We are looking to do another rehab and need to hire someone because it is a bigger job. Is there contracts that we should have the contractors sign to protect our investment?
leal705,
There are many ways to deal with contractors that will protect you, but more importantly keep the progress going. You need to remain in control… I answered this almost a year ago… so this part is copy and paste…
[i][b]"I can tell you one quick way to protect yourself, remove a layer of cost (mark-up for materials, delivery, etc.), manage those costs and not become a victim of the “robbing Peter to pay Paul” cycle that so many contractors fall victim to. Purchase and provide your own materials for your projects and only hire out the labor. It lowers your project costs, and negates the main reason most contractors ask for upfront money - materials. Set-up your own trade accounts under your business name to get the same discounts they do. It also gets you more intimately involved with the costs associated with rehabbing and over time (when you’ve developed an accurate costing spreadsheet) allows you to project what deals are actually deals vs. hoping you got it right.
By only contracting the labor portion, you offer to provide weekly or bi-weekly progress payments based upon pre-set production benchmarks. Establish upfront a timeline for the project (i.e. - project days to complete each phase), and at each completion stage, you provide the funds to cover the labor (a percentage of the total labor pre-established). This keeps them focused on your job, as they know they will get paid. I would also provide them with 5% of the total labor upfront. Then let them know that the next check is available when they reach the next agreed-upon stage. If they walk for whatever reason, your only liability is their pay up to that point. Make sure you also provide a clause in your contract that time is of the essence in relation to the project and that work is expected to be completed as outlined in the timeline that was established in a professional manner, and that if work stops or no progress is made for X numbers of days (yes, you need to check up on them) without notification that continued employment/payment is at the sole discrection of XYZ Company (you).
I would approach them by saying that the way you work is to streamline the process to be the most efficient and take delivery schedules, ordering, etc. out of their hair to free up their time so that they can focus on the project and getting paid. Just make sure you don’t drop the ball…"[/b][/i]
With regards to plumbers and electricians, if there is work that requires permits/inspections, make sure THEY pull the permits and arrange the inspections, and be there for the inspections and to hand them a check. 50% on rough inspection and 50% on final inspection. If it is simple plumbing/electrical work (1-2 days), just pay them when they are done…
Landscapers - get a project completion timeframe, and have them provide you with a receipt for materials to be paid, and most landscapers (unless you’ve worked with them for a while) will not let you get away without at least a 25% deposit. You may find someone who doesn’t and then if they are good ALWAYS use them first… But and here’s key, if there is a deposit, tell him you will provide it along with the material payment and at the end of the first day of work.
Great Advice!
Lets talk about reality in regards to rehabs and protection of assets and limiting risk.
First, there are two major types of contractors:
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General Contractors, this type of contractor hire’s, schedules and manages a group of sub-contractors to complete a project on time and under budget.
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Sub - Contractors, also known as “Subtrades Contractors” examples of these would be plumber, electrician, roofers, mechanical contractors (HVAC) and so on, these trades are experts in one area of construction.
Now if you have a project you want done and you seek someone to directly manage it, you would choose a general contractor.
Now if you have a project and you want to manage it and remain in control you probable want to hire your sub-trades directly, basically making you the general contractor.
Now, let’s talk about the legalities, in the US today roughly 40 states have “Contractors License Laws” and requirements mandating requirements to do business as a contractor.
There is a fine line between an exemption allowing you to manage your own property and the state defining you as a contractor, when you own a property as Jim or Jenny Jones you are normally recognized as an individual owner and generally are not interfeared with.
However when you start writing contracts and making agreements under a DBA (Doing Business As) and especially when you are a Corporation or LLC (Limited Liability Company) you can be assessed as a contractor and cited and required to cease and decist and register as a general contractor.
In some states being the property owner is recognized as exceptable whether by personal name or business name, other states want to cite that a business name is a commercial enterprise and requires a state license.
States like Washington require you be registered as a contractor regardless of property ownership and they don’t care whether your working on your own property or not, unless you completely sub-contract every facet of your project so no unlicensed individuals work on your project. Meaning no direct labor. (This means no handy man for a day here or day there.)
It is not reasonable to think your going to do all the shopping for your sub-contractor, first 8 out of 10 investors have no idea what the names of various parts and fittings are, they have no idea what is reasonable or unreasonable in the design (As Built) process, and have no idea what current building codes are or what is required to properly install the product.
It is however reasonable that you as a property owner would pick your finish products and supply them to your contractor, but this is a labor intensive venture through your local Home Depot or Lowe’s.
Finish products are your bathroom fixtures, the vanity, vanity top, your vanity faucet, the toilet, the tub if it’s being replaced, your tub surround or tile tub backing and your tile floor and finish fixtures both lighting and your towel bars, paper holders, robe hooks and towel ring.
You can pick and purchase your kitchen components and supply these items to your contractor, these things include the cabinetry, the counter top, the hardware if required, your kitchen faucet, sink and light fixtures, and of course the appliance package.
