Maybe You Can’t Trust the Contractor

The difficulty these days is that contractors have fallen upon hard times. This does not necessarily bode well for the homeowner.

Consider the case of Mrs. Smith and TwinPac Swimming Pools*. Mrs. Smith thought that it would be nice to have a swimming pool. So, she contacted TwinPac and they agreed to install a swimming pool in her backyard for $52,000. They asked for a $12,000 deposit which she paid with a series of progress payments to be made.

TwinPac arrived and dug a large hole in her backyard. Then, she didn’t hear from them. After repeated phone calls, the owner confessed that he did not have sufficient funds to pay for the swimming pool kit from the manufacturer. She advanced another $40,000 to TwinPac so that the job could proceed. Only, it didn’t. Nothing happened!

What does this all mean? For $52,000, all she has is a big hole in her backyard, and the swimming pool kit has never been delivered.

Well, you can probably appreciate that the owner of TwinPac was a charmer. He also had good references. He had several installations which were successfully completed. To all intents and purposes, Mrs. Smith had done her homework.

However,  Mr. Brown the owner of TwinPac fell behind in his payments. He financed his old projects with the money he received on deposit for the new projects. His suppliers soon realized that he was not current with his payments and placed him on “COD” list. This heightened his cash crunch.

Mrs. Smith’s $12,000 went to pay off other suppliers and workers from previous jobs. But, that didn’t mean that they would now deliver or attend to do work. They all tightened up their payment requirements.

The additional $40,000 that was paid just went into the same black hole, unfortunately not Mrs. Smith’s hole in her backyard. Other creditors pressed Mr. Brown and in order to safeguard their positions placed liens on various job sites. Now, at a time when TwinPac has no money, it needs to finance several lawsuits and lien claimants. You can well imagine what happened.

Mr. Brown decided to place TwinPac in bankruptcy. There just wasn’t enough money. While he promised to install Mrs. Smith’s pool next Spring, this “promise” is contrary to the Bankruptcy Act. So, it’s not going to happen! In fact, he really just said that, when he was interviewed on television. It made him appear “genuine”.

These are tough economic times. Other homeowners need to protect themselves. This is what you can do:

Phase 1

· Check out the contractor

· Contact previous clients

· Inspect prior installations

· Review the contracts

As you might very well imagine, Mrs. Smith did all that and it was simply not enough.

Phase 2

· Assess whether there is any level of anxiousness or desperation about the contractor

· Contact others whose projects are currently underway (this is a different list)

· Are the other jobs going well, or falling into arrears

· Contact the suppliers, is the contractor paying “ontime”

· Is the contractor on “COD”

· Speak to employees, if possible

Phase 3

· In this Phase, you have a contractor with some financial difficulties

· You have two choices, proceed because the work is good, or find someone else

Phase 4

· You have elected to proceed with this contractor

· Protect your money

· Open a joint account for the project with the contractor

· No money gets paid out of this account without your signature

· Know your rights, and the rights of others who do work on the project

· Protect yourself against construction liens from suppliers and workers

This is an acceptable arrangement for most legitimate contractors who are “in business” but are also “in financial difficulty”. They will work with you to maintain the integrity of your project. This means that your money will go to your project and not to pay off old bills.

You might think that this system won’t work. Actually, this is the way it works on all large commercial projects. The amount of work is certified to be completed by the Architect before payment is made. And, if there is a financial problem, the owner will likely step in to complete the project with the contractor’s assistance through the joint account arrangement. Actually, this will likely be the insurance company if the project was bonded.

If the contractor will not agree to this proposal, then move on. Get another contractor. If you are going to make payments, make sure the payments are going directly to your suppliers for your account. You don’t want to pay off the contractor’s old bills.

* the names of the parties are fiction, but the facts set out in the scenario are true

Brian Madigan LL.B., Broker

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