Hiring a GC for a complete build

[ishiboo]

At this point I have less time than money, which is not a lot, but I'm just about ready to sign with a contractor for my garage/laundry room/mud room attached build. I'm to the point where I want someone else to deal with quality issues, people showing up, etc. And I want to move in as fast as possible!

The stupid thing is, as often as I have built/remodeled/etc, I've always subbed the individual contractors myself, paid for materials myself (with about 80% being from big box stores vs a lumber yard) or reimbursed the subs for their expenses, and paid them hourly or by the job at intervals we've agreed upon. This is the very first time I've hired someone with price $X and had them take care of it.

They're asking for 30% down prior to ordering materials. That seems reasonable, and I have the full amount waiting... but is that appropriate? Are there any performance considerations I should put into the contract? Obviously portions are weather-dependent, but I don't want it dragging on for 3 months.

How should additional payments be made? Anything else I should plan/think about/etc from this perspective?

 

[driftpin]

I assume you're going to do it permitted? Hold-back enough to make the completion of the job equal to the profit, it's 'incentive' for the project manager to complete the work, and close the permits.

Try this:
10% to commit the contractor's time in his schedule
20% when the plans are approved
25% for ordering materials, you could pay this directly to the building supply house
25% for getting the shell built, dried-in, and inspected
20% upon passing the final inspection

That way, your 30% down at least gets you a set of approved plans, and scheduling in the contractor's work year.

The next 25% gets you most of your structure building materials.

The next 25% gets your shell up and a roof on it, and windows and doors in. You won't be able to get the doors and windows inspected until after the interior build-out, but you will have a secure building, and a shell inspection for most of the structural work.

The last 20% is the interior finish work, and the final inspection (and his profit).

Don't forget to file a 'notice of commencement' which is probably a requirement of your local building dept to get the permit issued. This protects you from having to double-pay if the contractor doesn't pay a sub-contractor. Without it, a sub-contractor can and will have legal financial restitution against you, the homeowner, if the contractor doesn't pay him.

 

[Git]

Does your state have a Contractor's Licensing Board?

If it does, I would see if they published anything about a payment schedule. For example, here in Californias, there is a legal limit regarding down payments.

"it is illegal to ask for or accept a down payment of more than 10 percent of the total home improvement contract price or $1,000, whichever is less"

http://www.cslb.ca.gov/Media_Room/Press_Releases/2012/August_15.aspx

Also, they can't get paid before they do the work, or for materials before they have been delivered

You may find this helpful:
http://www.cslb.ca.gov/Resources/GuidesAndPublications/ContractingForSuccess.pdf

 

[Shiftless]

You said...

"They're asking for 30% down prior to ordering materials. That seems reasonable, and I have the full amount waiting... but is that appropriate?"

It may be a local custom where you are, but I think any well established GC would have a line of credit at supply houses and not rely on such a big advance. To me, asking for 30% down at that point would be a red flag.

 

[Richard Cranium]

I seen it broke down, as I remember the last 10 percent didn't get paid until 30 days after completion, so any problems get handled promptly.

 

[mygarageone]

You said...

"They're asking for 30% down prior to ordering materials. That seems reasonable, and I have the full amount waiting... but is that appropriate?"

It may be a local custom where you are, but I think any well established GC would have a line of credit at supply houses and not rely on such a big advance. To me, asking for 30% down at that point would be a red flag.

Hell I get 2/3 down . I refuse to work on my credit and free time . No one complains where we live. I pay up front for all my materials and expenses .
I haven't yet held the bag on materials for a job .
I hate chasing my money , besides all the construction laws favor the home owners .

 

[uscarry45]

The down payment is reasonable put I would write the contract so you pay as you go say 10% upon foundation complete - another 10% when framing is done and so forth.

Also be very careful as to ensuring the contractor you hire pays the sub contractors he hires. You can be held responsible for paying sub contractors if the contractor doesnt pay them -- even if you have paid the contractor if that makes sense. I would add in the contract that you see all paid invoices.

