10 Questions to Ask a Prospective Contractor

When you're first getting into the process of hiring a contractor, you'll want to dig deep to get an idea of his or her business history. This means requesting -- and duly verifying -- proof that he or she is currently state licensed in your area, if applicable in your area. Rules vary by state, so if you live in the U.S., check out this list to find out whether your contractor needs to be licensed or registered to work on your project.

Other items to check up on include paying employees legally and carrying workers' compensation, property damage and liability insurance. Membership with a reputable professional association is also a good sign. On a similar note, find out if the contractor has ever declared bankruptcy or if anyone's ever taken legal action against him or her. Get the specifics too, like how long he or she has been in business and under what names. You should also find out how a contractor's business is structured and where it's physically based.

It's important to confirm whether the contractor has any recent, relevant experience, so get a list of references who have had projects similar in scope to yours and follow up with them. Don't be shy about making phone calls and visits. Ask other customers questions about their experiences dealing with the contractor and their satisfaction with the finished product. You can obtain other third-party verifications from state licensing bodies, professional associations, state and local courts, insurance providers, suppliers, Better Business Bureaus and municipal departments.

Once you've investigated and compared contractors' histories and qualifications, find out more about their business practices by asking them the questions on the next page.

It's important to ascertain during the course of the interview how the contractor plans on handling site supervision and subcontractors. For starters, a lot of the questions on the last page (such as those concerning licensing, payroll, liability insurance and workers' comp) are inquiries you'll need to put to any subcontractors as well -- everyone on-site must be fully covered.

Another reason it's a good idea to find out whether the contractor has a work crew or intends to roll out a whole series of subcontractors? To obtain records of all the transactions between everyone to save yourself from getting burned if the contractor doesn't pony up. In some states, a mechanic's lien can be placed on your home if subcontractors don't get paid, and they can sue you in court for compensation [source: FTC]. You can protect yourself by asking the contractor, subcontractors and suppliers for lien releases or waivers upon each payment.

Further key questions center on work-site presence. How much time does the contractor propose to spend on your project each week, and how many other jobs is he or she completing in tandem to yours? Does the contractor plan on doing any of the actual labor, or is he or she mainly performing in a supervisory role? How often will the contractor be on-site, and who'll be supervising during times when he or she isn't there? A trustworthy and accountable presence should be on hand at all times.

When consulting the references, feel free to ask them about the workers' behavior. Did they clean up after themselves? Were they on time? And speaking of being on time -- we'll consider the project's timeline on the next page.

Before you hire a contractor, you should ask if he or she can provide you with a fixed start date and a completion date -- including any cleanup duties. These dates should be included in the formal written agreement, along with a timetable of the work that'll be done and a material list of everything that'll be needed. It's also smart to address how change orders will affect the project's timeline in the contract (more details on that later).

During the project (provided you aren't watching it unfold firsthand), you'll probably want to check in once in a while to see how everything's coming along. So it's a good idea to ask the contractor how he or she plans on keeping you up-to-date and the process for scheduling site visits. Another related concern is determining the best way to stay in contact with the contractor so you can communicate any questions or concerns to him or her.

Without proper communication -- and documentation -- your project might go from being a dream come true to a disaster, so on the next page, we'll check out another set of questions you'll need to clear with a contractor before you hire him or her.

Like the per payment lien releases we discussed on a previous page, warranties are­ a smart way to make sure you'll leave the table happy. In addition to these me­asures, it's a good general rule of thumb to hold off signing a contract until it includes everything you want -- and that you understand all the terms and conditions. You'll also want to keep assiduous records of all payments and invoices in case a dispute needs to be settled.

On a similar note, make sure the contractor guarantees he or she will complete all the necessary homework and obtain all the required approvals during the process. Without this precaution, some contractors might sweep under the rug any number of matters ranging from building permits to Homeowner's Association bylaws, and you could find yourself uncovering a huge legal mess the minute the door closes behind them.

Once you've found a contractor who can address all the issues we've discussed so far, it's time to talk price.

Along with the other top questions you want to ask during the process of hiring a contractor, you should also request itemized price estimates from each candidate. After you receive these, it's best to examine each one carefully, paying particular attention to any that seem too high as well as too low. Estimates that fall in the shallow end of the pool can be a red flag for a hasty job that won't leave you with a quality finished product. If an estimate seems a good deal pricier than others, that could mean the other contractors were missing some core obstacle involved in completing the project and therefore didn't set a high enough estimate for a proper job.

