QUESTION: I'm doing some planning for a (near future) kitchen remodeling project. I'm planning on doing some of the work myself and subcontracting the bigger pieces out. I recently came across a payment service called Safepact.com. Has anyone had experience with it? Looks like a good way to keep from getting burnt by a contractor. It seems like you hear so many stories of people giving their contractor money and then they skip out without finishing the job. Any feedback would be appreciated. Thanks!

This message has been edited. Last edited by: t_hanson,

if you're really paranoid...

(1) the usual payment rule is 1/3 to start, 1/3 approximately halfway, 1/3 on completion with all inspections passed and homeowner happy. the way the schnook will get around this is to lien you if you don't like what he's doing. require arbitration first in the contract. and name the arbitration company, don't let the contractor name it.

(2) permits must be pulled by the contractor for all work and posted on the job site before they pull out one tool, specified in the contract.

(3) a copy of the performance bond must be filed with the permits and with you, specified in the contract... along with the contractor's valid license.

(4) review checklists at each payment point for both parties. any disagreement, arbitration.

(5) all deliveries to the jobsite must carry a lien release for the homeowner. contractors who stiff the suppliers means the homeowner gets liened for the payments. this in the contract. save them.

(6) otherwise, be nice, stay out of their hair, make sure the inspectors have signed the appropriate blocks by calling them after each major piece of the work.

(7) no payments if the contractors don't adhere to timelines.

this will keep a lot of contractors from taking your job. it will keep the rest honest... and if not, you have a trail of recourse in court, at arbitration, or at the state's reimbursement fund or bonding company.

... or... you could do the work yourself wherever allowed by local codes.

This message has been edited. Last edited by: swschrad,

Thanks swschrad. Great advice! That is one of the more thorough responses I have seen while checking around online. It’s a shame we have to go to the lengths we do just to insure the job is done right and we don’t get screwed over. It’s seems anymore in today’s economy contractors want money up front to “protect themselves”. But who’s protecting us in these situations? Through some digging around, I came across a company that’s a good option in those situations Safepact.com. That’s why I asked if anybody used them. They provide a balance of power for homeowners while giving the contractor the security the money is there. They use an escrow account to hold the money until I’m satisfied. Thing I like is they create a pretty good (online) paper trail should I have an issue and they specialize in home improvement transactions. Sounds safe to me, don’t think? I just want to avoid any unforseen headaches (if I can), ya know?

This message has been edited. Last edited by: t_hanson,

T_Hanson, I think you're wise to address the issue of bad contractors up front. Too many people have been taken by shysters, but from a post elsewhere, one of the regular posters was also taken by a bad customer. It can work both ways.

Just out of curiosity, I did some checking to try to find out more about SafePact and wasn't able to learn much at all except from their own publicity. It seems as though it's a new company, offering free services in disaster areas, perhaps to get the name out into the public arena and build the business.

If they did actually perform services for disaster stricken victims, they should be willing to share information to support their claims. I.e., do they really have any kind of track record yet?

The jobs they're hiring for are marketing oriented, not legal, construction and/or financial. One ad was for an unpaid intern. I wondered if they don't have the funds to pay an intern, or are capitalizing on a trend which has intensified since so many college grads have been unable to find employment since the Great Recession started. This isn't the type of company which requires a lot of start-up capital, but it could raise questions how well they're capitalized if they're looking for free labor. Are they just frugal, or cash poor, or fly-by-night?

One of the jobs advertised was for a strong marketing person to build a “world class” brand from the ground up.

http://jobs.businessweek.com/a.../list/q-safepact.com. Although I applaud their lofty goals, I found nothing to indicate that this is yet or even could be a "world class" brand. Again, does this company even have a track record?

I read the Terms of Service and some of the descriptive material on the method of operation, but still have some questions.

WHERE are the funds held in escrow? In a financial institution, and if so, which one (see the comments below). There needs to be some guarantee that any escrow account is classified as that, and that the funds are not held in an account simply in SafePact's name.

