Spotlight on: When a Bad Contractor You've Fired Files a Lien Against You

Be wary of a low bid. A low bid may be legitimate, but when there is such a wide variance between bids, it is not a good sign. If a contractor says he can complete a project for $20,000, even though every other bid was between $40,000 and $60,000, there's probably a reason — and it may not be a good one.

Prepare a "road map." The proper procedure for all contractual work is to have a contract, or an agreement, that basically spells out the terms and conditions of the work to be performed, the payment schedule, and so forth. It should also spell out the time frame within which the job has to be completed. It should also be clear as to what happens if the contractor doesn't stay within the parameters of the time frame.

Because any agreement needs to be fair for both sides, the agreement should also say that the co-op has an obligation to pay X amount of dollars to start, X amount of dollars as progress is made, X amount of dollars on completion, and X amount of dollars within a certain time period after completion, in case there are any defects that surface within a few days or weeks after. There should also be warranties negotiated between the contractor and the co-op.

The co-op's attorney should review all this and, if the attorney thinks that the co-op is adequately protected and the contractor feels that it's fair to him, everybody signs.          

Get a payment-performance bond. A co-op should also require a payment performance bond, which it can get before or after the dispute. That way, if the contractor walks off the job and the job's not complete, you call on the payment and performance bond, and the insurance company comes in, finishes the job, and protects you against liens for work, labor, and materials. Attorneys say it's routine legal work, similar to putting money in escrow.

Document the damage. Keep a visual record of the disputed area both before the work started and later, when the board has sent a letter saying, "You're off the job." Because now it's going to become a court fight over whether there was substantial completion, or no completion.

Keep in mind, though, that there's no way you can avoid having somebody file a lien, but you can contest it. The board can argue that it was improperly filed, that it was not filed in a timely manner, that it was not served properly, or that the amounts weren't due.

But the most important step you can take before — and after — the dispute begins is to have your agreement and disagreement in writing. Remember, if it's not in writing, it didn't happen.

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Adapted from "When a Contractor Walks" by Tom Soter and Ruth Ford (Habitat, October 2005)