Recent news coverage in the Fargo/Moorhead area is reporting the story of a local contractor who took money from homeowners and never delivered on the labor and materials. Early reports indicate the contractor owes hundreds of thousands of dollars for all unfinished work. The consumer protection division of the Attorney General’s office is investigating the matter.
This raises a lot of questions in an area where new home construction and renovation of existing homes are commonplace. As a home or business owner who hires a contractor to build or renovate, how do you ensure you get what you actually paid for?
Do Your Homework
One of the easiest ways to make sure your contractor will deliver on its promises is to hire a reputable contractor. Make sure the contractor is licensed. If your friends or neighbors hired a contractor, ask who they hired and what they thought of the work. As old-fashioned as it sounds, word-of-mouth may be your best gauge of whether a contractor is worth hiring.
Ask the contractor questions: Can I see a copy of your license, bonding company, and insurance policy? How much does the contractor charge for labor per hour? How many workers will be on-site? When will the materials be delivered? When does the contractor expect to finish the project?
Do not pay the contractor 100% of the project cost up front. This is an easy remedy. A shady contractor will take that money and you will never see any material or onsite labor. Ever. Instead, see if the contractor will accept progress payments. These are payments made by the owner when the contractor meets certain benchmarks in the work. For instance, on a kitchen remodel, the progress payments may be 50% down, 15% when flooring is installed, 15% when cabinets are installed, 15% after appliances are installed, and the remaining 5% after finish work is complete.
This is a simplistic formula, but it’s standard protocol on larger construction projects. Many contracts on larger projects include language regarding the contract price, progress payments, retainage (the amount withheld by the owner until the work is complete), owner responsibilities, contractor responsibilities, and default remedies for failing to comply with the contract terms. If it can work on million-dollar projects, it can work for your project. Remember, the contractor works for the owner, not vice versa.
If a deal sounds too good to be true, it probably is. A reputable contractor has to pay for materials, labor, and overhead. In order for the contractor to make a profit, there is an upcharge to the owner. If a reputable contractor gives you a quote of $25,000 for a roofing project and a different guy knocks on your door offering to do the same job for $10,000, your internal alarm bells should be sounding.
I’ve Already Been Scammed. Now What?
Your legal remedies may depend on the size of your project. Contract disputes of $15,000 or less can be filed in small claims court. You can still pursue a small claims action if you were scammed out of more than $15,000, but you will have to limit your request for damages to $15,000. The difference between $15,000 and your actual damages may be less than what you would pay for an attorney to pursue a claim larger than $15,000.
The biggest challenge may not be getting a money judgment against the contractor, but actually collecting on the money owed. If the contractor has screwed over a lot of people, your claim may be one of many. The contractor may pursue bankruptcy to discharge all the debts, including the debt owed to you. In this instance, your chances of recovering all the money you paid are very low. You can’t squeeze blood out of a turnip.
In addition, you can report the scam to the Attorney General’s office. Call 1-800-472-2600 or file an online complaint. You may not be able to recover your own losses, but you could help prevent the next homeowner from being scammed by the same contractor.
There is no “best option” when it comes to being scammed. Do what you can to prevent it and do what you can to recover from it.
I am one of the business law attorneys at SW&L. If you are looking for help to draft or review a contract for a construction project or are in need of an attorney to enforce the terms of a contract, call or email our Business Law Team at 701-297-2890 or below.
The information contained in this article and on this website is for informational purposes only and not for the purposes of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.