These items and your scrutinized purchase will save money, but you will still spend time and money to either have these materials delivered or you pack them in your truck and unload and stock these items in your project.
You can pick and choose your own paint, but this may not really save money. We use Dunn Edwards paints and have there best discount, yes, we pay more for the paint but we save in not having to double coat area’s because the cheap paint we bought does not cover well. Certain things like paint we learn the hard way, so don’t feel like your all alone in that learning curve.
However, it is not reasonable to think your going to supply all the materials, to install kitchen cabinets shims are required, long or short ones? How long are the screws? Should they be standard heads or philips? Are you going to need special mounting brackets? Do you create a ledger board? If so what size?
Most all of the fittings, caulking, fasteners, etc. should be supplied by your contractor, and all of the supplies for your HVAC, Plumbing and Electrical systems should be supplied by your contractor, the warranty required by state law may not be enforceable on materials you supply for these trades and these trades are your largest liability.
In a complete home remodel in the price point between $1k and $250k you probable will not have any contractor on your project for more than five work days, and certainly not more than ten days.
A good qualified contractor probable will not request any money for payment until his work is complete, all the contractors we work with supply materials and labor to finish there work prior to payment, we have screened these companies in advance, seeked and checked references, checked the state license board for infractions or mitigating complaints against the license, and talked to other trade’s to get there impressions of the work they do.
Just remember if you choose to get the supplies and they are not on the job when you schedule the contractor, they are going to back charge you for the wasted time (waiting time) or trip charge.
Also keep in mind unless you have a career in construction, if or when you do the design and your design does not work, your contractor will create a change order, if you request your contractor move something or do something he will create a change order.
A remodeling contractor may be the exception to the normal sub-trades project as this type of general contractor may have there own crews of tradesmen who are proficient in lots of trades and capable of handling a project “in house” from start to finish.
In construction we use and schedule the project according to the critical path, this process ensures that components (trades) are completed in order of most critical for rapid on time completion.
Depending on the state your in you may want to let your sub-contractor write the contract as if problems arise in most states the courts side with the consumer in the majority of owner / contractor disputes.
That does not mean you can’t take your contractors contract and add to the contract or scope of work, you write your desires on a seperate paper and ask that they be included in your contractors contract.
Ask your contractors for any substancial material purchases to supply a material lien release, and that your contractor furnish labor lien releases and if your contractor is there more than a week, your contractor can supply a partial lien release for completed portions of the project.
And when the project is completed you should ask for a completed project lien release and you can always hold retainage against your contractor until completion, retainage is usually 10% of the project and is held until all punch list items and details are completed and proof that all outstanding bills have been paid.
Material cost’s are easy to memorize, but your ability to read the terain is subject to years of learning, you can have two bath rooms and have $3k more in cost to one and not even see it, rot, mold, improper structural integrity, age, and condition can greatly effect price.
If you need more specific help on construction projects and details send me a PM with a way to talk to you and I will get back to you.
GR
One thing I have found over the many years of doing this, is that there are 4 to 5 ways to do everything in this business… you will ultimately have to decide for yourself how you handle your project(s), but I can tell you that the ONLY way to learn is by doing…
With regards to purchases, the majority of the purchases that you see (i.e. - painting, flooring, cabinets, siding, roofing, moldings, doors, windows, etc.) are all going to be decided by you anyway. The proper way to do this is to get your materials list together, and put it out to bid (RFP) to your local suppliers for the whole order. Once you have the order quote back from your suppliers, assuming same quality materials, go with the lowest or get them bidding against one another… Home Depot and Lowes BOTH have a volume pricing department, and drop their prices substantially for orders over $2500… Add that you are not paying an upcharge to the contractor and your savings start to soar. If you’re smart, you will also then open a trade line with HD or Lowes, and you get an additional 10% off your first purchase… You can also have the materials delivered as needed. No matter who delivers them, there will be a charge…
BTW, you DO NOT want to have all your materials delivered at once… You should however, be able to get a whole house remodel done with 5-7 deliveries, at $50-$85 a pop, worth EVERY penny to protect materials from damage and theft… You will pay more for your deductible than you will for deliveries…
From these material lists, you have the makings of a Material Spreadsheet, which you can use for future remodels, KNOWING what your costs are…
“However, it is not reasonable to think your going to supply all the materials, to install kitchen cabinets shims are required, long or short ones? How long are the screws? Should they be standard heads or philips? Are you going to need special mounting brackets? Do you create a ledger board? If so what size?”
