme Construction for a remodel/addition to our home. The
contract price was $150,000.00. We paid him $125,000.00
and the project is nowhere complete. Acme won't return our
calls and has abandoned the project. On top of that, we think
there are serious problems with the work and he has not adhered
to the plans or building codes. What can we do?
The Contractor's License Law is designed to protect homeowners from unscrupulous contractors such as Acme. Unfortunately, this is often not the case. The contractor has a $15,000.00 statutory license bond which may be available in this situation, but often the cost of obtaining the benefit of the bond outweighs the penal amount. The inherent cost of litigation (against both Acme and its bonding company) may be equal to the amount of the homeowner's damages and even if the contract contains an attorney's fees provision, there is no guarantee that Acme has the resources to satisfy a judgment.
So here you are. Unfinished remodel. Need to engage a completion contractor (who will charge a premium for taking over a distressed project) and possible latent and serious construction defects. Cost to complete/correct the work: $75,000.00. The remaining $25,000.00 from the original contract is credited against this amount, so the homeowner's damages are $50,000.00.
Now you want to retain a lawyer who may charge $40,000.00 to take the case to trial and obtain a judgment a year and a half later. Is the contractor good for it? Will he/she file for bankruptcy? Maybe the license board will take away Acme's license, but will he pay you if he has no livelihood or income stream?
In this situation, often there are no good, cost effective options. Here are some things you can do to protect yourself before signing the contract:
• Have a permitted set of plans from which you can obtain three competitive bids.
• Don't always go with the least expensive bid. Do your homework and get credible, independent recommendations from previous clients.
• Make sure the contract conforms to all of the requirements set forth in Business & Professions Code §7159 and make sure the contractor is properly licensed.
• Consider having a lawyer review the contract before you sign it. This could save you a lot in the long run.
• Consider asking the contractor to obtain a performance and payment bond. This bond is way better than the statutory license bond. It is written specifically for your project and will protect you against incomplete or defective construction and mechanic's liens if the contractor doesn't pay his/her subs or suppliers. The cost of the bond (usually around 3% of the contract price) is well worth it.
• Never let the contractor get ahead of you on payments. Once you've paid him/her more than the completed value of the construction to date, the less incentive he/she has to finish your project. For example, If he/she has done 35% of the work and you've paid him/her 70% of the contract price, there's little incentive for him/her to finish the remaining 65% of the job for 30% of the contract price. Do not advance payments for materials or supplies. A good contractor will have a good credit relationship with his vendors.