Hello All, Yes I’m a home owner but I’m hoping to get some advice and not cause a flame war…is there even enough real contractors on this list anymore for a good old-style flame war? But seriously, Got a job that want done (full top floor remodel, two baths, and a kitchen) and its come down to two different GC’s. Both younger guys with small teams that do all the trades in-house, besides roofing, drywall, painting. Like them both, I’m leaning towards one of them but there is a big but. This would be the biggest job for his young firm by a good margin. He’s got a couple baths, kitchens under his belt, he’s got some general remodeling under his belt but no single project that encompasses all of the above. Costs are about the same for both. I’m trying to figure out what clauses I can write into the contract that would allevaite my risk to using a young guy with out an f-ton of experience. In the financial world you’d expect a greater potential reward for the greater risk. I’m not really trying to beat him down on price though. What would be reasonable in your eyes? Thanks,
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I should add that both GC's
I should add that both GC's check out with their license's and insurances.
The one guy that I'm leaning towards does have experience doing even bigger projects when he worked under another GC but this is the biggest project since he went out on his own.
The experience under a GC before is a good thing. A lot of us learned that way. If the numbers are similar odds are he didn’t underbid but then I have seen cases where several underbid so the real price looked better. To alleviate your fears, why not have a weekly meeting on progress and money? We all had a job the size we had never done before, it’s how we get there. If you feel good about it but have a few reservations, explain it to him and ask what he will do to make you more comfortable. He may well have been here before & learned from some with experience in this. Ask him.
Thanks ya I've been straight
Thanks ya I've been straight forward with him about my feelings and he's working on something to address those right now.
Two thoughts.
Have you gotten a price from a GC that has all the experience you would like to see? If so, was his price significantly higher the the young GC's?
That would be my first concern.
If you are still satisfied with his price and experience level, consider setting up a payment schedule (possibly weekly) that involves waivers of lien with each payment to include himself and any subs used. Loosely structured on a T & M type of payments.
This would prevent the finances from getting out of hand, which unfortunatly is the most likely area of problems - ASSUMING you have verified his abilities with past customers/contacts.
Don't be afraid of the young GC's, I'm pretty sure I was young once, but it is hard to remember that far back.
Terry
Hi Terry,
Ya that's about
Hi Terry,
Ya that's about where we are at. It will be a structured payment tied to specific milestones with a good portion of the contract held back to finish up the punch list.
Mad,
"with a good portion of the contract held back to finish up the punch list."
That sounds a bit one sided. A proper portion maybe. But to hold too much is an insult to a qualified contractor. I know I would sever the relationship rather than smooch hind end with that one.
later you ask about completion if he goes belly up. An assurance bond should help you take care of that. I've had to secure one on occasion, but it has not been something of constant need. One can be done for just your job.
Best of luck.
ya I dont' mean like half the
ya I dont' mean like half the total or anything like that but enough to be assured that the final punch list stuff will get done.
Completion bond, I've never heard of that I'll have to look into it.
Is it like insurance? If the guy totally flakes I'll have enough money to hire someone else to do the job?
Here.
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The examples and perspective in this article may not represent a worldwide view of the subject. Please improve this article and discuss the issue on the talk page.
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When a first party (obligee) calls upon a second party (principal) to perform duties in contract form, a surety bond is issued by a third party (surety), guaranteeing that the second party will fulfill an obligation or series of obligations to the first party. In the event that the obligations are not met, the first party will recover its losses via the bond.
Contents [hide]
1 Overview
2 History
3 Use
4 Examples
4.1 License and permit bond
5 See also
6 References
7 External links
[edit] Overview
A surety bond is a contract among at least three parties:
The obligee - the party who is the recipient of an obligation,
The principal - the primary party who will be performing the contractual obligation,
The surety - who assures the obligee that the principal can perform the task
European surety bonds are issued by banks and are called "Bank Guarantees" in English and "Caution" in French. They pay out cash to the limit of guarantee in the event of default of Principal to uphold his obligations to Obligee, without reference by Obligee to Principal and against obligee's sole verified statement of claim to the bank.
Through a surety bond, the surety agrees to uphold — for the benefit of the obligee — the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement.
The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.
If the principal defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an insurance company whose solvency is verified by private audit, governmental regulation, or both.
