Protect yourself when hiring contractor

With the economy on shaky ground, it’s more important than ever for homeowners to carefully screen the contractors they hire for home improvement projects.

Consumer protection experts say that when work slows down, some contractors may bid on jobs outside their area of expertise; let their licenses and insurance lapse; or fall behind on payments to their suppliers.

Just ask Steve Ludlum. The contractor he hired to build a pool at his Tucson, Ariz., home went bankrupt midway through the job.

“He talked a good game,” Ludlum recalled. “We had a lot of personal references. We thought we did our homework.”

While it’s impossible to gauge a company’s financial situation with certainty, there are some steps you can take.

Shari Purves-Reiter, outreach manager for the Washington State Department of Labor and Industry; Angie Hicks, founder of Indianapolis-based Angie’s List, which offers online consumer reviews of contractors and other services; and Kip Morse, president of Central Ohio Better Business Bureau, offer these suggestions for selecting contractors:

•Ask for a list of their suppliers. Call those companies and check whether the contractor has been paying bills. Contractors who are behind on their accounts or no longer have a line of credit with the company might be in financial trouble.

•Consult with any subcontractors who will be working on the project. Ask them whether the contractor pays them promptly.

•Check the company’s rating with the Better Business Bureau (www.bbb.org) or a consumer rating service such as Angie’s List (www.angieslist.com). These organizations may offer the opportunity to run a credit report on the company or may use other financial considerations when evaluating the company. They also may review court filings, including any lawsuits or liens against the company.

•Interview previous clients. Ask whether the company performed work on time and to their satisfaction. Find out whether supplies were being delivered as promised, or subcontractors were changed. Ask whether the contractor tried to add charges to the final bill.

•Verify whether the company is licensed and insured. Call the contractor’s insurance company and check whether coverage is up to date. Check with whatever local agency regulates contractors and see whether the company has a valid license, and that it is for the type of work they’ve offered to do. For example, a general contractor may not be licensed to do plumbing or electrical work.

•Get it in writing. Once you’ve selected a contractor, draft a document that details the job and its price. Insist that the contractor include a start and end date. If the scope of the project changes, be sure to add new information to the contract.

•Make sure you understand the entire contract. Do not sign it if you don’t, as contracts can be written to favor one party over another.

•Set a payment schedule. Negotiate a down payment; down payments are typically 10 percent to 15 percent of the total job. Tie future payments to completed work, not time on the job. Withhold at least 10 percent of the total until you are satisfied with the job.

•Pay suppliers directly for materials. This prevents contractors from using your money to pay for other jobs. If you’re unable to do that, ask for detailed receipts and verify them with the companies before reimbursing the contractor.