I have heard more than my share of stories of Owner’s selecting friends of a friend, relatives of a relative, and in-laws of an in-law to be their contractor only to be disappointed in one way or another.

Today I have a story of a couple that trusted the best friend of a cousin only to have that person steal their money and leave them with an incomplete, unsafe structure.

“His cousin has been my best friend since first grade. I just assumed he was good” was a quote attributed to Krystal Johnson, the woman who gave Daughenbaugh Construction and Remodeling $220,000 to build a new home in Indiana.

Daughenbaugh started the project, but failed to complete the home.  Johnson estimates she is out $170,000 and has been hit with liens from subcontractors that Daughenbaugh failed to pay.

A second story out of Huntsville Alabama tells us that Dom Concrete took $10,000 from a Homeowner and then failed to return to perform a driveway repaving project at her home.

The Homeowner chose Dom Concrete using the HomeAdvisor contractor matching website.

HomeAdvisor claims that they perform background checks and verify the integrity of all contractors on their network, but the Owner of Dom Concrete was implicated in several similar scams throughout the state of Alabama.

So what can we learn from these stories?

Well, there is no substitute for performing a proper due diligence.

Just because someone you know is related to, friendly with, or even if they previously used a contractor, you should never select a supplier without conducting your own due diligence.

So Today I want to review all of the ways that you can (and should) verify the integrity and qualifications of your contractor before you make an award.

Google search

You might think that google searches are a waste of time, but the truth is that Google is a great and easy way to quickly research suppliers.  I like to start supplier searches on Google because it takes very little effort and if there is truly something bad to discover about a supplier, google searches turn those facts up very quickly.

When you search for suppliers on Google you need to be sure you search the company name exactly.  Also, make sure to use the name of the City where the Company is located.  This will ensure that you find the correct supplier.  There are many suppliers with the same or similar names and it is very easy to mistake one for another.

When you do your search, make sure to look at search results under the “All” tab and also look under the “News” tab.  If the Company you are researching is big enough, any negative news may come up in the “All” tab, but if the Company is not very big, the “News” tab will bring negative news stories to the top.

Background checks

If you are working with a small Company you probably know (or can find) the name of the Owner of the Company.  Background checks on the Owner of a Company is a great way to tell what kind of individual you are dealing with.

There are many online companies that will run background checks for you.  In the past I have used Intelius, but any one of the hundreds of background search firms will produce the same results. A full background check on Intelius is $49.95.

When you run your background search enter in as much information as possible.  A home address is essential for making sure you have the right person.  Ask prospective suppliers to provide you with their full legal name, home address, and business address.  Make this a condition of doing business with you and everyone should comply.  When you run your search, be sure to ask for a multi-state check.  This will ensure that if the business owner was ever charged in another state, those indictments show up as well.

Credit Checks

You can run a credit check on any company using D&B Hoovers’ Supplier Risk Dashboard.  This tools gives you information on the credit worthiness of the Company.  The report includes information on whether the Company pays it’s vendors on time and the risk of insolvency of the company.

A single report costs $61.99.  The accuracy of this information is not perfect, but it does give you some independent data that you can then use to come back to a Supplier and question them on specific things.  If anything does not seem right, you can go directly to the Supplier and ask them to provide more background.

D&B Supplier Risk Reports provide an excellent amount of data across the United State and Canada, but outside of the US, the information is less complete.  Regardless, I always run a D&B report on every supplier even if I have worked with them in the past.  This gives me an unbiased third-party view on the supplier.

I’m certain that D&B’s directory does not include everyone everywhere in the world, but I will say that throughout several years of using D&B, I have yet to encounter a region where I got no results or had a circumstance where a specific vendor could not be found.

Reference Checks

I have to admit that I do not call references every single time, but I do request references from every supplier every time.  Typically I defer to my Client and ask them whether they would like me to call references and more often than not, they opt not to call.

This reflects what I do professionally, but when I hire suppliers for myself, I always call to verify references.

My advice to you, whether you are a residential homeowner or a commercial facilities manager, if you are working with a supplier for the first time, you should always call references.  I’ve written about how to call a contractor’s reference before, so I will link that article for you here.

Better Business Bureau

The Better Business Bureau is a staple of supplier research, which I know many people rely on, but by itself, it is not fool proof.

The Better Business Bureau relies on industry self-regulation.  This means that despite it’s stated focus on advancing marketplace trust, it does so on the basis of pledges from dues paying members to adhere to a Code of Business Practices.  There is little to no oversight over these member businesses and there is very little in the way of repercussions for those who deviate from the code.

If you do a BBB check, don’t rely solely on the BBB rating, do your own due diligence and verify what you find.  On the flip side, if you are researching a supplier and they are not affiliated with the BBB, don’t discount them on that basis alone.

Referral Services and Online Reviews

As we saw from one of our reference stories Today, referral services such as HomeAdvisor and Angie’s List are not fool proof either.  These services are a great way to develop a list of suppliers, but you must do your own due diligence in order to validate the supplier’s qualifications.

Online reviews in these services are generally provided by two extreme groups of reviewers.  On the one hand you have malcontents that rush to the internet to complain about one missed call and on the other you have Pollyanna’s who see the world through rose colored glasses.  It is rare to find reviews of service providers that are well considered and thoughtful.

If you want to use online ratings as a measure of past performance, use them in conjunction with other references and data to validate the ratings.  Pay special attention to well-crafted  responses to negative feedback from the Supplier himself.  Often Suppliers will monitor their online rating and respond to negative reviews.  This is a sign that the supplier is contentious and cares about his reputation.

Closing

Unfortunately, there are a lot of unscrupulous contractors.  As we saw from the experience of Krystal Johnson, even someone who is a warm connection with ties to family can take advantage of you.  Most people fail to perform due diligence because; they don’t know how, they fear of offending, or they don’t think it’s important.  Most people simply get lucky and find a Company that does what it says it will.  Others learn this lesson the hard way.

What about you?  Do you run due diligence on every contractor?  Do you rely on warm connections for making award decisions?  Tell me your stories.

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