 

[glentre]

One would need to recognize local construction practices to determine if your GC is being reasonable or not. However, asking for 30% down before doing any work or delivering any material, in my opinion and considering norms in our area, is very unreasonable and dangerous. Contractors who take this action (and one GC who quoted my current project did the same thing) are generally showing they are underfunded and in many cases lack credit with their suppliers and clout with their subs. A cardinal rule for owners and lenders (banks and mortgage companies) is to never let the contractor or sub-contractors get ahead of you. This means they never get paid for more materials than they have delivered to the job site or for more work than they have actually completed. And, the final payment is never made before all work is completed, the punch list items handled satisfactorily, and lien waivers obtained from all the sub-contractors.

I'm not saying there aren't good and honest contractors in the business who are underfunded or lack credit. They just need to be tied into a firm contract which specifically spells out the performance and payment terms that are agreeable to all parties. And, since it's your money, or in some cases the bank's, your contract with the GC should favor your interests over those of the contractor ..... But it still needs to be reasonable and fair. With these contractors, certainly arrangements can be made for you to pay the suppliers direct or even to pay the subs direct so long as you remain in control and you seem to have done that in the past. My experience is that cash strapped GC's usually have difficulty controlling their subs and have a hard time keeping them on the job because if a stable well financed GC who the subs do work for on a continual basis needs them now, guess where they will be tomorrow morning and often for the next week or two.

For my project, I took the time to write a comprehensive bid spec, fully understanding it might scare away marginal contractors which it did. After interviewing six potential contractors, I found a highly professional and experienced GC who has been a joy to work with. (Also not the lowest nor highest bidder.) No upfront money was paid, he invoices on a monthly basis for which he is paid immediately and he has not invoiced for materials not delivered or work not done. There are no misunderstandings or arguments and, so far, no change orders because both of us agreed to well thought out project specs so everybody, including the subs, know exactly what they need to do.

If you allow the contractor to be in control over all aspects of your project, including payment terms, you will not be a happy camper. If you are in control in a fair and equitable way, you will have a good experience and the building you wanted.

Glen

 

[Git]

...besides all the construction laws favor the home owners .

If the laws favor the homeowners - it is probably has something to do with shady contractors who require 2/3 down and then flake on the job. (They have these laws for a reason)

30% down seems way too high. Remember, a Contractor has the ability to place a lien on your house if you don't pay. There is no reason why they should need that much money up front

 

[redneckcharlie]

There is some good advice in this thread and some bad. Most quality reputable contractors will not deal with a clients unreasonable requests. They simply do not have to, nor should they have to front somebody's project. That being said, no one here can say if the 30% up front is reasonable or it isn't. What that 30% covers or encompass's hasn't been stated.

 

[matt_i]

Maybe its a regional thing. I would never expect a contractor to furnish materials on their credit, nor would I ever run a construction business like that. The money up-front ensures that the homeowner is solvent enough to start the project and has some "skin in the game".

The thing I'd worry about a GC is that they would leave the project on autopilot and not have the attention to detail you might expect.

 

[VintageVeloce]

I wouldn't pay for work that hadn't been done nor any materials that haven't been installed/assembled. Pay for the parts of the building as it is completed, never before. So, nothing up front, except a token, $1000 Max by law in California.

Sent from my MotoG3 using Tapatalk

 

[swharris]

What I wish I'd of done:
Had a line item cost breakdown for all stages of the project. Footings, rebar, concrete, framing...et. Al.

It would help in seeing exactly what each part costs and make it easier to see how much profit they are building in. Mine did not want to do that, but we felt that he had worked with us for so long in the initial planning(7 years prior and then a long pause for medical reasons) and was patient and collaborative in the process we trusted his number. Which was in the middle of all the other bids we had. Not the cheapest nor the most expensive.

Now that I'm seeing his quality and attention to detail so far, I'm much more relaxed with our maybe unconventional relationship. Lets hope it continues in a positive direction. We are still ahead of any payments with work done and items ordered and then payments being made.

We have a phase 2 coming later, and I think I might do it a bit different next time.

 

[denis4x4]

Every project we've ever done makes provisions for the subs to provide a lien release. When we pay the GC for works the subs have done, the GC must provide a lien release from the sub. We have preprinted these forms. If the GC doesn't know what a lien release is, fire his ***!

