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Disaster Legal Services

Avoiding Contractor Fraud

Avoiding Contractor Fraud

Property owners must be mindful after a disaster hits. Contractor fraud is abundant in areas recovering from a disaster and can include:

·         Being charged for repairs that are incorrect, unnecessary, or poorly executed.

·         Being charged above market value.

·         Performing work without the proper licensure or without gaining the proper permits.

·         In some cases, some situations, homeowners pay a contractor for repair work that never begins.

 

How to Select a Contractor

Selecting a quality, reputable contractor is the best way to avoid becoming a victim of contractor fraud after a disaster. Here are a few suggestions to follow when making that decision:

  • Ask for recommendations from trusted sources:
    • Friends and family, the Better Business Bureau, or your local or state disaster recovery groups on site.
  • You can create a list of recommended contractors before a disaster and keep it with your other important papers.
  • Review NMCourts.gov or contact the courthouse for criminal history or any civil cases filed against the contractor.
  • If you are insured, contact your insurance adjuster.

  • Be careful when dealing with contractors who are from out of state or have an out-of-state license.

     

Obtain Estimates (Bids) from Multiple Contractors

Once you have selected a few contractors, your next step is to get estimates for the work that needs to be done. Estimates are also called bids. You should get AT LEAST THREE BIDS.

                Make sure a bid includes:

  • Contractor’s Information (address, phone number, business license number).
  • A detailed description of the work that will be done, known as a “scope of work”.
  • Separate costs for labor and materials.
  • Itemized costs for any specific materials the contractor intends to use.
  • A timeline for the work.

  • References for recent jobs (ask for three references for recent work, follow-up with those references before moving forward with a contractor).

     

Getting multiple bids will allow you to compare different contractors. It will help you get a better sense of the repairs that are needed, the market price for labor and materials, how much labor is involved, and how long it should take. If you are insured, your insurance adjuster may be able to give you an estimate of the damage and probable repair cost. This will give you a benchmark estimate.

Be suspicious of bids that are way under or over the average. A contractor may intentionally charge less for the project and then increase the cost over the course of the project. On the other hand, if you think you are being overcharged for materials or labor, it’s a good idea to reach out to a lumber or building supply store.

 

 

Verify License and Insurance

Do your research to find out if a potential contractor is licensed to work in New Mexico.

  • Contact the New Mexico Regulation and Licensing Department online at: https://www.rld.nm.gov/reguilding-new-mexico; where you can verify a license by individual or company. You may also contact them by phone at 505-476-4700.

You also request the following information to verify licensure and insurance:

  • Full name of owner and the full name of their business.
  • A copy of the contractor’s license or license number issued by the NM Construction Industries Division.

  • Proof of Workers’ Compensation coverage online at the State of NM Worker’s Compensation Administration https://www.workerscomp.nm.gov/e-services/.

     

Sign a Contract

Before any work begins, you should always sign a contract. A detailed bid is a good start, but a signed contract is your strongest defense against contractor fraud.

Before you sign any contract make sure you are comfortable with what you agree to. Don’t sign anything you do not understand.

                Does your contract include:

  • The Contractor’s Information (business or individual) should include licensing and insurance information.
  • Scope of Work - Make sure the scope of work clearly identifies all subcontractors and the work they will be responsible for completing.
  • Cost and materials list
    • Your contract should have an itemized list of all materials and labor costs broken down by task.
    • The contract should contain the cost of the job, as well as instructions for how you and the contractor agree on any additional costs during the course of the project

    • Your contract should also identify who will pay for materials (appliances, fixtures, cabinetry). Will it be you or will it be your contractor?

       

  • A payment structure
    • Do not pay for the entire job up front. It is against the law for contractors in disaster areas to take any money up front, unless they have had a local office for at least a year.
    • It is recommended that your contract requires phased billing. That just means that your contract will identify points or milestones in the project for payment.

    • Always pay by check or with credit card. NEVER pay cash.

       

  • A Warranty for work - Ask for guarantees or warranties in writing.
    • If warranty is provided, the contract should clearly state what is guaranteed, who is responsible, and how long the guarantee is valid.
    • The contractor’s warranty may not cover certain subcontractors.

    • 1-to-3-year warranties are common.

       

  • A Project Timeline
    • Similar to your bid, the timeline section of your contract outlines how long the project will take, including the start date.

    • The timeline section can also identify any penalty fees for going past the project timeline, or acceptable reasons for the project being delayed.

       

  • Details on Obtaining Proper Permits
    • Your contract should identify what permits should be obtained, who is responsible for securing them, and who will pay the fees.

    • If the contractor is responsible for obtaining the proper permits, they should provide you with the final paperwork and receipts.

       

  • Termination Clause

    • Outlines the grounds for terminating the contract with the contractor and a timeline for how the contractor may address any problems.

       

  • A Home Inspection Requirement

    • Before you make your final payment, require that a third-party inspection be done. Make sure that repairs meet all relevant codes. You will be responsible for covering the cost of the inspection.

       

  • Change Order Process

    • Outlines a process for how changes to the contractor’s scope of work, materials, labor, or pricing will be handled. All change orders should be in writing.

       

  • A Release of Lien Requirement
    • Find out in writing if a lien, security interest, or mortgage will be placed on your property by the contractor for the project.

    • Once you have paid your final payment have the contractor sign a release of lien document. This will release you from any liability to subcontractor or vendors used by the contractor in repairing your home.

       

Closing Out the Project

Once your project nears the end there are few things you should do to ensure all the work is complete and is done well. DO NOT MAKE YOUR FINAL PAYMENT UNTIL ALL WORK IS COMPLETE AND ALL OF THE REQUIREMENTS OF THE CONTRACT HAVE BEEN FULFILLED.

  • Create a punch list (a punch list is prepared by the contractors and lists any work that has not been completed or not been completed correctly).
    • Work with your contractor to make a list of all remaining work.

    • Make sure you and your contractor each have a copy of the punch list.

       

  • Verify all work
    • Make sure all work has passed the required inspections and that all permits have been properly closed.

    • Review your contract and punch list to make sure all agree upon work has been completed.

       

  • Get your certificate of occupancy

    • If your repairs were extensive, make sure your contractor obtains a certificate of occupancy from your local building department. This certificate indicates that the building/home is in a condition suitable for occupancy-this is essential for legal occupancy and use of the structure.

       

  • Arrange for an independent inspection

    • Have an independent inspector or agent – Visit the NM Regulation and Licensing Department online and review information under the NM Home Inspectors Board or contact them by phone at 505-476-4622 to find information on licensed inspectors.

       

  • Get the home warranty information from your contractor
  • Have your contractor sign a release of lien document

 

To report contractor fraud in the State of NM contact:

NM Regulation and Licensing Department at 505-476-4622

Better Business Bureau at 505-346-0110

NM Office of the Attorney General at 505-490-4060

 

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