Ask The Pros

"Get it in Writing!" is a Registered Trademark of the Canadian Home Builders' Association.

When you hire a contractor to work on your home, you need to be protected from a number of risks. These fall into two general categories:

Risks related to poor work or dishonesty by the contractor and risks related to accidents that cause damage to property or injure someone.

The best protection from risk is to hire a contractor with a solid reputation for doing good work, and having a comprehensive written contract in place before the work begins.

Some consumers choose to deal with "underground" contractors who charge less, but only work for cash and do not provide a written contract. This type of business arrangement involves significant risks that you need to be aware of. This web site provides information about these risks, and how to avoid them.

The first step is to examine some of the questions consumers should ask about underground "cash deals".

  1. WHY IS THE PRICE LOWER?
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    Everyone loves a bargain. But when it comes to hiring a contractor to work on your home, a "special cash price" can mean a lot of extra risks.

    It's no secret that some contractors offer to do work for unrealistically low prices. Part of the "deal" involves paying them in cash without a written contract or a receipt for monies paid.

    Homeowners who get involved in cash deals usually assume the contractor is cheating on taxes in order to offer the low price. They also assume that the contractor is the one who runs all the risks-after all, it is the contractor, not the customer, who ends up not declaring the income on their tax return. In reality, underground cash deals involve a lot more than evading taxes-and considerably more risk than homeowners imagine.

    Whether it involves new home building, a cottage, a major renovation or something less substantial like roofing replacement or kitchen remodeling, residential construction is a fairly complex business.

    Municipal building codes, permits and inspections make sure things are done the right way.

    Provincial regulations govern the health and safety of workers as well as hazards related to equipment and chemical use.

    Workers' Compensation programs protect workers injured on the job.

    Contractor liability insurance protects customers in the event of an accident, damage to the home during construction, or damage or injury to third-parties such as the homeowner's family and neighbors.

    A written contract sets out what the contractor will do, the work schedule, the price you will pay and the terms of payment.

    Provincial lien regulations limit the homeowners' liability in the event that the contractor fails to pay suppliers and sub-contracts.

    A written warranty provides customers with some assurance that they will get what they pay for.

    Taken together, these measures serve to protect customers. They reduce the chance that serious mistakes will be made. And they provide protection for the customer in the event that something goes wrong. However, all of these measures require "paperwork" and records-something underground contractors must avoid for fear of being caught for cheating on taxes. And that is the real secret behind the underground contractor's low price. When you get involved in a cash deal, there is a lot more than taxes being evaded.

  2. WHAT IF SOMETHING GOES WRONG?
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    When underground contractors offer low-priced cash deals, they don't explain that they are passing some very serious risks on to you in order to make their low price possible. If they told you what was really involved, their low price wouldn't look like such a great deal. It would look like the potential consumer nightmare it really is.

    The best way to understand these risks is to ask yourself a few "WHAT IF" questions:

  3. WHAT IF I GIVE THE CONTRACTOR AN ADVANCE PAYMENT, AND THEY NEVER DO THE WORK PROMISED?
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    Without a written contract or receipt for the payment, you could be out of luck. It will be difficult to prove you gave the contractor money-it's your word against theirs.

  4. WHAT IF THE CONTRACTOR DAMAGES MY HOME?
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    Contractors who operate their business properly have comprehensive business insurance to cover their liability in the event that they damage a customer's home. If the contractor is working underground, it's quite likely that they don't have such insurance and you would have to rely on their willingness and ability to pay damage costs.

    And don't count on your own homeowners insurance policy. It may or may not cover such damage, depending on your coverage.

  5. WHAT IF A WORKER IS INJURED WHILE WORKING ON MY PROPERTY?
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    There is no simple answer to this question. Most contracting companies with more than one employee are required by law to have Workers' Compensation coverage to protect workers who get injured. In some provinces, self-employed individuals can "opt out", but they should then obtain private disability insurance coverage to protect against work-related injury.

    In some provinces, if a homeowner hires someone who is not enrolled in Workers' Compensation, the homeowner can be held responsible for medical and rehabilitation costs if that person is injured. If you hire a contractor make sure that your contract includes proof of proper Workers' Compensation or equivalent private insurance coverage. Otherwise, you don't really know what will happen in the event of a workplace injury.