 

[wssix99]

At this point I have less time than money, which is not a lot, but I'm just about ready to sign with a contractor for my garage/laundry room/mud room attached build. I'm to the point where I want someone else to deal with quality issues, people showing up, etc. And I want to move in as fast as possible!

Then you don't need a contractor first. You need to retain your architect to act as the owners representative and oversee the contractor's work. If you don't have the time to do it - you WILL get taken advantage of or you will end up in court, or worse. This is a normal service architects provide for your situation.

They're asking for 30% down prior to ordering materials. That seems reasonable, and I have the full amount waiting... but is that appropriate? Are there any performance considerations I should put into the contract? Obviously portions are weather-dependent, but I don't want it dragging on for 3 months.

This is never reasonable for your situation. In this situation, there is NOTHING to protect your 30%. They can take it, walk away, and you'll never see it again. The contractor can always lien you - but you have no reliable way to hold them to the fire to get your money back.

To the points above, there is a cost to having the contractor work off their credit - but in the long run, you'll win out with the grief you will save. If they can't get the credit to do your job - you shouldn't be working with them, anyway.

Every project we've ever done makes provisions for the subs to provide a lien release. When we pay the GC for works the subs have done, the GC must provide a lien release from the sub. We have preprinted these forms. If the GC doesn't know what a lien release is, fire his ***!

The way to go is to put your money in escrow with a title company. that way, the contractor will be assured they will get paid when they do the work. Once they finish the work, the release from escrow is contingent on getting the lien waivers, as denis4X4 mentions, above.

And I quote, "If the GC doesn't know what a lien release is, fire his ***!"

^ Your architect should know about this, too.

 

[Dirtydan69]

I won't even book a job without a deposit. Anywhere from 10-50% depending on size of the project. 100k job 10% and progress payments. $2000 job 50%. I also do many jobs under a $1000 on a handshake and a promise. Usually on something like that I'm out in a day or less. My time, knowledge and consideration is worth it. There are plenty of homeowners out there who understand and have no problem with it. Those that don't I just move on. I don't have time to be controlled by an unreasonable homeowner. Maybe when I was 20 and didn't know any better but those days are long gone.

 

[glentre]

It's interesting to read all these comments from both owners and contractors and it's unfortunate their thinking is generally the polar opposite from each other. The contractors either have been, heard horror stories about or have friends who have been screwed by homeowners. The same can be said by owners who have been, heard stories about or have friends who have been screwed by contractors. The relationships between the two is further influenced by the economy such that when building is booming, owners have a difficult time finding contractors and the contractors want to control the terms. When the economy is down, contractors have a difficult time finding owners with the cash to build and the owners want to control the terms.

Having experience on both sides at various stages throughout my life in residential, commercial and industrial construction, I don't believe confrontation and mistrust between the two interests is either helpful or beneficial to either party. The solution is mutual respect and cooperation between the two. The owner who does not have the experience or ability to prepare comprehensive plans and bid documents himself or with help from an architect to do it is begging for confrontations with the contractor who has no choice but to build the garage or other project the same as he has always done. Slowdown of the project, expensive change orders and arguments will plague the owner who did not exactly spell out the performance, payment terms and details required on the job beforehand.

The contractor who bids a job without the same specifics generally intends to honestly build per the local code and norms for the area but leaves himself open to arguments and misunderstandings with the owner because what he was expected to do was not spelled out by either party. He doesn't have the time to nail down the specifics before taking the job but often will be faced with the same amount of time or more plus the headaches in resolving issues down the road.

In my opinion, it is the responsibility of the owner to provide detailed bid documents. It is the responsibility of the contractor to cost the job according to those documents. After receiving the bids, the owner should select one bidder and indicate to him the intention of awarding the job to that bidder but contingent upon a meeting to agree on the details of the project. Good contractors are more knowledgeable than architects and certainly more knowledgable than owners about local codes and building practices. During this meeting to discuss each detail of the project and agree on a final contract, a contractor often points out ways to save money and to make the project easier for him to build. This is a final negotiating session where total agreement between the two is reached, the specs revised and contracts can be signed. Once the project starts the contractor just needs to follow the plans and specs. If something is not in the documents, a change order is negotiated.

