One of the most common problems in the construction industry and in my line of work is the contractor scam. Some people call it contractor fraud, but regardless of what it is called, the practice of defrauding homeowners is here to stay as long as homeowners do not hold contractors accountable for dubious acts. Below is a checklist of good habits and ways to avoid these scams. No one method is foolproof and con-artists are everywhere, but following these steps will help to ensure you are doing all you can to avoid contractor scams.
1. Verify Contractor License With State Board
The Louisiana State Licensing Board for Contractors (LSLBC) is the go-to place when a consumer needs to verify if a contractor is licensed. This act alone may not prevent a contractor scam, but it is helpful. The LSLBC is actually a consumer body that advocates for the protection of homeowners against contractor scams.
From the home page, there are a number of resources to help consumers. There is a “for consumers” tab, but the most helpful link is on the left of the page under the “commercial” tab. This is the [i]s a contractor licensed or registered” button. The search feature on this site is a bit tricky but once you get the hang of it, there is a wealth of information.
I generally use the “online live search” to check contractor license status. From there you can search by contractor name, which is ambiguous. This could be the name of the company or the contractor. You can also search by license number to verify if the information provided by the contractor is accurate. I like to use the “search by qualifying party” feature, to see which person holds the actual contractors license for a particular company. There is only one qualifying party per license type per company.
2. Verify Company Information With The Secretary of State
The Louisiana Secretary of State has a website that is very helpful when looking up business information. This information will apply to all businesses operating in Louisiana and it is especially helpful when avoiding contractor scams.
From the home page, under the “Business Services” tab there is a link for “Search for Louisiana Business Filings”. From this page you can search by the entity name or the name of an officer or agent listed in the company filings. This is a reliable way to determine whether you are dealing with a legitimate company or just some guy working out of the back of his truck.
Remember that anyone can start a company and it’s fairly easy to do so. Therefore, even if your contractor is listed in this database, it is possible a contractor scam may still be present. An added benefit of the Secretary of State’s site is that you can find the name and address of all persons associated with the ownership and/or management of the company. Practicing Louisiana lawyers use this site all the time.
3. Ask For An Insurance Certificate And Call To Verify Insurance
Insurance verification is another important step when avoiding contractor scams. Verifying your contractor’s insurance can provide further assurances that you are dealing with a legitimate business.
Again, this action is not an absolute protection against a scam, because fraud can also occur with purported insurance coverage. Just like with car insurance, it is easy to get signed up with a construction general liability carrier. From there, the insurance carrier will give the contractor a Policy Declarations Page (commonly referred to as a “Dec Page”) which outlines all the coverages and dates of coverage. Unfortunately, a Dec Page could itself be fraudulent and/or the insurance may have lapsed. I have experienced both in my practice on many occasions.
So, the savvy homeowner who wants to avoid contractor scams will call the carrier, agent or producer listed on the Dec Page to verify that the contractor is still insured under the listed policy or policies.
One important note about contractor general liability insurance: it does not insure for bad work or poor craftsmanship. That would be a performance bond or builders risk policy. General liability insurance only covers damages that result from bad work and/or any other accidents that may happen when construction is underway.
4. Enter Into A Written Contract With Your Contractor
I cannot stress enough the importance of a written and signed contract. I also cannot believe how many contractors regularly operate without a written contract. In Louisiana, there are laws which require certain types of jobs and jobs for certain dollar amounts to have a written contract. While the law may not requirea written contract for your particular job, it is still essential to get one.
In my opinion, a written contract is the single most important factor when avoiding a contractor scam. It is much easier to scam a homeowner when the agreementhas not been reduced to writing. The homeowner and/or the contractor can contribute to the written contract and both need to sign and date it. A good written contract will lay out the scope of work and the time frame in which work will be completed, and will also be clear about the price of the job. A good written contract will protect both parties in the event of default.
Always use a contractor who uses a written contract and never enter into anything verbally. Verbal agreements are simply too risky and a hotbed for contractor scams.
5. Go Online And Verify Web Presence
Another easy tip to help avoid contractor scams is to visit the contractor’s website. Be warned, anyone can put up a website, and for a few extra dollars, anyone can have a very nice website. The website has become the modern-day storefront, so it can be deceiving, but it can also serve as a place to gain valuable information about the contractor, his locations, past projects and past customers.
The website is not a significant factor in preventing contractor scams, but it is a good addition to the other steps laid out in this article. A professional website will not guarantee that you’re working with someone legitimate, but can often be a good indicator of the type of business you are dealing with.
6. Get Stamped Architect / Engineer Plans
Obtaining stamped architect or engineer plans is not always required for every construction project in all areas. Nevertheless, it is a good way, in conjunction with all these steps, to avoid contractor scams. Project plans outline the exact scope of work to be performed. Many city, state and/or local permit offices require stamped plans.
These plans are great if the project is problematic, and lawyers need to determine where the contractor strayed from the scope of work and/or the specifications. Plans can be expensive, but generally they are worth every penny if a dispute arises. They are also helpful when a homeowner is ready to sell their house, even if there is no problem with a contractor’s work. Such plans will show a potential buyer all the work that was done in the previous home improvement project.
7. Know The Lien Laws
A working knowledge of Louisiana lien law is also helpful in avoiding contractor scams. Sites like Levelset are built for contractors, but that site also contains a lot of information that could be helpful to a homeowner. Levelset’s resources contain lien laws in an easy-to-read format.
Knowing Louisiana’s lien laws (La R.S. 9:4801, et seq.) can help a homeowner avoid getting a lien placed on the property and can help the homeowner have an invalid lien removed from the title of the property. Many contractor scams will include the filing of a frivolous lien on the property in an effort to pressure the homeowner into payment.
Lien laws are dense and full of legalese, so they can be tricky to understand at times. Therefore, if a lien issue arises, a homeowner should consult an experienced construction attorney for further advice.
8. Payment: Never Upfront And Never With Cash
I must include this tip because I see it often in practice. A great way to avoid a contractor scam is to make progress payments as the project moves along and to document all payments by either using a credit card or check.
I constantly see homeowners paying for nearly all of a project upfront, with cash. From there, the contractor does some work but then is rarely seen again. Remember that the contractor needs the homeowner as much as the reverse. Contracting for progress payments upon proper completion of work is the best method to ensure the contractor is motivated to do good work and complete work, and to keep the contractor around until the job is finished.
If your contractor will not accept payment by check or credit card, I would not use them. If the contractor is not savvy enough to accept credit cards, then he may not be business-minded enough to complete your project.
While none of these tips can guarantee that you won’t fall victim to a scam, following these steps will go a long way to protecting you from unsavory contractors. A homeowner who verifies licenses, verifies insurance, insists on written contracts and refuses to pay upfront or with cash is not going to be an easy target for a scam artist. If you follow all these tips, odds are that only legitimate contractors will want to work for you. The more information you have on your contractor and the more transparent the transaction, the better the odds you will have a successful project. Feel free to contact our office any time if you are having issues with your contractor.