A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety will be required to pay in the event of the principal's default. This allows the surety to assess the risk involved in giving the bond; the premium charged is determined accordingly.
Surety bonds are also used in other situations, for example, to secure the proper performance of fiduciary duties by persons in positions of private or public trust.
Annual US surety bond premiums are approximately $3.5 billion.[1] State insurance commissioners are responsible for regulating corporate surety activities within their jurisdictions. The commissioners also license and regulate brokers or agents who sell the bonds.
Thanks for that wow what a lot of info.
Apparently in construction they are specifically called performance bonds. Still doesnt help me if they tear the roof off and walk away. I'd eventually have some cash but I'd have to scramble to find someone else to fix the mess before the next rainy season....
Performance bond
From Wikipedia, the free encyclopedia
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A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor.
For example, a contractor may cause a performance bond to be issued in favor of a client for whom the contractor is constructing a building. If the contractor fails to construct the building according to the specifications laid out by the contract (most often due to the bankruptcy of the contractor), the client is guaranteed compensation for any monetary loss up to the amount of the performance bond.
Performance bonds are commonly used in the construction and development of real property[1], where an owner or investor may require the developer to assure that contractors or project managers procure such bonds in order to guarantee that the value of the work will not be lost in the case of an unfortunate event (such as insolvency of the contractor). In other cases, a performance bond may be requested to be issued in other large contracts besides civil construction projects.
The term is also used to denote a collateral deposit of "good faith money"[2], intended to secure a futures contract, commonly known as margin[3].
Performance bonds are generally issued as part of a 'Performance and Payment Bond'[4], where a Payment Bond guarantees that the contractor will pay the labour and material costs they are obliged to.
Performance bonds have been around since 2,750 BC and, more recently, the Romans developed laws of surety around 150 AD[5], the principles of which still exist.
Mad,
And there's scenarios
Mad,
And there's scenarios where you would not be able to finish your commitment also.
In life there's no sure things.
Find the right guy and make it happen.
Edit: Oh yeah, are these guys direct referrals or what?
not everyone can get a performance bond
underwriters like the contractor to have a track record
and the inexperienced or those with a short history....have to pay a higher premium....if they are bondable at all
Simplest thing is to get a completion schedule. He gets draws when x, then Y, then z are done. He gets the work done early, he gets the draw early. Completion of ant stage is by mutual agreement. List the stages seperatel. do not use percentages, as that becomes a judgment call. His verse yours can turn into a wizzing contest.
For few more bucks you could have a third party inspection and also use them for mediation if the need arises.
No matter how close the jop is to final or even if final, hold 5 to 10% for 15 to 30 days while you live with it. that is his "call back" money. Make it clear fi he doesn't show up whgen called you will spend that money with another contractor fixing his work.
Ask him if he has adequate contingency money in the bid. I have never seen a large job that went entirely as planned. The contingency money should be there to soften the bumps, so he doesn't have to turn to you ever time something doesn't work out as he thought. You don't need to know every cent he spends, but you do need to know that he has enough to cover his own azz, and not expect you to bail him out.
Ask about his change order process and the cost of changes. Ask if there is a seperate fee for estimating those changes, or are they include in the cost of the change. I have had jobs where I spent way to much time estimating "I wants" thta became "no tha to much". Then when I billed for the time spent doing those estimates, someone got thier feeling hurt.
He has been up front with you about his experence. It is now your turn to be honest with him about your concerns. It is a good place to start for both of you.
Sounds like you can get off on the right path with only a little more work
Hi Dave,
Good points all.
I'll ask him about the contingency money issue.
By doing a super (some might say anal-rententive) scope of work where whats going to be done, how its going to be done and what materials are to be used I'm hoping that we'll have a starting # damn close to reality.
The time and materials way to go might be a reasonable thing but honestly I'm afraid that do to his inexperience he'll end up underbidding and the final that becomes apparent during construction will be MUCH higher than antcipated. Theres a certain point where I'm going to have to ask him to stand by his number even if it cuts into his profit a bit. That's not unreasonable is it?
While going over budget may be the most likely issue I've got other concerns.
What happens that if after the roof gets torn off he goes out of business? What can I do then?
I can't afford to have it take 2x as long to get the job done as spec'd. Is there a way that I can enforce a time table within reason?
