Even if your lender does not require one, you may want to consider using a joint control company to disburse contract payments. A joint control company is a licensed escrow company that specializes in handling funds for construction jobs. Instead of giving the money to your contractor, you give it to the joint control company, which then makes payments to your contractor, subcontractors, or other companies that supplied labor or materials for your job. However, using a joint control company is no substitute for a payment bond.

Caution: joint control companies are not required to inspect your job to see if it has been completed or the materials supplied. They generally provide vouchers for the borrower to complete and present to the joint control company as authorization to pay the contractor based on bills from the contractor. The borrower should be careful not to authorize payment to the contractor in advance of any work to be performed. The vouchers should be guarded as if they were checks used for paying bills and only signed and used as each phase of the project is completed.

For additional protection, you should make certain that the joint control company you hire uses an "Addendum to Control Agreement Escrow Instructions". This addendum is in writing and must be signed by you, your contractor, and a representative of the joint control company. In the addendum the joint control company agrees to a method of making payments on your project best designed to protect your money and property. Under the terms of this addendum the company generally makes on-site inspections as its means of guaranteeing that any work or materials it pays for have been provided.

In looking for a joint control company, check with your lender or your contractor for recommendations. For a small percentage of the contract price, a reputable joint control company will probably eliminate or reduce many of the financial problems that may arise on your construction project.

If you want a completion bond or joint control company, or both, make sure you clearly state this in the contract. If you need further information regarding bonds, contact your attorney.

Licensing

It bears repeating that any contractor performing a job in which the total cost of the project, including labor and materials, is more than $300, the contractor must be licensed by the Contractors State License Board. Licensed contractors are subject to laws designed to protect the consumer.

Unlicensed contractors are a danger to your financial affairs because they expose you to significant financial harm in the event of injury or property damage. Few unlicensed contractors have adequate bonding or insurance.

Although an unlicensed contractor may give you a low bid, the risks of possible financial and legal consequences you may face probably outweigh any benefits a lower bid may seem to offer.

Please note: A license number on a bid or contract does not necessarily mean the license is valid. Before you sign anything, call the Contractors State License Board (CSLB) 1-800-321-CSLB, to insure that contractor is properly licensed in the class for which works to be performed and the license is in good standing. You should also ask about the contractor's disclosable complaint history and any prior legal actions that may have been taken against the contractor. Complaint history information is available from the CSLB Northern, Central, or Southern Regional Complaint Disclosure telephone numbers. The Northern number is 916-255-4041. The Central number is 818-543-4735. The Southern Region can be reached at 714-994-7450.

Bids

A bid is an offer to do work. It is advisable to get at least three written bids using identical plans and specifications so you can compare prices and contractors.

Get competitive bids for the project

Solicit at least three bids for the work you need; do not automatically accept the lowest.

Make sure all bids are based on the same set of specifications. Discuss the bids in detail with each contractor and make sure you understand the reasons for any variations in price. Sometimes a higher price may be worth it, if the materials to be used are of higher quality or the work is more extensive. For example, if you are having your kitchen remodeled, and one bid is based on installing prefabricated cabinets in standard sizes and another bid is based on installing custom-made cabinets, the prices will not be comparable.

Beware of any bid substantially lower than the others. It probably indicates that the contractor has made a mistake or is not including all the work quoted by his or her competitors. You may be headed for a dispute with your contractor if you accept an abnormally low bid.