Things You Need To Consider To Avoid Being Scammed Or Ripped Off In The Wake Of The Northern California Fires
Things You Need To Consider To Avoid Being Scammed Or Ripped Off In The Wake Of The Northern California Fires
Patrick J. Whitehorn
William C. Last, Jr.
As the fires in Napa, Sonoma, Solano and Santa Cruz counties are reaching containment and the evacuations are being lifted, many will be looking for contractors to help them rebuild homes that were lost. Unfortunately, in the wake of a natural disasters such as this it is not uncommon to see an influx of unlicensed contractors and scam artists looking to take advantage of victims of the disaster. The following are a number of things to keep in mind when interviewing contractors for your rebuilding efforts.
A Valid Contractor’s License Issued by the California Contractors State License Board is Required for all Contactors
First, and foremost, make sure that any contractor who you meet with, receive a bid from, and epically enter into a contract with is licensed by the State of California. It is not uncommon for unlicensed contractors, and contactors from out of state to come into disaster areas to try to perform work. All California licensed contractors are required to carry their pocket license with them. A business license issued by a local town or county is not the equivalent of a California Contractor’s license which must be issued by the California Contractors State License Board (CSLB). Contracting to perform construction work in a disaster area without a valid California Contractors license is a felony. Ask to be provided with their license number. A California Contractor’s license can be easily and quickly verified at https://www2.cslb.ca.gov/OnlineServices/CheckLicenseII/CheckLicense.aspx. Be sure to request multiple references, and bids from multiple contractors. Do not rely on flyers and brochures as a verification of qualifications. Also, keep in mind that door-to-door sales persons for construction services are also required to be licensed, as are anyone who is offering to act as your construction manager or consultant. Anyone acting as a manager or consultant on your construction project is required to be a licensed contractor (California Business and Professions Code §7026.1). Even if you are only hiring someone for debris removal, debris removal contractors must have a CSLB-issued C-21 Building Moving/Demolition license. A contractor’s license issued by any state other than California is not valid and does not entitle that contractor to do business in California or in any of the fire zones.
Protect Yourself Against Price Gouging
Secondly, be conscious of the costs. Do not sign a contract until you have received multiple bids and have an idea of what your rebuilding project should cost. Price gouging is not uncommon after a disaster, but it is a crime in state and/or federally-declared disaster areas. After a declared disaster, a business cannot charge more than 10% above the prices they charged immediately prior to the emergency declaration (Penal Code §396).
Make Sure Your Contractor Carries all Required Bonds and Insurance
All licensed contractors are also required to be bonded, to carry insurance, and to have workers compensation insurance. You should verify that any contactor you are considering signing a contract with possess all of the above. They should be able to provide you with certificates of insurance to verify that they possess the required bonds and insurance.
Get a Written Contract that Complies with all Applicable Requirements for Construction Contracts
After you have verified a contractor’s license status and received multiple bids, make sure you receive a proper contract for your project. If your project falls into the Home Improvement Contract category, the contractor is required to have a Home Improvement Contract that provides all of the terms and protections required by California Business and Professions Code §7159 et seq.
If your property still has an existing foundation, chimney, or partial walls after the fire, your project is likely a Home Improvement Project. If your property no longer has any foundations, walls, or chimney and is essentially bare earth following the fire your project will be a new construction.
For all projects that are Home Improvement Projects you are entitled by law to a Home Improvement Contract. Such a contract must have certain protections, terms, notices and warnings that are mandated by law for the protection of home owners. A California Home Improvement Contract must be in writing, legible, and contain the following:
1. Unless a larger typeface is specified in this article, text in any printed form shall be in at least 10-point typeface and the headings shall be in at least 10-point boldface type. The contract must contain: (a) The name, business address, and license number of the contractor; (b) If applicable, the name and registration number of the home improvement salesperson that solicited or negotiated the contract; and (c) the following heading on the contract form that identifies the type of contract in at least 10-point boldface type: “Home Improvement.”
2 Before any work is started, the contractor must give the buyer a copy of the contract signed and dated by both the contractor and the buyer.
3. The contract must contain on the first page, in a typeface no smaller than that generally used in the body of the document, both of the following: (a) The date the buyer signed the contract; (b) The name and address of the contractor to which the applicable “Notice of Cancellation” is to be mailed, immediately preceded by a statement advising the buyer that the “Notice of Cancellation” may be sent to the contractor at the address noted on the contract.
