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 receipts for money 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.
• Building codes, permits and inspections make sure things are done the right way.
• Labour 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 neighbours.
• 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 does go wrong.
However, all of these measures also 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—there is a lot more than taxes being evaded.
When underground contractors offer low-priced cash deals, they don’t explain that some very serious risks are being passed on to the customer in order to make the low price possible. Because if they did, their low price wouldn’t look like such a great deal—it would look like the potential consumer nightmare it really is.
If you are hiring a contractor to work on your home, don’t fall for the underground contractor’s cash deal. Make certain that you and your family are properly protected. Insist on a written contract covering all aspects of the work or project. And insist that this contract includes proof of contractor liability insurance, Workers’ Compensation coverage (or equivalent private disability coverage for exempt workers), a lien holdback and responsibility for compliance with building codes.
Also be sure to talk with your own insurance company before the work begins—many homeowner policies don’t automatically cover construction-related 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 receipts for money 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.
• Building codes, permits and inspections make sure things are done the right way.
• Labour 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 neighbours.
• 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 does go wrong.
However, all of these measures also 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—there is a lot more than taxes being evaded.
When underground contractors offer low-priced cash deals, they don’t explain that some very serious risks are being passed on to the customer in order to make the low price possible. Because if they did, their low price wouldn’t look like such a great deal—it would look like the potential consumer nightmare it really is.
If you are hiring a contractor to work on your home, don’t fall for the underground contractor’s cash deal. Make certain that you and your family are properly protected. Insist on a written contract covering all aspects of the work or project. And insist that this contract includes proof of contractor liability insurance, Workers’ Compensation coverage (or equivalent private disability coverage for exempt workers), a lien holdback and responsibility for compliance with building codes.
Also be sure to talk with your own insurance company before the work begins—many homeowner policies don’t automatically cover construction-related risks.
1 comment:
Reiner,
One other thing to consider when tempted to accept a bid from a contractor, whether it's a subtrade or general contractor, is trust and integrity.
It's not such a big deal to pay under the table for the painting of a room, or the repair of a fence. The deal with the subcontractor is pretty straight forward, and there are clear delineations of responsibilty. Really, what's the worst that can happen in this type of situation?
When the proposed work is more complex, and it involves multiple subtrades, then it becomes more important to have a quote and a signed contract. The contract may be as simple a quote signed by the homeowner and the contractor.
The reason for this goes to issue of trust. Do you trust this person to work for you and in your best interests? Is this person trustworthy and has a high degree of interity?
What's the expectation of someone who does jobs under the table in this regard?
And you need to consider the savings. Are the savings worth while? Not every under the table deal goes sour.
- Frank Soellig, April 22
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