What staffing does the company have to demonstrate experience in this area? Are there former title insurance people, legal, financial, construction, building industry staff? Are they vetted and bonded? There should be limits on who has access to the escrowed funds.

Have you read the Terms of Service and are you comfortable being bound by them? Note especially 6a, the Dispute Resolution section, which provides for only 10 days to resolve the dispute, which in my humble opinion isn't always enough to resolve contruction/remodeling issues.

Note that in the event a dispute is not arbitrated, SafePact may do so, or may institute dispositive legal proceeds, in Alabama.

Note in Section 7 that SafePact will deduct 1/2 of its fees upon deposit by the Owner, apparently before any work is performed or SafePact has actually done anything except receive the funds. Are you comfortable with this?

Section 8 provides a condition which could be construed in a few different ways:

SafePact will "b. [t]ake all reasonable precautions to ensure that the Escrow Funds are kept in a secure federally insured institution."

The funds under any circumstances should be in a institution with FDIC protection; it's not difficult to identify which institutions these are. The phrase "reasonable precautions" is not defined and makes me wonder why SafePact can't "just do it" and guarantee, affirm and/or represent that the funds will bewill be in such an institution.

Who at SafePact will have access to the funds and what oversight protection is there? This is no small issue; I've worked in law for about 40 years and occasionally came across lawyers who dipped into their clients' trust accounts. Embezzlement and "hands in the cookie jar" are nothing new.

But in the legal situations, there was NO OVERSIGHT ever provided to protect the clients. What oversight does SafePact provide? Other than finding the name of the CEO, I found nothing on staffing, if there is any staff.

Paragraph 10 is very clear about SafePact's limited liability. Are you comfortable with this?

Paragraph 13 would raise the hairs on my neck.

Note that SafePact is an LLC, not a corporation, with different levels of liability than a corporation has for the owners. This limits any liability of SafePact if you ever need to take legal action against them (which is also limited by the Terms of Use).

Before using SafePact, you would be wise to check with the Alabama Department of State or other division at which corporate records are filed and maintained, and try to get some background information on the LLC members. Given that they'll be holding what probably is a substantial amount of funds for your proposed remodeling project, you would be wise to ensure that they're not fraudsters themselves. What do you really know about them other than their own unverifiable representations? What's their real track record, if any?

I cite the case of Kevin Trudeau, who hawks alleged "advice" on infomercials. This guy was convicted of securities fraud, served prison time, and is now out hawking more of his so-called good advice.

(See http://abcnews.go.com/Business...on/story?id=15190814 for information on the $37M determined by the FTC and the judicial system to be the amount by which Trudeau defrauded customers.

Despite his history, he still was able to con people out of their money. I'm not saying SafePact is in the same category, just that there isn't much information about them that's not from their own marketing efforts.

Undoubtedly I take a skeptical view of companies with no identifiable background and no apparently accountability, but I wanted to share them so you can do whatever background investigation is necessary to protect yourself.

This message has been edited. Last edited by: GardenSprite,

NOTE: I wrote the below before GardenSprites excellent above points were posted. It seems that she and I are thinking along similar lines.

I'm going to give an alternate viewpoint - this may not be popular. To qualify in advance, I am a contractor, an honest contractor who has never stiffed a client. Over 20+ years in business an we have had two 'bad' clients. We only get clients via direct word of mouth referrals.

If we are setting up a project with a client who wants to use Safepact or something similar, we will decline the job and go elsewhere. Reasons:

1. There needs to be trust in the contractor / homeowner relationship. This is the ultimate form of invasive investment - you have hired someone to be in your home. There are far bigger trust issues going on than setting up a trust to monitor the money flow. In short here - If you cannot trust your contractor to fulfill their contracted promises, then you should not be letting that firm and their people in your home - with your belongings, with your kids etc.

2. Payment timing - While I've never dealt with an on-line company like Safepact, I have been involved with remodels that had some tight financing where the bank was the middleman. With no exceptions, there were always delays in payment. Long delays - often running 6 weeks or more. If I am coming into your home to do a $10,000 bath remodel, both you and I want our crew to get in there, do a quality remodel, get out and get paid. If we have to wait a month after completion to get paid then we are financing the project. Financing costs money - a cost that we will pass on to you as a higher project cost.

