How do I protect myself financially when hiring a contractor?

Protecting yourself financially when hiring a contractor in Ottawa requires following Ontario's Construction Lien Act holdback rules, verifying insurance and WSIB coverage, and structuring payments properly to avoid scams and ensure quality work completion.

Payment Structure and Holdback Protection

Under Ontario's Construction Lien Act, you have the right to hold back 10% of each progress payment for 60 days after substantial completion. This holdback protects you if liens are filed against your property for unpaid subcontractors or suppliers. For a $50,000 renovation, you'd hold back $5,000 until the lien period expires.

Never pay large amounts upfront. A legitimate contractor should only ask for 10-15% down to secure materials, with the balance paid in progress payments tied to completed work stages. Be extremely wary of contractors asking for 50% or more upfront - this is a major red flag for potential fraud.

Essential Insurance and Licensing Verification

Before any work begins, verify your contractor has valid WSIB coverage through wsib.ca/clearances. If they're not covered and someone gets injured on your property, you could be liable for medical costs and lost wages. Print and keep a copy of their WSIB clearance certificate.

Confirm they carry minimum $2 million general liability insurance and ask for a certificate naming you as additional insured. For electrical work, verify their ESA license at esasafe.com/contractor-locator. For gas work, check TSSA certification at tssa.org.

Contract Protection Strategies

Always get a detailed written contract specifying materials, labor, timelines, and change order procedures. The contract should include permit responsibility - in Ottawa, contractors typically pull permits through City of Ottawa Building Code Services (613-580-2424), but clarify who's responsible for permit costs and delays.

Include penalty clauses for delays and specify exactly what happens if work doesn't meet Ontario Building Code standards. The contract should clearly state the holdback amount and when it will be released.

Red Flags That Signal Financial Risk

Avoid contractors who demand cash payments, have no fixed business address, or can't provide local references from recent Ottawa projects. Be suspicious of door-to-door contractors or those pressuring you to sign immediately. Legitimate contractors understand you need time to verify their credentials and get multiple quotes.

Watch for contractors who can't provide proper invoices with HST numbers, or who offer to do work "off the books" to save on taxes. This leaves you with no legal recourse and potential tax liability.

Payment Method Protection

Pay by cheque or credit card whenever possible - never cash. Credit cards offer chargeback protection if work isn't completed satisfactorily. Make cheques payable to the business name, not an individual, and ensure it matches their WSIB and business registration.

For larger projects over $25,000, consider hiring a lawyer to review the contract. The cost is minimal compared to potential losses from contractor fraud or liens against your property.

Official Resources for Financial Protection

Contact Ontario Consumer Protection at ontario.ca/consumer if you encounter contractor fraud. For construction lien issues, consult the Construction Lien Act guidelines. The City of Ottawa Building Code Services can verify if permits were properly obtained and inspections completed.

Remember, legitimate contractors welcome verification of their credentials and understand your need to protect yourself financially. If a contractor resists providing insurance certificates, WSIB clearance, or proper contracts, find someone else.