This is not to say there won't be things that weren't thought about in the planning stages; there always are. When those cases arise, if there is mutual respect and understanding between both, these things should result in compromise and not arguments.

Glen

 

[wssix99]

This is not to say there won't be things that weren't thought about in the planning stages; there always are. When those cases arise, if there is mutual respect and understanding between both, these things should result in compromise and not arguments.

I just showed this passage to a friend of mine who is a lawyer and they started salivating so uncontrollably, I had to go get a mop...


There is an academic way to figure this out. Initiating deposits and trusting contractors (to some extent) is fine - but when the owner doesn't have the time to be a part of managing the work or keeping track of the progress, that's when it makes sense to involve third parties to help in that part of the management and/or escrow.

Even if a contractor acts in a trustworthy manner, it's near impossible to meet the customer's expectations if they can't be a part of the process. If an architect or designer can fill in, then things usually work out better.

 

[theoldwizard1]

At this point I have less time than money, which is not a lot, but I'm just about ready to sign with a contractor for my garage/laundry room/mud room attached build. I'm to the point where I want someone else to deal with quality issues, people showing up, etc. And I want to move in as fast as possible!

My daughter's father-in-law just built a new house that he and an architect design for maximum energy efficiency. This guy has bone a lot of remodeling and is a certified energy consultant, so he know his stuff.

He was building kind of out in the boonies (nearest big city was over 50 miles away) and there is a shortage of subs in general. Being retired, he had the time, but did not want to deal with locating all of the subs and riding herd on them.

Long story short, he found 1/2 of the subs himself, forced the GC to fire some subs for sloppy work (finish trim) and even convince the concrete sub to replace most of the basement floor with no support from the GC (he had pictures taken during the pour). He told me he would likely never hire a GC again. A build might take longer, but it would be done to his standards and it would save a lot of $$$.

 

[GMCGarage]

I would use an escrow account, it can pay suppliers/subs direct, and allow for his allowances for profit/work completed as needed. That way you, the bank, and the contractor agree, everyone gets paid, and mostly eveyone is happy. 30% is nice, but what if he gets hit by a bus the next day, what happens then?

 

[glentre]

wssix99

Curious as to why a lawyer would salivate over that passage. Could you elaborate?

I totally agree with you that the owner or his qualified representative should be involved throughout the progress of the build. However, if detailed plans and specs are agreed upon and signed off before construction starts, this involvement becomes less critical. As I inferred, it takes a team of GC, subs and owner working cooperatively together for a successful project.

Glen

 

[denis4x4]

The last addition we did was a low six figure job. For lack of a better term, we hired a construction supervisor to handle the subs and material purchases. He was paid very well and worth every penny. We paid the material bills and the subs directly (with lien releases) on a weekly basis. When the job was finished, we paid our supervisor a nice bonus and held a party for everyone that worked on the job.

As mentioned before, trust is very important as well as clear communication.

 

[ishiboo]

Thanks all. I'll have to speak to some other people in the area and see if 30% is appropriate. The concrete work is practically that 30%, so I didn't think it was that unreasonable.

I will be monitoring the progress, I just don't want to have to deal with addressing all mistakes with individual subs/etc., coordinating them, etc. It is a permitted job but I don't believe our state has anything to say about down payments/etc., and if they do I'm sure this guy is in line with the laws.

 

[wssix99]

wssix99

Curious as to why a lawyer would salivate over that passage. Could you elaborate?

I don't know many lawyers in the property/construction field that believe in mutual respect, understanding, or compromise.

Home construction is very personal.

 

[glentre]

wssix99

Apparently, there is nothing at all in the passage to salivate over from a legal standpoint.

However, you make my point that unless there is mutual respect and understanding between contractor and owner or owners representative, issues that could be resolved easily may result in lawyers getting involved who do not, as you say, believe in mutual respect, understanding or compromise. If things get that far, the only winners will be the lawyers.

Glen