3. Higher project cost - For that same $10,000 bath remodel, Safepact will cause this project to cost you an extra $500. 5% of project cost is significant. Are you and your budget willing to give up the shower door you really want or that nicer solid surface countertop so you can spend your money on an escrow company? BTW, that 50% to you and 50% to the contractor is BS. If an escrow company is charging me $250 for their services related to your job, I am going to add that $250 to our fees and you are going to pay for it. This is a business transaction - that escrow fee is no different than the costs our company would pay for lumber for your project, or the insurances on our employees. It's all a cost of business that ultimately is paid for by the client. So there is a 5% cost increase to you for using the escrow system, plus another potential increase to offset any payment delays. You could easily wind up spending 10% more for your project.

4. For what? - Sure, the money is in escrow with a third party. Their method basically requires both the homeowner and the contractor to agree in order for the escrow to release funds. If the homeowner does not authorize payment to escrow, then it's not much different than if the homeowner refused to pay the contractor directly. You are still heading to arbitration - causing a delay where everyone loses.

5. If you don't trust your contractor, who do you hire to ensure trust of your on-line escrow company. To qualify: I do not know Safepact, they could be 100% legit. But I bet there are other companies on-line that are similar in scope. Let's look at reality here: Compare the odds of getting a crooked contractor who was referred to you by a friend or coworker compared to sending large sums of money to an anonymous internet based company that has a really nice looking website. If you look at this as the sum of all homeowners who will use a service like this - some will be legit and some will lose all their remodeling money to a bogus on-line escrow company. In my biased opinion as an honest contractor there will be a huge risk with the on-line firm compared to the chances of getting a crooked contractor.

So that's my admittedly biased opinion. To me, your research is best spent by getting some referrals on any contractor you may use. If someone you know and trust has used a contractor with good results, then in all likelihood, that contractor will do just as good a job for you. OTOH, I can easily see how an on-line escrow firm could take your $10,500, maybe make that first start-up payment to the contractor and then when it comes time to make that second payment - they are suddenly gone. It's all where you choose to place your risk.

The biggest thing for me is the trust issue. As I said above, having a construction crew work in your home while you are away, or while your wife is there alone, or while your kids are nearby are huge trust issues. These are all much larger issues than the business end of the relationship. If you cannot trust the contractor to be in your home, you should not hire them under any payment methods.

This message has been edited. Last edited by: Jaybee,

GardenSprite:

Thanks so much for the thorough vetting on SafePact. It inspired me to dig deeper as well. Your comments on the track record was enough of a concern for me to give them a “I’ve been on your website and just wanted to know a little more about you” call. You were right they are fairly new, said they did a soft launch in December. I asked how it was going and the response was something like “we’re gaining traction” which says to me they’re not covered up with business but are getting some users. In today’s economy I appreciate their not trying to blow smoke at me about something that’s not. If they would have said “we processed $10M in transactions in May alone” I would probably have hung up on them.

The guy I talked to was the guy that started the company. He had spent most of his career in the construction business until coming up with the SafePact idea when his daughter had a contractor that wanted 50% of his money upfront to do some work. Said as a contractor he’d get ½ his money upfront all the time but when it was his daughter in the situation he just didn’t like the idea near as much and that’s how it came about. I told him he should put the story on the website. I’d guess being on both sides does help you to see both views. A little more digging told me that in addition to his construction experience he has a Finance degree from Harvard Business School so that’s not a bad combination.

I also asked some bank questions and they use a regional bank in Indiana Ameriania which is where they started. They are an FDIC insured bank. I asked why they didn’t say that in their Terms of Service and they thought it was implied with their terminology but if that was a concern for me it might be a concern for others and they would look into changing the language to make it more clear since that’s what they do. It does go into a designated escrow account. I asked about the oversight and he said they use an independent outside CPA firm. Which isn’t a perfect answer but we don’t live in a perfect world. Someone had told me some states require licensing but not very many. Not sure about that but that would seem to be a good solution.