  6. WHAT IF THE CONTRACTOR DOESN'T PAY HIS SUPPLIERS AND SUBCONTRACTORS?
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    Every province has lien legislation designed to protect the financial interests of suppliers and subcontractors involved in construction work. When you hire a contractor, your contract should specify that a specific amount of money (usually 10 to 15%) must be held back from all payments made to the contractor for a specific length of time (usually 30 to 45 days after the work is completed). If you do this, your financial liability, if the contractor fails to pay suppliers or subcontractors, is limited to the amount of money held back. With a cash deal, where nothing is written down, it's unlikely that you have this protection.

  7. WHAT IF THE WORK IS BADLY DONE?
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    When homeowners hire a contractor, they want the work to be done properly, on time and on budget. If a mistake is made or a problem arises down the road, homeowners want to know that the contractor will stand behind their work and provide prompt and satisfactory warranty service.

    When you have a written contract, the potential for misunderstandings between you and your contractor is reduced, and you are in a much better position to demand satisfactory service if the contractor lets you down. On the other hand, if you get involved in an underground "cash deal" without a written contract, problems are both more likely to occur and be much harder to resolve.

    A proper, written contract sets out what you and your contractor have agreed to. For a new home building or renovation project, the contract should include details of the design, material and product specifications, the project schedule, costs and payment arrangements, etc. For simpler home repair jobs, less detail may be needed, but it should still cover all of these important points. And in all cases, the contract should provide a clear warranty on the work-what's covered and for how long.

  8. SO WHAT HAPPENS IF THE WORK IS DONE INCORRECTLY OR IS OF POOR QUALITY AND YOU DON'T HAVE A WRITTEN CONTRACT?
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    If you and the contractor cannot agree on matters, you may have considerable difficulty taking action to protect your interests.

    If you choose to take the contractor to court (which may be your only option), not having a written contract can cause problems. It's likely that you and the contractor will have different opinions on what your "deal" was. So the judge will have to decide who to believe, or determine what seems fair, given the circumstances. Either way, the final result may not be to your liking.

    Having a written contract cannot prevent all problems from occurring, but it can make them less likely and a lot easier-and far less expensive-to resolve.

  9. WHAT IF IT'S ONLY A SMALL JOB?
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    Sometimes homeowners who would insist on having a written contract for a major home renovation believe that getting a "cash deal" for small home repair projects is "OK" because there isn't much money involved. This can be a dangerous miscalculation.

    Certainly a small job may involve a limited loss of payment if the contractor does poor work or fails to complete things. But in a number of ways, the risks you face in this situation are no less significant simply because a small amount of money is involved. In reality, the level of risk has little to do with the size of the job.

  10. WHAT IF YOUR HOME IS DAMAGED?
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    What if a $100 plumbing repair turns into a $5,000 water damage disaster when a pipe breaks? Or if the worker doing a $500 roof repair falls and is disabled? Or if a $200 electrical repair causes a fire that destroys your home? You want to know that the contractor has business liability insurance, Workers' Compensation coverage, or disability insurance where Workers Compensation is not required by law. And the only way you can be certain of this is by having a contract that spells it out.

    Construction work involves risks. When someone works on your home, you need to be protected from these risks. Just because the job is simple or small doesn't mean something can't go wrong.

  11. WHAT IF LAWS ARE BROKEN?
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    Homeowners who hire underground contractors to get a "cash deal" often believe that they are not breaking any laws. After all, it's the contractor who is cheating on taxes, not the homeowner.

    However, this belief doesn't reflect what's really involved in underground deals. Any contractor who is not reporting their income and paying their share of taxes is not anxious to have their name turn up on other government records. Like Workers' Compensation files. Or business license applications. Or building permits. In order to remain "invisible" to governments, they must avoid the paperwork required to operate their business properly. And in some cases, when they break the law, the homeowner can end up being responsible.

    Building permits and inspection are one example. Most residential construction requires a municipal building permit. This ensures that the plans and construction work will comply with local building codes. Professional contractors know what the building code involves and will ensure that all required permits are in place. In many cases, underground contractors will skip this paperwork, especially with interior work not visible from outside the home.

