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What is a general contractor?

The general or prime contractor is the person or company who contracts directly with the owner of the property on which the construction is to take place. The general contractor is responsible for paying the subcontractors.

What is a subcontractor?                                                                                                             

A  subcontractor is an individual or company hired by a general or prime contractor to perform a specific task (like the plumbing) as part of the overall project.

What is a Construction Lien?                                                                                                        

A lien is an encumbrance on one person’s property to secure a debt the property owner owes to another person. A construction lien (sometimes called a mechanics lien) may secure payment to contractors, subcontractors and suppliers of materials for work performed in constructing or repairing a building. The lien, which attaches to real property, plus buildings and improvements situated on the land, remains in effect until payment has been made in full.

What is a building code?

A building code is a law or ordinance enacted by a local authority that sets out the minimum standards that must be met for building design, construction, quality, and location. There are also specialized codes for plumbing, electrical and fire safety. Building codes also cover most remodeling projects. These codes are generally enforced by local building inspectors, who have the authority to deny permission to occupy or use a building that does not meet the building code.

What is a building permit?

A building permit is a document authorizing the holder to engage in construction of a particular kind on a particular lot. It must generally be obtained prior to construction or alteration of any building or structure, or plumbing, mechanical, or electrical system.

 Do I have to use a licensed contractor on my construction project?

Licensing rules vary from state-to-state, and sometimes from city-to-city. In many communities, unlicensed contractors may not receive a building permit for work they do for someone else. Construction done by a person not licensed as a contractor may not pass inspection or receive a certificate of occupancy, which allows the use of a building.

 Why Is a License Important?

All states require some form of licensing with regard to building contractors. These laws have been passed to protect property owners from incompetent or dishonest contractors. The licensing process tests for basic competency and most licensing programs have some way of screening out dishonest contractors. A valid license is the first indication that your contractor might be qualified to do the job.

My contractor gave me a written estimate at the start of the project, and now, he is billing me for more than the estimate. Can he do that?

Generally speaking, yes. An estimate is the contractor’s guess as to how much the project would cost you. Be sure before you sign a contract that you know whether the price quoted is an estimate, or a firm price. If the estimate was significantly lower than the actual price charged and you were induced to sign a contract by an estimate that bears no relation to the actual price, you may have a claim for fraud against the contractor.

 Is an oral construction contract legally valid?

Oral contracts can be just as valid and enforceable as written contracts.  How­ever, the law requires that certain contracts must be in writing in order to be enforceable by a Court.  The state statutes that require certain contracts to be in writing are called statutes of fraud.  Statutes of fraud require that either the contract itself be in writing and signed by both parties or there must be a sufficient memorandum of the agreement signed by the party being sued for breach of contract.

Statutes of frauds normally do not apply if it is possible under the terms of the agreement to perform the contract within one year.  If no time for performance is specified in the oral agreement and the performance will not necessarily take more than one year, the statute of frauds would not apply.

The following agreements must generally be in writing in order to be enforceable:

  • An agreement that cannot be performed within one year after the agreement is made;
  • Contracts involving the sale of land; 
  • A promise to answer for the debt of another person;
  • A promise by the executor or administrator of an estate to use personal funds to pay a debt of the estate;
  • A promise made in consideration of marriage (like prenuptial agreement); and
  • A contract that provides for the sale of goods with a price of $500.00 or more.

Even if an oral contract is legally valid, it is not a good idea. There are too many opportunities for misunderstandings, and too many potential situations that could arise in any construction project. Both parties are better off with a clearly written document that sets out, in detail, the expectations of the parties.

What are some ways a person can protect his or her interests when working with contractors? 

1.         Be as clear as possible in your written agreements, keep an eye on what’s happening without interfering, and keep communication open throughout the project.

2.         Pay with Caution. Do not pay more than 10-15% of the project costs up front. Make payments as the project progresses and tie payments to completion of phases of the work. Check to make sure that the work in question has actually been done. Make all payments by check so that you can prove the payment was made.

3.         If you have obtained a loan to pay for the construction, make sure the lender does not pay money directly to the contractor. Have the money paid to you or to you and the contractor together. You do not want the contractor to be paid until you have verified that the work has been completed in a satisfactory way.

4.         Avoid Liens. People who work on your construction project who do not have contracts directly with you (such as subcontractors and suppliers of materials) can put mechanic’s liens on your property if they are not paid for work or materials. Because of this, you want to ensure that your general contractor pays everyone who has the ability to place a lien on your property. Make sure you keep track of all the people who can place a lien and monitor when the contractor pays them. You can ask to have documents called conditional releases from those entitled to liens. These documents tell you how much is due in payment and that all claims to a lien will be released if the amount is paid. You can ensure the amount is paid by writing checks jointly to the contractor and the subcontractor or supplier. After you have paid, you should receive a release from each of the potential lien holders. Keep them for your records. Make sure all these amounts have been paid before you make the final payment to the general contractor.

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