Protecting Homeowners Through Renovation Education

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BOOTCAMP

Background and Basics


Deadly Assumptions of Contracting

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1. Do not assume all contractors are insured, registered or licensed and have adequate cash flow.

It is necessary to verify adequate and appropriate insurance, registration, licensing – whatever it is that your state or municipality requires of contractors (which you will be investigating) – and cash flow to see your project through to successful completion. This is important because it protects you from illegal and unethical contractors with cash flow problems and contractors with a high default risk. Construction contractors are normally considered high- risk borrowers; they have a historically high rate of bankruptcy and as a result are charged a higher interest rate in most of their financial borrowings.

And for this reason you’ll see unethical contractors front-loading their contracts to get as much money as they can to stay afloat. Always be mindful of what your money is paying for and only after it has been delivered or performed.

2. Do not assume that references, referrals and recommendations are a reliable indicator of a contractor’s past performance or a trustworthy indicator of your projects’ success.

Contractor references are only an indicator of how many references a contractor can come up with. It’s one of the biggest misleading factors that consumers’ base their choices on when selecting a contractor.

3. Never assume you can rely on litigation to bail you out if there is a problem.

Of course, no one thinks about litigation going into a remodeling /building project, but when you’re faced with serious problems it’s easy to believe that the courts will see your case favorably, given that the contractor has in some way breached the contract. (Shoddy work, abandonment, took the money and ran etc).

Litigation is expensive and even if you win your case there is no guarantee that you will collect (remember those bankruptcy stats?). But this point bears repeating because PREVENTION is light years more effective than litigation. Having been through litigation and having the benefit of hindsight, I know for sure that preventing a home remodeling disaster is key to having a more positive experience overall.

4. Do not assume all contractors understand what you need and your architect wants – even when it sounds like they do.

It is necessary to conduct an exhaustive specification and scope of work review. This will be covered in the core lessons that follow but I can tell you that your project lives or dies when these two parts of the contractual agreement are either tightly detailed or sloppy at best.

Even though the architect and engineer take care of the technical content, it is critical that the specification and scope of work are clear and complete so that all contractors have the same understanding of exactly what should and should not be included in their proposal. Without doing this, it’s impossible to get proposals that can be compared on an apples-to-apples basis. This is key because it ensures that the contractor knows exactly what you’re asking them to do. Take great liberties when reviewing these elements with your architect, asking for clarification on any and all elements that you question or don’t understand. They charge you enough for these plans and specs so be sure to get your moneys worth in return.

5. Do not assume the contractor proposal includes everything it should.

It’s necessary to conduct an exhaustive proposal review to ensure the proposals actually have apple-to-apple information. Proposals that are not clear, complete and uniform cannot be compared. Period. The price of a proposal has no meaning if you don’t know what’s included. You might as well just throw caution to the wind and jump in hoping things will go smoothly. Not a chance, especially when renovating an existing home.

So let me repeat this: The price of a proposal has no meaning if you don’t know what’s included. This is important because it ensures that you know exactly what the contractor intends to do, based on his proposal. Do not let this escape you; your due diligence on this needs to be in high gear. This is where folks get hit with change orders because the final contract they sign is missing some details from the specification sheet. And while I’m on my soapbox, I just want to be clear that this is all put in writing and not in conversation.

6. Do not assume that the contractor’s payment demands will be fair, reasonable and balanced.

Controlling and reviewing the payment schedule is an absolute must. You never want payments to get ahead of work that has yet to be performed. This is where consumers either maintain or lose control of their project. If done correctly you will maintain control. If not done correctly you will lose control and the project can go south very quickly. It is vital to set the payment parameters and schedule right up front as it will ensure that both you and the contractor know the “how much” and “when” for each payment made. Along with this, obtaining Lien Waivers upon each payment made will also be part of managing your project and will be covered in greater detail in the course outline.

7. Do not assume that the terms of the agreement, which the contractor supplies, are fair, reasonable and balanced.

It is necessary to conduct an exhaustive contract review. Your attorney takes care of the legal content. You should also consider a construction expert – or your architect – to review it for recommendations that will keep you in control of your project. This is important because it ensures that important controls are in place to protect you.

8. Do not assume that all work will be performed safely, according to specifications and meet quality, best practices and minimum workmanship like standards.

OK- so this is another part of you being engaged in the overall project management. You absolutely want to have some idea of what is going on and to keep a written account of what you observe and any questions you may have to review with the contractor. It is necessary to monitor on-site activity to ensure that the Scope Of Work and Specifications are being met and also to help ensure that workers do what they’re supposed to as safely as possible. Here’s a case in point: During our initial construction, I came home in the afternoon to some of the workers discussing a problem they were apparently having. I ask them what the dilemma was and as it turned out they had miscalculated the base of measurement for the height of the new addition. Now, I knew where it had to be taken off from but they did not and instead used an 18” high landing and that put us over the height limit by 18”. I stopped the project (the contractor from hell was nowhere to be found) and directed them to wait until we got a hold of him. This was a costly mistake that only got worse from there on out.

Another instance was an every day “clean up at the end of the day clause” we had included but that they failed to adhere to after awhile. That was brought to their attention and remedied immediately. So these are just a couple of examples of how you should be keeping your eyes open to the various nuances going on with your project.

9. Do not assume that code compliance inspections will ensure these criteria are met.

Code compliance inspections are designed to ensure that building code requirements are met. They do not ensure quality.

And it’s easy to see why folks think that passing of an inspection ensures quality work. Even inspectors will miss the bare minimums if they’re rushing through an inspection. They did on ours and they are immune to any legal action even though one may suffer damages as a result. So your architect or third party inspector that you may want to hire to inspect at various stages in the construction process would be helpful in verifying workmanship.

10. Do not assume that a contractor will not ask for payment that isn’t due.

It is necessary to monitor payments to ensure that the progress payment schedule is adhered to. This is important because it keeps you in control.

11. More than anything, do not assume that nothing could go wrong – especially if you know the contractor.

A complaint I have received one hundred times over. In fact, one that I received recently was from a husband whose wife was friends with the interior designer and the wife insisted that they use her and the designers’ contractor despite the fact that he wanted to get more bids. Long story short, they had a budget that doubled with change orders occurring at every turn and the $350,000 became $690,000 and her “friend” the designer and her contractor just shrugged and said that’s typical in renovations. NOT!!!! Recall that spec sheet and scope of work that is detailed and leaves no room for frequent change orders? Guess those two made out like bandits and are enjoying some fabulous Mediterranean vacation on them. Such a sham but it happens in this industry to unsuspecting folks who believe “their friend” would never do anything like that.

Every one of these points made is critical to a successful project. When done correctly they will put you in control and minimize financial loss if serious problems do arise.

Finally, many projects will go well and there will be no disasters. The best way to ensure that yours is one of them is to structure your project carefully, following the guidelines presented throughout this course.

A construction consultant put together this list for those who are planning on renovating and working with contractors. His straightforward talk on this is based on 30 years of working in construction and “cleaning up” other contractors’ messes, as well as working with homeowners who plan on remodelling and want to do it right. Though it comes off sternly, it’s a reality that all of us need to be reminded of as we begin to plan our remodel and begin the search for a contractor.

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