    However, it is the property owner, not the contractor, who is required to meet building code and permit requirements. If a permit is not obtained and the municipality finds out, the homeowner will be considered in violation. If the work does not meet code requirements, the municipality can (and often does) order it to be torn out, at the homeowner's cost. Underground contractors avoid direct involvement in the permit and inspection process in order to keep their work "off the books". So it's much more likely that permit and code requirements will be violated. When this happens it's the homeowner, not the contractor, who is breaking the law.

    There are a number of other laws that can also affect homeowners should they hire an underground contractor. While these vary from province to province, laws concerning to Workers' Compensation coverage, consumer protection against overcharging, security of deposits and prepayments as well as construction liens can all involve risks to homeowners who hire someone who doesn't provide a written contract and proper documentation.

    Some provinces also require special licensing and bonding of contractors. Particularly if they receive deposits or prepayments from customers. A contract based on the laws in place in your province is the best way to protect yourself and your family from financial risks. Professional contractors know this-that's why they don't offer "cash deals" done under the table.

These are just a few of the "WHAT IF'S" you need to consider. Don't fall for the underground contractor's cash deal. Make certain that you and your family are protected. Insist on a written contract covering all aspects of the work or project. And insist that it includes proof of contractor liability insurance, Workers' Compensation coverage (or equivalent private disability coverage for exempt workers), a lien hold back provision and clear responsibility for compliance with all other applicable laws and regulations. Also be sure to talk with your insurance company before the work begins-many homeowner policies don't automatically cover construction-related risks.

Home renovation low bid may not be best

Despite the size, complexity and sophistication of the industry, however, some professional renovators get a failing grade in one of the most important and basic parts of the renovation process – estimating what the job will cost in the first place.

To the homeowner, the estimated cost of a renovation job is probably the most critical influence on the decision as to whether the project is undertaken or remains on the wish list forever. As well, the actual cost of the renovation in progress is critical to whether or not the job is done the way it was contemplated – with all the bells and whistles hoped for – and even to whether the job is completed.

One third of homeowners say their renovation projects went well above estimates and the CMHC didn’t survey how many renovation projects were abandoned in mid-stream because of cost overruns. With so much riding on it, one would think every professional renovator would know how to cost each job down to the last penny. This is likely why the typical homeowner simply picks the contractor who provides the lowest quote for the job. That homeowner thinks everything is equal in the pro renovation world.

Not so, says Lou Frustaglio, President of the Canadian Renovators’ Council who is advising professional renovators to learn more about costing jobs to protect both themselves and the homeowner. “Picking a contractor because he or she provides the lowest estimate for a renovation is not, necessarily, the smartest thing to do,” according to Lou, who owns his own construction company, Dreambuilders, in Toronto. “The contractor who supplies that low bid may be honest, well intentioned and competent in building,” Lou says, “but he or she may not be well trained in costing in the current, very busy, market environment.” One major error being made by contractors today is failing to account, in the estimate, for subcontracting some of the work if a contractor gets too busy to handle all his or her jobs, says Lou. He points out the renovation industry is so active today, contractors may be hard pressed to finish all the work they undertake without calling in help.

A contractor may cost a job intending to supply all the labor only to have to farm out part of the work later in the project. Original costing, in many cases, doesn’t take into account the added and unexpected contingency of importing labor. This added cost, of course, plays havoc with the original estimate causing the contractor to ask the homeowner to make up the added cost, to take the loss himself, or to cut corners to offset the unpredicted cost of outside labor. As well, renovation companies and especially smaller, more customized renovators, may not include all costs when estimating a job.

For instance, says Lou, contractors may not build in a project management charge including overhead such as insurance and workers’ compensation premiums, office equipment, paper, automobile expenses and a host of other hidden costs the contractor must pay to run the business. “A contractor may figure materials cost this much and my labor is this much so the total is this much,” says Lou.

“This basic formula may result in the lowest bid but it isn’t realistic in terms of business accounting.” Consumers may hear about costs such as $150 per square foot for construction, says Lou, but this is an average cost for building a new home. A real cost might be $50 for a hallway which has little or no trim and $500 for a kitchen with cabinetry and all the trimmings. Lou says a homeowner or contractor can’t cost renovations by the square foot, only by the individual project and by all the actual costs the renovation company accrues to carry out the work.

The best advice for the contractor, says Lou, is to take training on costing to ensure estimates are done properly and include all contingencies such as being forced to sub contract work. If contingencies do not occur, the contractor may find the project coming in under budget. If this happens, says Lou, the contractor can lower bills to the homeowner or provide extras – “perks” – to the homeowner.