I didn’t address any of the HR stuff with them. I don’t think they have much staff though which may be because they are still young. That’s kind of their thing that they have to staff in a way that covers what they need to get done but not so staff long that it puts an undue cost burden on them. If they are not adequately or competently staffed it will show up in poor customer experiences which will kill them in reviews. I didn’t find any reviews good or bad which may go back to your comments on the track record. They may not have been around long enough for much to come out yet. Bottom line with that is that I’m thinking if he was smart enough to get into/through Harvard he’s probably smart enough to staff it. I’d rather they view themselves as aspiring to build a “world class” brand than take an approach that we are building an average company so if your average you’ll fit right in.

You had a number of good comments on the Terms of Service and I asked about the dispute resolution question on the 10 days. That was the one that concerned me the most. It seems you can take as long as you need to work things out. It’s when 1 side or the other feels like they aren’t making any progress they can hit the button and force it into a “Dispute Resolution” mode which then starts a 10 day clock running. I guess I’m OK with that. If I had a contractor that was jerking me around I’d want some way to force his hand (no offense intended Jaybee).

Over the weekend I updated my iTunes and I read Apple’s Terms of Use word for word and (no I didn’t) I appreciate the fact that I can actually read their Terms of Service and have a pretty good idea of what they are saying. I’m thinking that GardenSprite if you were to write these for me it would definitely be slanted my way and then Jaybee’s attorney would slam it the other direction and eventually we would come out somewhere in the middle which is kind of my take on them, not exactly where I would want to be in an ideal world but not unreasonable either.

I followed up on another one of your recommendations and they are in good standing with The Alabama Secretary of State’s office which was good. Also checked with the Better Business Bureau and they were approved by the BBB last week and had no complaints on record prior to that. The last piece of info that I found was an announcement that was made when they opened their office. Article is http://blog.al.com/press-regis...be_home_to_onli.html In the article by the Mobile, Alabama paper it states they were capitalized with $245K and the City of Gulf Shores had issued tax abatements worth $15K. The fact the city stepped up to get them to locate there would indicate that they went through some type of vetting program locally and thorough the state. City officials usually aren’t willing to stick their neck out very far unless they are very confident their legit and had a good chance at being successful...

So I felt much better after working my way through all that and GardenSprite I appreciate your insight into the pertinent questions to get there, that was very helpful. I have benefitted substantially from your 40 years of experience working in the law field.

Jaybee being on the other side of this I’ll respond to your post separately. This is enough writing at one time. Thanks again.

This message has been edited. Last edited by: t_hanson,

Hi Jaybee.

Thanks for the follow-up to GardenSprite’s post. You guys are really making my research and understanding of the topic (more thorough) about protecting oneself when it comes to hiring a contractor to do my home improvement project.

With that said, I must say that your first sentence in your post may have been the most on target, that being it is an alternative viewpoint that lacks popularity. Before I take a shot at busting your chops though (haha) I want to commend you for being in the construction business and being able to operate for twenty years via word of mouth referrals and also for only having two bad clients. Both are pretty impressive statistics which you should be very proud of. They speak volumes about your ability to satisfy your customers. If more contractors could make those claims we wouldn’t need to be having this interaction.

Unfortunately there are too few of you and too many stories where contractors have not delivered that level of performance and in fact it’s not just that they didn’t satisfy the customer they flat our stiffed them. When you couple that with the risk of companies that go out of business there is a risk that some of us are uncomfortable taking.

You got me thinking, and since I’m pretty savvy with my laptop, I did a quick search online. Do you realize that in the past 3 years 13,000 construction companies have gone out of business? http://dash.allpaymedia.net/ne...ness-in-last-3-years That is a frightening number. Granted that represents companies doing commercial, residential and everything in between. I’m sure it represents the big and the small and if we have learned something through this recession size doesn’t mean sound. It represents companies that have been around a long time and a short time. They are all over the board.