I wasn’t referring to consumables here… Most contractors (no matter their trade) automatically assume they will provide screws, shims, caulk, garbage bags, etc. for jobsite… That is like saying that you hire a landscaper and they don’t know to bring garbage bags. Or a plumber doesn’t know to bring flux or solder… they are part of the trade… If I had a contractor say to me he DIDN"T have these things ALWAYS on hand, that would be a red flag…
This is also easily taken care of by simply asking them what consumables (as they are referred to in the trades) they normally provide… Ask them this BEFORE you get the estimate… In the estimate, they will tell you what they are charging for, and you will know what it is needed on your end, as most reputable contractors spell out what they provide or not…
“Most all of the fittings, caulking, fasteners, etc. should be supplied by your contractor, and all of the supplies for your HVAC, Plumbing and Electrical systems should be supplied by your contractor, the warranty required by state law may not be enforceable on materials you supply for these trades and these trades are your largest liability.”
Plumbers and electricians ALWAYS have what they need to do the rough-out… It is the fixtures, which the investor/homeowner will be picking out anyway… These are the materials I am referring to…
“In a complete home remodel in the price point between $1k and $250k you probable will not have any contractor on your project for more than five work days, and certainly not more than ten days.”
That depends on the scope of the work, inspections needed (rough and finish), which need to be scheduled, which depending on the time of the year can easily go past 10 days, and that’s assuming it passes inspection the first time… But one quick way to get spped this process up is to get to know the inspectors, be there when they are, show them your penchant for a quality product, that you actually manage your projects…
“A good qualified contractor probable will not request any money for payment until his work is complete, all the contractors we work with supply materials and labor to finish there work prior to payment, we have screened these companies in advance, seeked and checked references, checked the state license board for infractions or mitigating complaints against the license, and talked to other trade’s to get there impressions of the work they do.”
Yes, and you will pay more for these services UNLESS you are providing volume. Trade lines are what make this happen, and I have many for my business, but especially in an environment we are in now, unless I have worked for you on multiple projects, I would not consider giving you an interest free loan on the back of my tradelines… A mechanics lein takes lot of time to collect on…
“Just remember if you choose to get the supplies and they are not on the job when you schedule the contractor, they are going to back charge you for the wasted time (waiting time) or trip charge.”
When you are getting the quote on the labor for the project, you simply ask for a supply list. When you have a project timeline, you will know when to have it delivered… This is part of setting up the scheduling and keeping a project log and doing inspections… Wherever you have a point on an agreement from a contractor like this, have a counterpoint… if they are going to charge you for late materials, you have a counter-point that they will be charged if they don’t show when they say they will or are not there when the materials are being delivered… for the BS’ers, this usually shuts the door on this issue…
“Also keep in mind unless you have a career in construction, if or when you do the design and your design does not work, your contractor will create a change order, if you request your contractor move something or do something he will create a change order.”
Yes, this will be the case no matter who controls the project, you or the contractor… You WILL make mistakes, changes WILL be made, and if it goes beyond the scope of the original project, of course, they should be compensated. Likewise, if a change is made that saves the contractor time, and thus you money, be sure to also make a change order for this… it goes both ways…
I can tell you, if it is a matter of an hour or two, this is not even an issue with me… only when it passes the half-day point… as most changes that are of any substance, will require a change order… If you have someone who is nickle and diming you for every other thing, it is something to note for the future…
“A remodeling contractor may be the exception to the normal sub-trades project as this type of general contractor may have there own crews of tradesmen who are proficient in lots of trades and capable of handling a project “in house” from start to finish.”
And this is who you are after… aside from Plumbing, Electrical, and Landscaping, most remodelers can take care of the remaining projects under one scope… It is what they do…
BTW, in the scope of the project, you can have them include a quote for electrical and plumbing, as I can tell you, I get prices that you won’t and it will likely save you money, IF I decide to pass the saving along to you… usually I split the difference and we both make out…
“Depending on the state your in you may want to let your sub-contractor write the contract as if problems arise in most states the courts side with the consumer in the majority of owner / contractor disputes.”
Agreed that the courts will more often than not side with the consumer, but IMHO it is a bad idea to let the contractor set the controls on your project… YOU set your terms, and find someone to work within them… By doing so, you put the control in your hands at the beginning at the back end…
“Ask your contractors for any substancial material purchases to supply a material lien release, and that your contractor furnish labor lien releases and if your contractor is there more than a week, your contractor can supply a partial lien release for completed portions of the project.”
The primarily reason for material liens are asset protection… If you are in control of the materials (not the $5 box of screws, but the $3k worth of cabinets), this negates the need for this…
With regards to a labor lien. they can choose NOT to do so. This is where it is important to keep control of your project. Why it is important to pay a work progresses, and why it is important that you include…
“Make sure you also provide a clause in your contract that time is of the essence in relation to the project and that work is expected to be completed as outlined in the timeline that was established in a professional manner, and that if work stops or no progress is made for X numbers of days (yes, you need to check up on them) without notification that continued employment/payment is at the sole discrection of XYZ Company (you).”
This way you are only liable for the work they actually perform… with this clause, their lien will not hold water, as there were specific performance parameters they agreed to as a condition of doing busness with you…
Good Luck…