>>Make it clear if he doesn't
>>Make it clear if he doesn't show up when called you will spend that money with another contractor fixing his work.
That's not lawful in Sue-ya-fornia.
SamT
Tell that to HUD, and see if you win.
10% is the normal ampunt held for 1 year from date of completion on HUD jobs.
You don't show up for punch work or call backs and you don't ever get that final $$, but the work does get done.
Contracts are binding to both parties. If the contractor signs and agrees to xx% retainage it is a done deal.
Do a search over at JLC on writng contracts.
I am always the cheer leader for the underdog who is just going out on his own, but I don't think that's what you want in a project where you are this much quality work on an extensive project.
There is a huge difference between determining how to solve difficult issues that come up and carrying out a good idea. As an example I had a world class assistant who worked closely with me and he is every bit as good a carpenter as I am....smart, high energy, mechanically inclined, and he just gets things well and works well with clients. He wanted to work on his own and I encouraged him to do it on a small scale before taking a plunge to get through all the small issues. well....
He took the plunge and went into business for himself, racking up some quick jobs that turned out well. Then a few issues came up that he would call me on and I'd walk him through what I normally do in those situations. Eventually he did a few things wrong from his inexperience and the relationship with the clients fell through. Inexperience with client relations made a small issue go from bad to horrible. Downward spiral and nobody was happy in the end.
It's hard to stress how important trust is in a working relationship, especially on an involved project that requires a lot of judgement calls on a regular basis.
I know clients like to have contracts that are very involved to cover all the bases....but ask an attorney who specializes in construction cases and it's very hard to write a contract that protects you from inexperience or poor judgement.
My first big remodel was a $225k second story addition that we did with a handshake and T&M.... the clients were attorneys (one actually writes contracts for large developers)...I offered that if at any time we didn't get along for whatever reason we could part ways and as long as we'd do weekly payments for work done I had little risk and they could easily see what work has been done so they also had little risk. To protect the clients from non-payment of subs, I hired the subs and they payed them directly--same for materials.
Don't underestimate the risk of non-payment of subs and materials....if the contractor bails you will still need to pay them if the contractor doesn't.
I also have a bad experience with the same set up.....situation went horribly wrong when clients trust was shaken by a guy trying to throw me under the bus...
...so I don't know
Well Don you bring up some good points...
I personally like T&M better as it seems to make the contractors less nervous when I spec 'expensive' materials and methods. If this was a smaller job like just a kitchen remodel or just a bathroom I'd be all for it.
Butttttt, This whole completely ripping my roof off and rebuilding it thing has me spooked.
He seems to be trying really hard at communicating everything with me. He's got this online project management thing he's using called BaseCamp. Where I and the few subs he's using can log in and see the entire project timeline and scope and what not. I believe that within this we will work out the exact scope and what not before I sign up with him.
Another thing to think about is not putting all your eggs in one basket. You ask intelligent questions and have a good understanding of construction so you are a perfect candidate to take a signifcant role in the project and save money vs someone without your understanding of the situation. Your job can, and in my opion for the most bang for your buck should be, broken down into stages.
Remodeling has a lot of unknowns and contingency funds are built into everything. If I were in your shoes I'd demo as much as possible while still keeping the existing roof on so then you can see what's underneith then break down the work into chunks that make sense after everyone can see exactly what's being bid on.
In your shoes I'd keep all the permits in your name and essentially hire the guy as a sub rather than a gc and he doesn't have as much leash to hang himself with. You also save money by pulling your own permits--he can take care of scheduling inspections and whatnot they are just in your name. If something goes terribly wrong it's also one less issue to have to deal with to get them back in your name or the name of the next GC.
If he is good at framing I'd break down the structural part and have him finish that first before committing to finish work. Have him do enough to see how things go and if it works out go for another part.
He won't like this--it's better for him to have the whole thing wrapped up with a signed contract, and you might like that better as well, but what you are doing is not really much more than a bathroom remodel done over and over 10 times as far as amount of work goes and complexity, but it's not necessarily a completely different animal. Broken down into 10 parts you'll see the progression of work isn't that complicated.