You'll also need to negotiate the payment schedule and determine how any surprise expenses or potential change orders will be factored in. Planning the payment schedule needs to be a give-an­d-take, but the more you can negotiate to keep in your pocket for as long as possible the better: You never want to pay for more than what you've gotten at any particular time. And don't forget -- don't sign that last check until you're completely happy with the completed project.

Communicating with your contractor about the specifics of your project can be difficult enough. Do you really want the puce countertops? Should the roof be that slanted? With so many details to keep in mind, remember that you're going to have a person in or around your house for at least a few weeks (and perhaps months). And to them, your home is their workplace. So don't hesitate to ask them what kind of a colleague they are.

Having an understanding and expectation of a contractor's routine is vital to your own happiness. What time do they start working? Do they work until the project is finished, or will they be working on multiple projects at a time? It's also a good idea to inquire about what they do with leftover or waste materials. Will there be piles of timber in your backyard until April?

It's not unreasonable to ask the contractor beforehand if you have a schedule you'd like them to keep, and let them know that you'll be expecting regular progress reports. Once you have that schedule, take advice from the next page and get it in writing.

Sure, you're probably going to sign some sort of agreement that the contractor will work for a certain fee, but simply discussing a project at length is no guarantee of the kind of work you'll end up with. In the contract, have the details of the project carefully spelled out. What dates will they start? How long will it take? What permits are required to be pulled? And what, exactly, are you looking for in the project?

There should be a clause for dealing with potential change orders, which allow for additional projects to be carried out at the homeowner's or contractor's behest. In addition, if you want to make sure that your home improvement professionals clean up after themselves when they're done, be sure to include a broom clause in the contract, which legally requires them to do so.

It doesn't hurt to put a liability release in writing and to make careful note of the materials that will be used, which will also allow you to see where your budget is being spent. And when it comes to budget, check out the next page for another important financial question for your contractor.

Down payments are a tricky thing when it comes to renovation and home improvements. Sure, it's certainly a sign of good faith for you to anchor your contractor with a bit of cash. But you also don't want to foolishly place your money in the hands of someone who you can't contact if, say, they never show up.

The Contractor's State License Board of Canada recommends only a 10 percent down payment, or $1,000 (whichever is less). In addition, some U.S. state laws put a cap on the down payment amount that contractors can ask for [source: FTC]. They also recommend not letting your payments get ahead of the work; that is, no paying for the roof over your head when you're still relying on tarps to keep out the rain.

Remember that a stable company doesn't need a large amount of money to pay for materials or overhead; they should have a healthy flow of cash that will allow them to safely start a project without a huge advance. It's that concern that leads us to our next question: Who, exactly, are we paying when we pay our contractor?

Although it seems obvious, remember that you don't necessarily want to fork over funds to just anybody for the work they've provided. Paying a business -- as opposed to an individual -- usually provides some assurance that you're on the books somewhere.

Paying an individual opens some serious loopholes. If the contractor has a business license yet they're still asking for an individual check, it probably means that the contractor will not be reporting that income for taxes -- not exactly a sign of an honest worker. If they don't have a business license, you've now opened a whole can of worms. Not only are they unlicensed, but you're essentially putting yourself at liability for any badly done work (or worse, any injuries sustained by the workers).

In addition, you should never pay cash, which is impossible to track and is often requested by questionable contractors. Checks, loan financing and credit cards are typically much safer options.

While it's important to ask the contractor about any permits needed, don't think that due diligence after that isn't required. Many cities and counties have online resources that will let the homeowner know what is required from renovation or construction projects. Use those materials to double check your contractor, or call the permit center and inquire about any necessary codes to follow.

Another important reason to double check permits with the city or county is that your homeowner's insurance isn't a fan of unpermitted work; if something does go wrong, the chances that they'll cover your claim if the correct permits haven't been pulled is very slim. You can even go the extra step and check with your insurance about what permits are required, should a claim be filed.

If you're still yearning to build a stronger base of knowledge about contractors or home improvement projects, read on for lots more information.