07/23/2022
There is always a lot of Construction projects, going on throughout the Coastal Bend at any given time of the year. Everything from projects for a few hundred dollars to projects in the 10's of millions. Anytime a customer hires a contractor there is always a certain level of stress on both sides, from day 1. I have decided to put out a few topics that are usually some of the major points of stress during a construction project, that may just help alleviate a little of the unnecessary stress, if you know what to expect during the different phases of a construction project, and how to deal with them to get the project started off on the right foot. I will be releasing these weekly, and the information contained is 100%, from first hand experience or taught to me by mentors on best business practices and not something I read in a book. Remember, we are all in this together and the less stress that we create amongst ourselves, is more time and energy that can be focused on the end goal.
How To Ensure You Get Your Money's Worth On A Construction Project -
First things first, with any project, the whole thing starts with a phone call and an estimate. Don't ever take the first estimate, always ask questions, and know what they are charging you for. Ask that the estimate be an itemized estimate, so you can see everything on there and have a way to compare estimates. An estimate is about more than just the bottom line, it's a way to get to know the contractors and actually see what they are charging you for, and get a feel for their overall intentions. Ask them to come down on anything you feel is too high. Look over the estimate thoroughly, and make sure you understand what everything means. For example, most contractors mark up the materials anywhere from 10% to 30%, depending on what it is. Anymore than 35% is too high, and should be a good indication of the contractors intentions. This mark up normally covers the contractors time for the in store shopping, any returns that may need to be made and material loading time. If the materials are delivered by a distributor, there will be a distributor delivery fee added on, which may or may not be on the estimate, as many distributors delivery fee is a percentage of the total amount of the distributor invoice (material purchase cost), and may not be known by the contractor at the time the estimate was written. If the contractor is delivering the materials, they may also charge a delivery fee separately, from the material mark up, but this fee should basically be in conjunction with the material mark up, meaning if the distributor is charging $250.00 for a delivery fee the contractor may charge a percentage of that, in turn saving you money, but also providing the contractor with incentives to look for places to save you money such as the delivery fee. A contractors delivery fee, should be a set fee of approx. $50 or 30% to 35% of the distributors delivery fee, which covers the cost of getting the materials to the jobsite and the time it takes to unload the materials and put the materials away at the jobsite. Anything over 40% is way too high in most cases, but, keep in mind the distance the materials are delivered will have an affect on the delivery fee. Always keep in mind, that an estimate is just that, an estimate; and it can change depending on the project, meaning the estimate will change if there is a customer initiated change in the middle of the project that wasn't apart of the initial estimate. Some contractors may use what is known as, "what we can't see", to raise the estimate during the project. Although, this is an acceptable construction practice and has been for years, I find this more of an excuse, rather than a good business practice. Everybody understands that, Construction practices have varied greatly over the years, especially when your working with houses/buildings, that were built prior to the adoption of state and local building codes and working on buildings after building codes were implemented. Although, buildings may have been built differently throughout the years and there may be things a contractor runs into that were completely unexpected and did change the dynamics of the project, and put the change into the category of "what we can't see", for the majority of cases, an experienced contractor should have a solid expectation of what they may run into, and have a contingency plan for each of those scenarios already in place, before the crew ever gets to that point. For structures built after the implementation of building codes, this concept should never come into play, as contractors today, should know the building codes well enough, that they should pretty much know what they could run into, however, there are cases even today that a builder didn't follow the building codes and it was discovered 10 years later and put the job status from "In Progress", to "On Hold", but these cases should be few and far between. Everyone, knows the definition of the word estimate. An estimate is nothing more than an educated guess, compiled by knowledge and experience, meaning an estimate can change but it should not change more than ±10%, without the implementation of a change order.
Make contractors do their work, meaning if you get 3 estimates and the contractor you normally use or the one you want to use was the highest, compare the 3 estimates and see why; and by all means dont be afraid to go back to the high bidder and tell them they were high and see what they will do to come down, to get the job, and if they can't at least match where you need to be, ask them why? Every contractor has a reason for their prices, some have higher expenses, (such as insurance, office expenses, equipment costs, etc.), some have a higher payroll, and some are just greedy. These are not hidden costs and are defintily no secret, so if they are charging you for it,, make them prove it. If one company charges $45.00 an hour and another charges $65.00 an hour, find out why, because it may not just be a contractor trying to gouge prices, rather than his operating expenses are that much higher, and in many cases you may be better off paying the contractor who charges more. Don't always go with the cheapest, because they are the cheapest, becaue that can cost you more in the long run. Remember, it's your money, spend it how you want to spend it, but spend it wisely.