Whether it’s a homeowner that had a bad performance experience or one that had their contractor go out of business before the project was done they’ve seen a downside that I don’t want to see with my project.

You know, when I was growing up every Christmas season we would watch It’s a Wonderful Life and at the end of the show everything came out perfectly, every year. It was/is a wonderful story. Unfortunately I don’t live in Bedford Falls. I have a project to get done and in order to get it done as cost effectively as I can I will probably bid out my project out to a couple contractors that after I go through a sorting process give me some level of comfort that they can do the work satisfactorily, on time and within budget. I’ll probably use a referral service like an Angie’s list to look at peer reviews and hope they’re not stacked, I hope I know someone who had used a contractor like you and had a great experience or they know someone that used some they liked. But in the end I accept the fact that I will likely use a contractor that I don’t know, and in fact I have never even heard of before undertaking this project. They will come to my home and we will talk about what we want them to do. If I’m not comfortable with them I won’t hire them. That part you are right about Jaybee. I think trust is earned it’s not a switch that’s flipped on. I may be comfortable that I am selecting the right contractor based on all the pieces of information that I can assemble and process but that doesn’t mean I completely trust them with my $10,000.

In society today it is difficult to develop a comfort level and trust level. You bring up good points Jaybee. I hate to draw an analogy but I’m going to anyway. Though I readily admit extreme I would ask how many people in State College, Pennsylvania trusted Jerry Sandusky during his 30 year career as one of the great assistant coaches in college football. Or how many people trusted Bernie Madoff in this case with their money over years and years. My only point here is that an element of precaution isn’t unreasonable even with people that have supposedly earned the right for us to trust them. My decision to use or not use Safepact or someone like them isn’t that I completely distrust my contractor as much as it being a prudent business decision that I would make to manage risk much like buying insurance. I don’t buy insurance because I think something catastrophic is going to happen, quite the contrary. I buy it because even though there is a relatively small risk that my house is going to catch on fire or get broken into, or I’m going to have a major medical issue or die I think the cost to manage the risk makes economic sense for me and my family. Even though I have insurance I still try to eat right, exercise on a regular basis and lock the doors on my house when I leave.

I have to say I was surprised at how strongly you reacted on this matter. I am having trouble deciding if your reaction was because you viewed it as an emotional decision rather than an economic decision and thus it was a personal matter. If that’s the situation we probably won’t resolve anything and I should take my queue from GardenSprite and having made my argument above I should now rest my case. You don’t want me as a customer if I want to use SafePact and I don’t want you as my contractor because of your unwillingness to use it., all in spite of the assumption I am a good customer and you are a good contractor. However on the outside chance it is an economic decision I think you should look at it is a cost just as your decision to carry liability insurance, workers comp insurance, to offer health insurance to your workers, to pay suppliers within terms to avoid finance charges etc. Some costs are optional (like the last 2) some aren’t (like the first 2). This is an optional cost that as a customer I should have the option to decide no differently than the shower door I really want or the nicer solid surface. I assume with the shower door or the counter you have an allowance in your budget and should I exceed the allowance you will charge me more rather than let it eat into your margin. Thus with my $10,000 project I am making an assumption that the peace of mind is worth $172.50 to me or I wouldn’t make the decision to use it and then you have to make the economic decision if you should charge me an additional $172.50 to cover your part of the cost. (those are the numbers off the website using their calculator) Personally I doubt if you estimate your costs for a $10,000 project within $172.50 but maybe as you are exceptional at customer satisfaction you are also exceptional at both budgeting and managing costs (within 1.7% exceptional).

Between what GardenSprite had posted and my research I think we have vetted most of the legit questions. However I can’t say that I buy into the payment timing concern (point 2). If I control the release of the funds then your only risk is making sure I’m happy. I think you are at substantially less risk on the money being tied up than if a bank was in the picture with financing. In fact because you know the money is there and I have no incentive to hold onto the money once the job is done you might get your money more quickly on average.

