The legal relationship between an owner working as a contractor and his or her subcontractors can get very sticky. Janet Martin of Great Falls, Va., for example, became her own contractor after her professional builder went out of business. He left her with subcontractors demanding payments and threatening her with mechanic's liens.
"It's was a nightmare. I had paid the contractor in good faith and thought he was paying the subs," Martin says.
To avoid that nightmare, you can require general contractors bidding on a job to submit financial statements and check if complaints have been filed against them with the Better Business Bureau. But before starting, be certain you can get the necessary construction financing. Many professionals in the business go under, and lenders are justifiably wary of amateurs.
Once committed, there are some simple legal aids that may protect you from entanglements. Real estate attorney and columnist Benny Kass suggests amateur contractors use a standard contract form developed by the American Institute of Architects. The abbreviated form A107 covers disputes by providing a payment schedule to subcontractors and a completion date.
Kass suggests that if the subcontractor is working on a major portion of the job, you write in an additional penality clause. "Ask him for the latest possible date he could have the job done and then add a grace period. Then set a schedule of penalties per day. For example, if it's a $12,000 job, then a $50-a-day penalty is not unreasonable," Kass says. He also suggests retaining 15 percent of the fee as final payment upon satisfactory completion.
The AIA provides two other important forms for contractors: one is an affidavit of payment of debts and claims which you can require a subcontractor to sign with each payment as proof against any later claim that you failed to pay the amount stipulated. Because many workers want cash rather than checks, this form can be important. On final payment you can require sub-contractors to sign an affidavit of release of lien, protecting you against any claims by a less-than scrupulous contractor.