Construction contractors are a necessary component of the building, repair, and improvement process on both residential and commercial projects. Without licensed and bonded contractors on board for a project, there is little way to ensure the job gets done properly, on time, and in the confines of the budget. Despite this reality, contractor fraud has been increasing over the past several years, leading many to steer clear of construction projects altogether. In a notable case involving a Washington, D.C.-based contractor, the far-reaching impact of fraud can be seen clearly.
In the case, the contractor was found guilty of misguiding several residential customers regarding the skills he had and the intentions of completing proposed jobs. From 2008 to 2015, the individual received several hundred thousand dollars of payment from customers but performed little to no work, leaving them with significant losses. This scenario is all too common, but there are ways to ensure a contractor is working in-line with state and local regulations from the start. Here are a few warning signs to be aware of when hiring a new contractor for any job, large or small.
While not all door-to-door or business-to-business contractors are bad news, there is something to be said about receiving an unsolicited proposal from someone off the street. Contractors are typically sought out, either through a satisfied past customer, a referral, or through a listing on a legitimate online resource site. When a contractor randomly appears offering a variety of services for a bottom-barrel price, chances are that individual is not operating with the potential customer’s best interest in mind.
Failure to Provide License or Bond Details
One glaring warning sign of a fraudster contractor is his inability or unwillingness to provide details about licensing or bonding from the state where the work will be performed. Each state has its own licensing guidelines, but almost all require a contractor to hold a valid state or local license. Also, contractors must have a surety bond in place to keep a valid license. A contractor bond is an expense to the contractor, but it provides a guarantee to the customer that the work promised will be completed in line with state regulations. If a contractor is not able or is not willing to show these credentials and documents, consider selecting a different contractor.
Large Up-front Payments
Another red glad among contractors is the initial ask for a significant deposit. In some cases, contractors need some amount of a deposit to ensure they are protected against failure to pay by the customer. This payment allows the individual to purchase supplies, hire subcontractors when needed, and feel confident that the customer and contractor are on the same page. However, requesting or demanding a deposit up-front that is more than half of the proposed contract is a warning sign. There is little incentive for a contractor to return to the project site to finish the work when all the money has already been paid.
The majority of construction contractors operate legal and upstanding businesses on either the commercial or residential side of the line. However, the bad actors in the construction business make it more challenging to determine who is reliable and trustworthy and who fails to meet a customer’s standards. Take time to consider the warning signs of fraudulent contractors before starting a project, and be sure to vet the individual through references, online reviews, and past work history.
Eric Weisbrot is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry under several different roles within the company, he is also a contributing author to the surety bond blog.