Jaynee, I do appreciate your points which cause me to think but in the end I think you should think through your position. As a good customer, I would hate to think as a very good contractor you declined my job on flawed reasoning merely because I am making an economic decision to help my family manage risk.

This message has been edited. Last edited by: t_hanson,

T_Hanson, you raise some interesting points, only one of which I want to comment on now as both of your responses, to JayBee and to me, deserve more time than I have now.

The 13,000 construction companies which have gone out of business in the last 3 years may well be an anomaly due to the protracted downturn in new construction. I think there were also a lot of start-up construction companies that began during the inflated real estate market prior to the collapse in 2007/2008 and the following years, so it may be that some of them (as well as some established ones) were only short-lived businesses to begin with.

It's an interesting statistic though, and somewhat unsettling.

This message has been edited. Last edited by: GardenSprite,

I'm going to try to keep this brief - as I've just put in 13 hours on an outside project with temps going over 100 degrees - and two more days to go. I'm hot, I'm tired but not really cranky. So...

1. I bet the stats on construction business failures are right on. I remember reading up on stuff like that when I first went into business. The one that really got me was that 96% of remodeling businesses folded within two years. We had a big celebration when we passed the 2 year mark.

2. You are correct on the allowance thing. Even more so in our method of doing business - we only charge on a cost plus basis although we do start with a written estimate. This way our clients are paying for exactly what it takes - if the project is more involved then it costs more, if some parts turn out to be less complicated, then it costs less.

3. My reluctance to be your contractor if you insist on using an escrow company is more professional than emotional. There are two main parts to this: As I know that I am not going to cheat you, I know that the additional costs are wasting your money. It's a part of my job to convince you that we are exactly what we say we are. If I fail at that then I really shouldn't be in your home, much less taking your money. From my end, I will also research you and I have no qualms about dropping a potentially bad client just like you would not hire a bad contractor. Plus, the contractor has the ultimate safeguard in the ability to place a lien. Since I do not cheat my clients, I do get a little ...um...miffed if a client decides to cheat me. I can and will keep an active lien on a bad clients house for however many years it takes until they decide to sell it - at which time they will pay for my part ownership in their house. As this last sentence sounds quite nasty, I'll point out that of my two bad clients I had to take one to court (he paid the morning of the hearing) and the other was settled because I successfully convinced my bad client that the above threat was true (which it was). My second point against the use of an escrow service is simply experience: As I said in an earlier post, the escrow type services that my clients have used in the past have never lived up to their promises - especially in payment timing. Again, this is a repeat of what I've already said but if you and I decided to work together as homeowner and contractor (with no escrow service involved) and a part of our contract was a requirement by you that you would be paying our invoices within say... six to eight weeks time - then I would be adding in some financing charges. Only fair as I would be carrying your money and tying up mine.

Final point (also a repeat) is that I believe that it is easier to find a local contractor who is honest then it is to verify that your escrow service is also just as above board. Just my opinion as I certainly don't know the reputations of every escrow service available.

Would I be your contractor? Yes I would. As you may guess, I am fairly through in my business and I appreciate that in a potential client. If you insisted on using an escrow service, my only qualm would be some guarantee on my part that the payment schedule would hold up to reality. As your contractor I would inform you that the use of a pay for escrow service is wasting your money. Also as your contractor I realize that there are many things that can give you piece of mind. If you didn't mind paying for the escrow costs to achieve that piece of mind, then it would not keep me from working with you as long as the payment thing holds up.

At that, all I can do is wish you the best of luck with your remodel project. You are approaching this large investment in your home in the correct way. Putting aside the escrow element the best advice I can give would be;

1. Get several bids. Three is a good number. Just make sure that everyone is bidding on the same thing.
2. If possible, find a friend, a co-worker, relative, even a friend of a friend who has done a similar remodel. Ask them if they can recommend (or not recommend) their contractor.
3. Go with your gut. If you go through all the details but something still doesn't "feel" right, then listen to what your intuition is telling you.

Or, you could always move to Knoxville, TN and give me a call.

Thanks guys. You just put together a very comprehensive of things one should be aware of before taking up a project. Great stuff