4. The contract must contain a statement that, upon satisfactory payment being made for any portion of the work performed, the contractor shall, prior to any further payment being made, furnish to the person contracting for the home improvement or swimming pool work a full and unconditional release from any claim or mechanic’s lien pursuant to Sections 8400 and 8404 of the Civil Code for that portion of the work for which payment has been made.
5. A change-order form for changes or extra work shall be incorporated into the contract and becomes part of the contract only if it is in writing and signed by the parties prior to the commencement of any work covered by a change order.
6. The contract must contain, in close proximity to the signatures of the owner and contractor, a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond.
7. If the contract provides for a contractor to furnish joint control, the contractor shall not have any financial or other interest in the joint control.
8. The contract must contain the following statement in at least 12-point boldface type: “You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started.”
9. The contract must include: (a) the heading: “Contract Price,” followed by the amount of the contract in dollars and cents; (b) If a finance charge will be charged, the heading: “Finance Charge,” followed by the amount in dollars and cents. The finance charge is to be set out separately from the contract amount; (c) the heading: “Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed,” followed by a description of the project and a description of the significant materials to be used and equipment to be installed. For swimming pools, the project description required under this paragraph also must include a plan and scale drawing showing the shape, size, dimensions, and the construction and equipment specifications. (Note that if a finance charge is included, the contract must also comply with the Unruh Act beginning at Civil Code section 1801.)
10. If a down payment will be charged, the details of the down payment must be expressed in substantially the following form, and shall include: (a) the heading: “Down Payment;” (b) A space where the actual down payment appears; (c) The following statement in at least 12-point boldface type: “THE DOWN PAYMENT MAY NOT EXCEED $ 1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS.”
11. If any payments, other than the down payment, are to be made before the project is completed, the details of these payments, known as progress payments, must be expressed in substantially the following form: (a) A schedule of progress payments preceded by the heading: “Schedule of Progress Payments;” (b) Each progress payment must be stated in dollars and cents and specifically describe the amount of work or services to be performed and any materials and equipment to be supplied; (c) The section of the contract reserved for the progress payments must include the following statement in at least 12-point boldface type: “The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWN PAYMENT.”
12. The contract must state when work will begin in substantially the following form: (a) A statement that describes what constitutes substantial commencement of work under the contract; (b) The heading: “Approximate Start Date;” and (c) The approximate date on which work will be commenced.
13. The estimated completion date of the work must be referenced in the contract in substantially the following form:(a) The heading: “Approximate Completion Date;” and (b) The approximate date of completion.
14. If applicable, the heading: “List of Documents to be Incorporated into the Contract,” followed by the list of documents incorporated into the contract.
15. The heading: “Note about Extra Work and Change Orders,” followed by the following statement: “Extra Work and Change Orders become part of the contract once the order is prepared in writing and signed by the parties prior to the commencement of any work covered by the new change order. The order must describe the scope of the extra work or change, the cost to be added or subtracted from the contract, and the effect the order will have on the schedule of progress payments.”
16. All of the following notices either in the contract or, if authorized, as an attachment:
(a) A notice concerning commercial general liability insurance. This notice may be provided as an attachment to the contract if the contract includes the following statement: “A notice concerning commercial general liability insurance is attached to this contract.” The notice must include the heading “Commercial General Liability Insurance (CGL),” followed by whichever of the following statements is both relevant and correct: (i) “(The name on the license or ‘This contractor’) does not carry commercial general liability insurance;” (ii) “(The name on the license or ‘This contractor’) carries commercial general liability insurance written by (the insurance company). You may call the (insurance company) at (telephone number) to check the contractor’s insurance coverage;” or (iii) “(The name on the license or ‘This contractor’) is self-insured.”