“Being under the initial quote,” says Lou, “is a heck of a lot better than being over budget.”

The best advice for the homeowner facing a renovation project, says the Renovators’ Council president, is to demand an itemized estimate and not to accept the lowest quote from a professional until ensuring the contractor has included room in the budget for all costs like possible subcontracting, project management, consumables, plant, and so on. Don’t take it on faith that the contractor has done all the complex work required to produce a realistic quote – many pros will but some will not.

Lou advises, “If the quote looks like materials plus labor and nothing else, be aware the estimated budget could go up considerably or corners might have to be cut once the job begins. It might be smarter to choose another contractor – one who knows how to properly cost a renovation project in the first place.”

Who do you Hire as a Home Renovation Professional

Choose the home builder or renovation contractor or other professional who appears best to do the work: here are some guidelines:

What kind of Home Renovation Professional do you need?
  • Specialty renovation contractor: specializing in kitchens or bathrooms or sunrooms or windows, environmental sensitivities, energy conservation, etc.
  • Design/build renovation contractor: contracts for large projects and provides both design with drawings before costing, and construction.
  • Trade contractor: electricians, roofers, plumbers, heating, ventilation and air conditioning (HVAC) installers, etc., for specific work like installing a new furnace or rewiring the home.
  • Retailer associated contractors: contractors associated with retailers like kitchen and bathroom stores who will install the store’s products once you choose them from the retail showroom (or you can do it yourself.)
  • Designers and architects: before construction, you may need professionals to assist you with plans and to prepare working drawings and specifications.
  • These designers and architects can work with your renovation or building contractor.
  • Home inspectors: a third party inspector, properly qualified with references and warranty documentation, may be hired to assess your home and plans before you hire a construction contractor.

Here are tips to help you judge the home contractors or other home renovation pros you choose to meet:

  • He/she calls back when promised.
  • The pro will be business-like, showing up on time with an organized presentation and direct answers to your questions.
  • He/she is a good listener, turning your ideas and aims into a plan and communicating it well to you.
  • He/she has skills and experience of many years in providing the kind of work you need
  • He/she will provide references (without being asked) including a supportive network of other business such as local banks, materials suppliers and sub trades within the industry.
  • He/she will have proper documentation proving workers’ comp, insurance and other coverage and will get permits as needed.
  • He/she will provide a written contract and will not suggest unwritten ‘deals’.

Who not to hire

Do not hire a person claiming to be a contractor or other professional who:

  • works only for cash
  • offers ‘cash discounts’
  • offers unrealistically low estimates
  • wants to work under a ‘hand-shake’ deal without a written contract
  • is not covered by Workers’ Compensation
  • does not have liability insurance
  • demands a large down payment “to buy materials”
  • refuses to give you a written contract or objects to you getting other estimates
  • has only a post office box for an address and a telephone answering service.
  • appears at your door claiming to represent a home repair contractor and offering repairs such as to shingles, brick, mortar, driveways or other aspects of your home
  • offers “special discount prices” or “seniors’ discounts” because the company is in the neighbourhood already or has some left-over materials
  • insists you act fast to sign a contract and/or make a down payment
  • offers a discount if you ‘advertise work’ with a sign on your lawn or other means
  • offers “lifetime” warranties
  • quotes a price without seeing the job
  • conducts a “free inspection” of your home before claiming you need major repairs
In general, don’t hire anyone if he or she raises caution flags of any kind with you and, or your family members. If you have doubts about the honesty or reliability of a worker, you’ll likely never be happy with the results.

Estimating project costs

When building or renovating your home, the budget will often determine all aspects of the project. People often make the mistake of only considering construction costs when planning their project. However there are a number of other costs to consider.

Building permits
Most municipalities have a sliding scale for the building permit fees based on the value of construction. For example: $5 per $1,000 of construction up to $10,000, $6 per $1,000 of construction between $10,000 and $20,000 etc. $1000 and $6000 for construction value of $100,000 and up. Plumbing and electrical permits may be additional to this.