As far as having a computer program for one residential house, that's a little silly in my opinion unless the timeline is critical that everything be finished on a certain date. It's also a way to lock you into the idea that the project is so complicated that you need a GC to do it all. The one hour a day he'll spend messing with the program is an hour away from actual productive hands on work, but I guess it could be a way for him to think through things so he doesn't miss something. I'm sure it makes him look more professional! lol
To save money and have a better finished producty I'd say you are better off to break it down after the interior demo is done and you can see what's really in there.
I'd want the structural stuff related to the roof broken out so the focus is on a dried in building then you can rest easy and get this emotional portion out of the mix. I don't know why, but it's human nature to be emotionally attached to a roof--it represents protection from the elements, a basic human need, I suppose.
More important and complicated is going to be how the other structural issues are going to be fixed if your house is like most in it's age range and condition. It's very easy to underestimate the time to fix old framing in floors and walls to match the plans and still allow room for all the stuff that needs to go through them.
A pet peive is the time when a remodeler dumbs down a project's mechanicals or plumbing and tells the client it was because of unexpected framing issues that won't allow this or that to pass through. Clients buy it, it saves the remodeler money he should have added up front but didn't to bring the bid in low and the client suffers with less than they wanted in the end. As soon as a remodeler brings up the excuse "we can't drill a hole that big in the LVL's we needed to support the widget room with" it's a sign this is starting to happen. Or inexperience is showing.
I've enjoyed your posts and your house so much it would be fun to put a face with your posts. I don't remember what your time line is but if you ever want a free second opinion on something, for the next month I'll be working in your neck of the woods and if you buy lunch it would be fun to stop by and take the grande tour of your house. Email me if that sounds interesting. [email protected]
Hi Don and thanks for your comments.
Lucky me, the top and bottom and half the middle floor is already gutted to the studs so there should not be too many hidden conditions I'd think.
It looks like to save money at least I'll have to do all the leg work to get the zoning-planning permits and then the building permits...not that I love doing that kind of stuff.
I would then add the him to the permits as the GC as its my understanding that if I don't his insurance won't cover the job like it would elsewise?
Ya we've already talked about doing it in stages. What I am calling the shelling stage where he does all the outside envelope stuff like the new roof-dormers, windows and doors-which is not a small job in itself. Then moving on to do the interior stuff like plumbing-electrical, then doing the real finishing stuff like the trim, cabinets, drywall and painting.
Maybe the computer program for just one job is a bit of overkill but I'm getting the impression that he uses this program to organize himself and the few subs he uses so letting me look at it is just a way to keep me better in the loop. I mean he's using it already anyways so why not?
You're going to be around Alameda Ca? That'd be great I'll send you an email maybe we can set something up. You like burrito's? There's a place right around the corner from my house.
Hi there,
If your gut says not to go with this guy, then don't. However don't hold his age against him. What do you mean by young? I became a GC when I was 37. I think that is young but I had been working in construction for almost 20 years at that point. If he is 18, how much experience can he possibly have? As far as the money goes, you can't penalize him because you are not comfortable with him. In my experience money is at the top of the list for things that make a job go slow. Contracting is a very risky business in many ways. If there is not a steady flow of money then there won't be a steady flow of work. The clients who pay their bills promptly get the best service and best work. It is so frustrating to a contractor when a client starts giving you the run around when payments are due. There is nothing like a corporate executive telling you he forgot his checkbook, his wife has the check, etc. Anyway if you do like this guy and he checks out OK the best payment structure works by percentages. I list all the scopes of work and their related costs. Every two weeks we have a progress meeting and payment is made based on percentage of work completed. So if 25 percent of carpentry was completed then he would be paid 25 percent of the estimated costs, and so on down the list. At substantial completion all of the monies would have been paid except for the estimated cost of completing the punchlist, not 10 percent of the job or whatever. I can't tell you how many times in the beginning of my business clients held back that 10 percent because they ordered some custom door knobs that won't be in for two months. That 10 percent can be a lot of money. It sometimes almost sank me. By structuring the payments this way, neither you or your contractor can get too far ahead or behind if things go bad.
Good luck
Wow
Not that I mind your advice but that last post is 9 months old!
How did you come upon it now?
Ya you make good points and I agree that payment needs to be fair to both parties and I need to pay promptly, which I always do.
Unfortunately experience has shown me that I need to hold back a large enough sum to get the job actually finished in a reasonable amount of time....