(b) A notice concerning workers’ compensation insurance. This notice may be provided as an attachment to the contract if the contract includes the statement: “A notice concerning workers’ compensation insurance is attached to this contract.” The notice shall include the heading “Workers’ Compensation Insurance” followed by whichever of the following statements is correct: (i) “(The name on the license or ‘This contractor’) has no employees and is exempt from workers’ compensation requirements;” or (ii) “(The name on the license or ‘This contractor’) carries workers’ compensation insurance for all employees;”
(c) A notice that provides the buyer with the following information about the performance of extra or change-order work: (i) A statement that the buyer may not require a contractor to perform extra or change-order work without providing written authorization prior to the commencement of any work covered by the new change order; (ii) A statement informing the buyer that extra work or a change order is not enforceable against a buyer unless the change order also identifies all of the following in writing prior to the commencement of any work covered by the new change order:(1) The scope of work encompassed by the order, (2) The amount to be added or subtracted from the contract, and (3) the effect the order will make in the progress payments or the completion date; (iii) A statement informing the buyer that the contractor’s failure to comply with the requirements of this paragraph does not preclude the recovery of compensation for work performed based upon legal or equitable remedies designed to prevent unjust enrichment
(d) A notice with the heading “Mechanics’ Lien Warning” which contains the exact text of the warning required by California Business and Professions Code §7159(e)(4). The full text of the warning can be found at http://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC§ionNum=7159.
(e) The following notice must be provided in at least 12-point typeface: “Information about the Contractors’ State License Board (CSLB): CSLB is the state consumer protection agency that licenses and regulates construction contractors. Contact CSLB for information about the licensed contractor you are considering, including information about disclosable complaints, disciplinary actions and civil judgments that are reported to CSLB. Use only licensed contractors. If you file a complaint against a licensed contractor within the legal deadline (usually four years), CSLB has authority to investigate the complaint. If you use an unlicensed contractor, CSLB may not be able to help you resolve your complaint. Your only remedy may be in civil court, and you may be liable for damages arising out of any injuries to the unlicensed contractor or the unlicensed contractor’s employees. For more information: Visit CSLB’s Web site at http://www.cslb.ca.gov/ Call CSLB at 800-321-CSLB (2752) Write CSLB at P.O. Box 26000, Sacramento, CA 95826.”
(f) Unless the contract is negotiated at the contractor’s place of business a “Three-Day Right to Cancel” notice. Due to the length of the notice it has been omitted from this article and can be found at the following website (http://www.leginfo.ca.gov/calaw.html).
(g) A “Seven-Day Right to Cancel” shall be provided to the buyer for any contract that is written for the repair or restoration of residential premises damaged by any sudden or catastrophic event for which a state of emergency has been declared by the President of the United States or the Governor, or for which a local emergency has been declared by the executive officer or governing body of any city, county, or city and county. Due to the length of the notice it has been omitted from this article and can be found at the following website (http://www.leginfo.ca.gov/calaw.html).
It should also be noted that a Home Improvement Contractor must also attach to their bid or contract at the time it is given to the homeowner or renter a Home Improvement Checklist that has been prepared by the Contractor State License Board. That checklist can be found on the Contractor State License Board website.
You should also keep in mind that pursuant to the above requirements, no Home Improvement Contract can be a “Time and Materials” Contract, or a “Cost Plus” Contract. A Home Improvement Contract must be for a total fixed price, that is identified in the contract.
Other Things to Keep in Mind As Your Reconstruction Project Moves Forward
1. Have the contractor supply with you with a copy of all subcontracts form the project.
2. Get an indemnity agreement from their contractor where they agree to defend and hold you harmless in any lawsuit or claims arising from the construction work, and become an “additional insured” on the contractor’s liability policy.
3. Stick to the payment schedule; do not make any payments ahead of the work, and make sure that you have records of all payments.
4. Require an agreement in the contract that retention, typically 10%, will be withheld from all progress payments, and not paid until the project is fully completed.
5. Make sure that all changes in the work, whether requested by you or advised by your contractor are in writing on the change order form attached to your contract prior to the start of any work on the changes.
6. Always get mechanic’s lien releases from the contractor, his subcontractors, and their suppliers prior to making payment.
7. Make sure that the materials and supplies that are delivered to your project are secure at the jobsite with a fence or other security.
In order to not compound the tragedy of the loss of your home in the recent Norther California fires, we strongly suggest that home owners keep the above items in mind as the move forward with debris removal and rebuilding. Take the time to make sure that you are engaging the services of a California licensed contractor who is fully complying with all of the laws and legal requirements that have been put in place to protect homeowners. It is always wise to have any contract reviewed by counsel to ensure that it is responsive to all of the requirements applicable to your particular rebuilding project.
This article, ©2017, was written by William C. Last, Jr. and Patrick J. Whitehorn. Mr. Last is an attorney who has been specializing in Construction Law for over 30 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 866-904-4725 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.