Elevation Surveys
Most municipalities require an elevation survey by a legal surveyor to determine the elevations of the grade at the corners of the lot and the corners of the house. This will determine the setting out point for the building height. The survey also locates pins used for construction and locates existing buildings if any. This determines zoning set back requirements.
$1000 to $4000 depending on the number points surveyed.

Consulting Fees
Architectural fees may range from 5 to 26 per cent of the construction budget depending on the level of service required and the size and complexity of the project. All building permit work also requires a structural engineer. There is a fee for design and for inspections of formwork and framing.
$1500 – $10,000 depending on the size and complexity of the project

Some municipalities require a geotechnical engineer to provide documents. This will determine the capacity of the soil to hold up the building as well as the foundation design
$600 - $1,000

Taxes
Don’t forget 5% GST on all consulting fees and construction fees and costs

Contingency
You should carry a 10 to 20 per cent contingency amount for changes in the work. There will be changes. Omissions from the drawings, items or upgrades added during construction, surprises under the soil.
$10,000 minimum

Appliances and furniture
Appliances and furniture are typically not included in the construction costs and are supplied and installed by the owner.

Living costs
If renovating you may have to live somewhere else while under construction. This can be anywhere from two to six months.

Demolition costs
If renovating, you will likely have to demolish part or all of an existing building. Costs are incurred for labour, bin rental and transport and disposal fees.
$5,000 and up depending on the size of the site.

Construction costs
A good rule of thumb is to allow from $150 to $300 per square foot for construction costs.

Unrealistic budgets are the cause of many problems on a project. The problem is compounded because complications cost even more money to fix. Having a realistic budget at the beginning will ensure your project is a success. As you can see you should allow for at least $50,000 for fees, taxes, contingency, appliances and furniture in addition to construction costs.

Hiring a designer or architect

Building or renovating a home can be a complicated and costly process. Hiring an architect or designer can be an effective way of making sure the job goes smoothly and efficiently.  However there are some things to consider when working with architects or designers.

I have heard many people say their designer or architect gave them a single design that didn’t reflect anything they had asked for and they still had to pay the fee for something they couldn’t use.

When getting drawings done ask for two or three options to choose from. One of the options should be what you originally asked for. This helps you to explore some ideas you may not have thought of. Often the final design is a hybrid of the three options.

Also, ask for a three-dimensional drawing or model, as plans and elevations are difficult to understand. Don’t be afraid to say you don’t like it. Ask lots of questions. Take time to think about it and discuss the design before making any decisions.

Benefits of drawings

There are a million decisions to make and document but decisions take time and research and are often the cause of delays. Someone to help streamline the decision making process and properly document them will benefit the entire design and construction team.

You’ll also get better results from tenders. For example: if you ask for a door one contractor will price a cheap door and one will price an expensive door. This will make it difficult to compare the tender prices. When you specify the brand, material, and finish of the door along with the doorknobs and hinges the bidding process is fair as every one is pricing the same thing.

The greatest benefit of drawings is that it is cheaper and faster to make changes on paper. Changes on a drawing simply require an eraser; during construction it often involves undoing work that has already been completed and starting over. Contractors make their profit by building quickly and efficiently. They can better do this if they have all the information up front.

Service Levels

If you like to do some of the work yourself or have gone through the process before then you may just need someone to provide the basic drawings for a building permit.  However, there are 3 levels of service an architect or designer can provide:

Basic level covers design and building permit drawings. All municipalities require building permits for any work involving structural changes or additions. These drawings have information about the building shell, the structural work, building code and zoning compliance. They include floor plans, elevations, sections and site plan. They do not include: interior design, lighting, paint colours, moldings & trim, floor finishes, railing design, furniture placement, cabinet design, window coverings, door or door hardware design.

With medium level service, the architect or designer assists you in the showroom with selecting the interior and exterior finishes, colors and product selection. They also co-ordinate legal elevation survey on owners’ behalf; co-ordinate design with geotechnical and structural engineers; review tender quotes from contractors; review construction progress; answer questions and advise on changes to the work

With high-level service, every option is explored. Architects provide unique and/or exotic solutions; a detailed virtual CADD model; balsa wood or card models; color and material sample boards and tender documents. They also organise the bidding process, review construction progress, document changes to the work and review contractor invoices.

The cost for this work can range between five and 25 per cent of the total construction budget. That may appear a little high at first but the end costs of poorly managed projects will seem like small change in comparison.



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