A friend of mine has told me about his horror tale of having to complete a massive renovation to his house. Unfortunately, the story is all too commonplace in the world of residential construction. I informed my colleague that there were specific security measures to prevent the problems that he encountered. These precautions are standard for commercial construction projects, but they could be utilized in residential projects. There aren’t any guarantees for every issue, but the inevitable bumps in the road will not turn into unintentionally disastrous if you’re aware of the five most common ways to get ripped off by contractors.
1. Employ the lowest bidder.
If you employ a Design-Bid Build structure (which is when you employ an architect to design the structure, then you bid on the drawings, and choose the lowest bidder to construct), you’re at risk for the possibility that contractors give you a price that is enticingly low at the beginning, and then demands change orders for additional money due to “problems with the drawings” or “unforeseen circumstances.” If the price is significantly lower than the bids of competitors, the chances are that it will be.
Solution #1: Work with the general contractor and architect together (this is known as Design-Build or Integrated Project Delivery, based on the type of contract you choose to use). This means that the contractor is not entitled to additional budgets in the event of “problems in the design plans” since the contractor is responsible for the drawings because they’re working along with the architects.
Solution 2: If you don’t choose to employ the general contractor and the architect together, you can select a contractor whose name is within the same ballpark as other bidders. It is essential to have a clear discussion with them prior to executing the contract regarding the kind of things that you’ll not allow as change orders. Sometimes, a firm attitude on this issue will show that you’re an intelligent customer and may stop some unacceptable conduct.
2. Don’t look at the amount in the bonds.
If a contractor has been secured, it is because they have deposited some funds in a specific account. That’s why the bank will issue the bond as a performance bond. This bond is issued to you to keep until the project is at significant Completion. It protects you from the contractor leaving before your project is completed. If the contractor doesn’t deliver and you need to give an order to terminate the contract, and you want to cash in the bond certificate to pay for hiring a different contractor to complete the project. But even if the contractor claims” licensed and bonded,” it doesn’t mean that the bond is “licensed and licensed and” it does not mean that the bond is large enough. In the case of my friend, the contractor vanished with more than $45,000 to be completed, but the bond was only valid for $7,500.
Solution #1: You must have evidence of a performance bond specifically for your construction project and in a sufficient amount to cover the entire construction costs. Since banks charge fees for these bonds and your contractor is likely to transfer these bank charges onto you. It’s worth it. To reduce these costs, you may sign off on reducing the amount of bond upon certain milestones.
Solution 2: Instead of having a bank ask for bond certificates, You can opt to keep a retainer. That is, keeping 25 percent or 50 percent of the contractor’s earnings during the initial few months will create an insurance policy from which you will be able to take to finish the work if the contractor is unwilling to work with the project. As with a performance bond, the money you hold back should be kept until you’ve reached Substantial completion.
3. You can make substitutions.
If you and the architect select items such as paint, plumbing fixtures, carpet or others. Your contractor is legally bound to supply the items listed in the documents for construction. Sometimes, the contractor claims that they’ll provide you with more for less cost, and it’s tempting to accept. Mainly in residential projects that have non-professional contractors, it’s not always the scenario where the builder is in your best interest when they offer alternatives. It is usually suggested as a way to reduce costs or time spent on the installation process, but only a tiny portion of that goes to you.
Any replacement should be run by the architect to confirm that it is in line with the standards of quality and performance you agreed to previously and that costs money. The savings that can be realized from the change is needed to allow for the architect to study your new item.
Solution: Before negotiating the construction costs together with your builder, ask him to go through the design documents and present the case for any substitutions which he believes are required upfront. Be explicit that no changes are allowed following the initial review. This lets the contractor share the knowledge that he may possess from his experience in the real world, however, in a controlled way. The architect will review the input of his clients on products, and any modifications will be made and then incorporated into the design document before the contractor submits his proposal.
4. Don’t trust their word that % complete.
Each month, your contractor will file an application for pay, asking that you pay him according to the percentage of construction completed. Untruthful contractors often increase the percentage of completion so they can make more money from your pocket faster. If the contractor can get a significant percentage of their fees early, the contractor has a significant incentive to pull out of the project. If they choose to end your project after you’ve ratified, for instance, 80 percent completion, the bonding company will only pay 20 percent of the construction cost to complete the project.
Solution: For commercial projects, it’s generally the architect’s responsibility to ensure that the % of completion is correct. In the course of an architect’s monthly job walk, he will confirm the percentage of construction the pay application claims to be fully completed. It is an architect who’s the one who is most skilled and experienced in the entire extent of construction since it was the person who designed the project.
5. Do not verify that subcontractors were paid.
My friend was unhappy with the experience of having to pay the general contractor of his business month after month but then found that a few of his subcontractors weren’t paid. Subcontractors who don’t get paid may be able to put an obligation on your property in order to guarantee the payment, even if it was the general contractor who has cheated them. When the general contractor resigned from his work, My friend was then forced to double the amount he paid some subcontractors.
Solution: Every month, when you receive your payment request from your general contractor, ensure that all subcontractors are compensated for the month’s work prior to signing the pay application for the month in question.
Traditionally, architects provide these services as described above, but it’s becoming typical for clients today to complete a lot of these on their own or employ a third-party project manager. However, regardless of who does them, keep in mind that the same precautions should be applied to renovations for residential properties as it is for commercial projects of a large size. If a contractor is having issues adhering to these rules of protection, then let them go and go with an experienced company.