Make sure the company sends the customer a contract, with all the terms and conditions outlined in the contract. Without a contract neither party has anything to fall back on, if one or the other breaches the contract. Most companies will require a security deposit of 30% to 50%, of the total estimate amount, which will be due at contract signing or 72 to 48 hours prior to the project start date. This number is completely up to the contractor and the customer. Whatever the customer feels comfortable putting out and whatever the contractor needs to get the job started off on the right foot, somewhere in the middle is usually sufficient to keep building trust on both sides. I find that 35% is a pretty good number to go off of for the security deposit, this is normally enough to cover the materials for the job or at least to get the job started and one weeks payroll for the employees, remember, we are trying to make the relationship between contractors and clients better, so don't make the contractor struggle to do the job once you sign a contract. Once the contract is signed and in place, it's a done deal, your both in this together. Make it as easy as possible for each other, in return the craftsmanship will be much better and a lot less stress and tenions between the customer and contract crew. Some contractors will even have a clause in the contract that states if the customer cancels the project within 36 hours of the start date, the customer forfits their security deposit to the contractor. This is perfectly legal and acceptable. In fact, I find it to be a very good business practice and think every contractor should have a similar clause in their contracts. What this is and what it does, is it's essentially a no compete clause. This locks in the contract between the contractor and the customer and keeps the customer from changing contractors at the last second, because one called the day before the start date and decided they could offer the customer a better price. I'm a firm believer in FREE ENTERPRISE, however, when conducting business under a free enterprise concept there are these things that also play into it, that are known as ethics and morals, and it's completely unethical and immoral to try and take a job from a contractor, knowing they have been locked in with the customer for a month on a 2 month long job, and have scheduled other jobs and appointments around, this 2 months, and then Mr. Ethics, comes in and tries to steal the customer by under bidding at the last minute, because he was having trouble filling his schedule and seen this as an easy way to fill his schedule. I get it, we are all out there trying to make a living and save as much as possible, but everyone had more than enough time to plead their case and put forward their best value in front of the customer during the estimation part of the project. So having a clause that states the customer loses their security deposit for canceling within a certain time of the start date, is a protection for the contractor, so he don't lose the job at the last second, and then have 2 months on his schedule that are going to be very difficult to fill that quickly. It's things like that as to why Contractors have a bad name today and are seen as a bunch of thieving scam artists and why a security deposit has become a form of protection. To sum it up, all the security deposit does, is lock in the start date (insurance policy for the contractor), and pays for the startup of the project.
Depending on how long the project is, the balance of the project may be paid out throughout the duration of the job. For example, if your project is 2 months long, the contract may have a payment schedule within the contract, to make weekly, bi-weekly or even monthly payments, on certain dates or milestones, throughout the project, which is essentially paying for work that has already been completed. This does two things. It ensures the contractor is being paid within a timely manner and it keeps the customer from paying a large lump sum at the end of the job, and then potentially come up short on the payment, causing, some type of mediation or future court proceedings, which will also be outlined in the contract, on how to mediate any issues that may arise between contractor and customer. Many times on these bigger more expensive jobs, they are being paid out with money, that was awarded in a lawsuit or income tax money or some type of lump sum settlement that people are trying to get some things taken care of while they can afford it. I know many others, like myself, that have a tendency to spend money the longer it sits in the bank, and I will promise myself I will pay it back, but I never write a contract with myself, so I default on it everytime, so having a payment schedule throughout the project, helps to alleviate a little stress on both sides wondering if the money will be there when the project is finished or the customer being stressed out the entire project, wondering if they spent too much and will have enough to cover the cost, and each time a payment is made a receipt should be sent to the customer showing what the payment was for, (i.e., list of materials and/or dates for which labor costs were covered). The more detailed the contractor is with payment information, the better off both parties are in the long run.
I know there are alot of people out there that use contracting as a front to essentially steal money, whether they had good intentions to start with and they just ran into a tough spot and didn't know how to handle the situation or they planned on stealing your money from the start, it's best if both parties communicate and stay in touch on the happenings of the project or anytime that an agreement for work is reached. I would recommend daily, not letting some type of communication with the customer go more than every other day. This keeps both parties informed and will be much easier to work out any issues that may arise. Just a simple, "it's Friday and we are still on schedule, we will return on Monday," can go a long way with trust and easing an individuals mind. You have to keep in mind that not every contractor, even the big major companies are loaded with money to be able to fund whatever they want. Everyone is working on a budget including the contractor, and in some cases the contractor may already be $30,000, out of pocket on other projects, waiting for payment from clients. Even the big custom builders require a security deposit and weekly or bi-weekly payments, throughout the project. A bad misconception is that contractors have an endless supply of money, and should foot the bill for everything, which is not a fair assessment. Like I said, everyone is working within a budget and the contractor doesn't know a clients financial situation, just like a client doesn't know a contractors financial situation, and assuming those can put a misconception out there, that really isn't a fair evaluation for either party. For example, a company we know was on a project earlier this year and against their better judgment they didn't write a contract for the project and completed the project, and in the end got stuck with $15,000 in labor costs. It doesn't really matter how big the company is, a $15,000 loss makes any owner and/or management staff have a bad day, and a well written contract can help alleviate things like this. So the best advice I can give anyone is always remember, every initial estimate has room for negotiations, meaning the contractor has room to come down and the client has a little room to come up, leaving the too sides to negotiate a price in the middle that both parties are happy with. The planning process starts with the first question, and the best laid out projects always have a well defined plan, that is known to the customer and the contractor without question. Make the contractor work for his money, by providing the best possible craftsmanship, don't be afraid to make him change something you don't like, and if a change requires a change order get an amendment to the contract before any work proceeds on the change. Just like your home is your investment, every customer is a contractors investment, each should be protected as such. You are going to do everything possible to protect your investment, and any smart contractor will do everything possible to protect his investment, which is you. We are all in this together, not against each other. Everyone stay safe and have a great weekend.
If your in need of help with a construction project, to ensure you're getting your money's worth and ensure the contractor is following all applicable plans and building codes, please contact us to inquire about our project management services. It could save you a ton of headaches now and a lot of money later.
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