Contracting? Cover Your Bases.

If you are planning to work with a construction or remodeling contractor, there are a number of steps you should take to protect yourself.

First, the contractor must be licensed in the jurisdiction where your property is. Insist on seeing a copy of that license. Call the government agency that issued the license to confirm that it is current.

Next, contact your homeowner's insurance company to determine the extent of your coverage should accidents or damage occur.

Negotiate all terms and conditions, including the cost of the job, with the contractor. When you have an agreement, it should be put in writing.

Many contractors use what I call the "two-page special" contract. This simple document merely states who the contractor is, a general description of the work to be done and the total cost of the job.

Such a contract is not in your best interest. Instead, you should consider the contract forms published by the American Institute of Architects.

There are a number of AIA forms, varying by the type and size of work. For example, Form A105 is a standard agreement between owner and contractor for a residential or small commercial project. Form A107 is more comprehensive but can also be used for projects of limited scope.

Every 10 years, AIA updates its forms to reflect industry trends. The newest set was released this month and includes a number of significant changes:

¿ No arbitration requirement: Older AIA contracts required that if the homeowner and contractor could not resolve disputes, they had to go to binding arbitration. The revised forms permit the parties to negotiate alternatives, including litigation.

Many consumers are learning that arbitration may not be the best way to resolve problems with contractors, even though litigation can be more expensive and time-consuming. Often the arbitrator does not issue a written opinion explaining how and why a decision was made, which leaves everyone in the dark. And our legal system will generally not reverse an arbitrator's decision unless it can be demonstrated that he or she was biased or arbitrary. And how can this be presented to a judge when there is no written opinion?

Initial decision maker: Previous contracts "assigned the architect the role of serving as a neutral party to decide disputes between the owner and contractor," according to AIA. "The 2007 update provides the owner and contractor with the opportunity to hire a third-party initial decision maker . . . for dispute resolution."

Access to financial information: The new forms prohibit the contractor from requesting financial data from the owner after the work has begun, even if the contractor may have reason to be concerned about the owner's ability to pay.