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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Words from an Expert on Hiring Contractors

by Michael Stone

Questionable Expert Advice #MarkupAndProfit #HiringAContractor #ConstructionBusinessManagementA contractor sent us an online article written by a real estate investor who is a self-proclaimed expert on hiring contractors. The article is called "Seven Things to Never Say to a Contractor", and the purpose is "to educate you on how to develop a fair relationship with your contractor." They go on to say that contractors "can be masters at extracting the maximum amount of profit, while putting in the least amount of work."

"This information might offend some contractors, but that's a small price to pay, for sharing the truth. I have been a part of transactions involving hundreds and hundreds of different contractors. I've also been screwed over by a ton of them, which makes me uniquely qualified to educate you on what not to say to contractors."

Actually, I think their experience makes them less qualified to educate on hiring a contractor because they obviously hire from the bottom of the barrel and plan to continue doing so. Any owner who listens to this advice will be dealing with questionable contractors.

Consider this a warning on what you can expect from a potential client. Don't be blindsided; know how to react if you get hit with some of this advice.

"1. Never Tell a Contractor They are the Only One Bidding on the Job

Always get a minimum of three bids, in fact, the more bids you get the better. Separate each bid into the cost of materials and the cost of labor. This will help you tremendously when comparing each contractor.. Don't ever tell a contractor that they're the only one bidding on a job, because that gives them too much power. You need to lead them to believe that you are considering many contractors for a job, so that they are held accountable for their bid."

Will they pay for the time and work you'll invest in getting the detailed bid together? Of course not. So why should you spend your time doing it, in the hopes that you'll be the lowest bid?

"2. Don't Tell a Contractor Your Budget

If you tell a contractor that your budget is $20,000 they will find a way to make their bid $20,000, even if it should be lower. Instead you should have them provide a bid for the work you need done, so you can compare the cost of material and labor with other bids, to make an informed decision."

This is just plain baloney. First, why should you go to the time and trouble of creating a detailed bid when there is an excellent chance the budget is too low for the project? That's when you hear, "Your price is too high!" Second, I'd have a tough time accurately comparing bids from three or more contractors unless we were all sitting together and looking at the same plans, and I've taught estimating classes in 46 states and Canada. How is an inexperienced building owner going to compare those bids?

The budget needs to be established upfront so the contractor can design the job to that budget. That's the smart approach to getting a job put together.

"Be aware that many contractors will upcharge you for the cost of materials. It is important to independently verify the cost of materials after receiving a bid. I have had contractors look me right and the eye and inform me that material cost is $850, when I know for a fact the cost is only $550. I refuse to hire anyone that will lie to me about the cost of materials, so I always verify costs."

Yes, there is a markup on materials. Contractors are no different than your local hospital, your dentist, your grocery store or clothing store. They incur costs to purchase the materials, get them to the job site, guarantee they're installed correctly, and be there to make changes or corrections if bad things happen three or six months down the road.

"3. Never Ask a Contractor for a Discount if You Pay Upfront

It is an extremely stupid to offer to pay a contractor the entire amount owed upfront. If you pay a contractor upfront, they can end up not doing a good job, or some will even take your money and disappear.

. . . You will have to pay some money upfront to cover the cost of materials, but I actually try to work out deals where I am purchasing the materials myself. I don't trust contractors to buy the materials for me, because in the past I have had issues with contractors using leftovers from prior jobs, or purchasing cheaper materials then requested, thus scamming me out of money.

. . . I have the right to purchase my own materials, so that I know they are purchased correctly."

Don't allow the customer to purchase the materials to be used on their job. That's asking for trouble, we talked about that in this article. Common sense tells you that building owners don't know where to get the best materials, what specifications should be considered like maximum moisture content on framing lumber, what is a fair price for those materials, lead time on ordering, etc. When they wrote, "I have the right to purchase my own materials," they're correct but a smart contractor would pass on that job.

As an aside, the whole article could be summed up in the phrase, "I don't trust contractors."

"Paying a Contractor

Personally, I give my contractors a little bit of money upfront, and then pay them over the course of the job as it is completed. I always save the final payment for after the job is finished, in order to protect myself from being scammed. . ."

We actually agree here. In my opinion, payment schedules for work should be spelled out in the contract. Everyone needs to be aware of and agree to those schedules.

"4. Don't Tell a Contractor That You Aren't in a Hurry

If you tell a contractor that there's no rush to complete your project, they will give your job the lowest priority possible. They will take on other jobs and spend their time doing other things, besides getting your job done. You need to communicate timelines, and actually chart out the weekly expectations you have in terms of job completion. Be sure to set dates and deadlines, and let the contractor know that they will lose money if the job is not completed within a reasonable amount of time. . . ."

This is when I was convinced the problem was their choice of contractors. A good contractor will set a schedule for the project. Then they'll get the job done on or as close to the schedule as possible. Most contractors can build several jobs at a time and they won't set a time schedule they can't meet (barring delays outside their control). Why would a responsible contractor let the building owner establish the time schedule for the work to be done?

I'm not sure what they mean by the comment that the contractor will lose money if the job isn't completed in a reasonable amount of time, but if they're talking about a daily penalty for each day over, they also need to include a bonus if the job comes in ahead of schedule.

"5. Do Not Let a Contractor Choose the Materials

It is very important that you make the decisions on the exact materials you use for your project. With each type of material, there is a high end product, low end product, and something in the middle. Educate yourself on the difference between each type of material, so that you can choose based on your needs. If you allow the contractor to make all of these choices for you, they can really screw you over. They could use materials from other jobs, choose materials that are too expensive, or even too cheap.

In my contract with my contractors, I specify which materials they are to use. Picking the right materials can make all the difference in the world. If a contractor picks the wrong materials, the project is bound to go wrong.

I need you to choose the materials. Be specific on what materials they purchase, where they purchase it, and the price they pay for it."

This expert got burned and now believes they are the only one who can pick good materials for a job. The reality is that home or building owners may have the best of intentions to educate themselves on materials, but they won't. They'll blame the contractor when the job is delayed because materials weren't ordered, or the framing took longer than expected because they chose the lowest cost, substandard materials. An experienced contractor is far better suited to pick the materials for any given job.

If an owner wants this level of control, they should just hire employees and tell them what to do rather than pretend they're hiring a professional.

"6. Never Hire Anyone Illegally

Some contractors might offer to bring in people that aren't legally licensed to work on your jobs. You should never hire anyone that does not legally have the ability to do the job. If you are not diligent when hiring a contractor, you risk a huge liability if someone is injured. Make sure that the contractor is licensed and insured, and has evidence of an insurance policy. Be aware of any subs brought in by a general contractor, to ensure that they are covered under their policy."

I agree completely.

"You must be critically careful that the subs hired by the general contractor are getting paid. I always pay the subs directly, because if you only pay the general contractor, there is no guarantee he will pay the subs. If the general contractor does not pay the subs, you could end up with a lien filed against your property. Always pay the sub contractors yourself."

We're back to hiring from the bottom of the barrel. They're hiring contractors who aren't charging enough for their work and don't have the money to pay their bills, which includes their subs. A quality contractor pays their subs every week or every two weeks, depending on the working agreement they have with their subs and suppliers. I have no problem asking a general contractor for proof that a subcontractor was paid. How much they were paid is no one's business.

"7. Don't Agree to a 'Gentleman's Agreement'

Always, always, always put your agreement with a contractor in writing. I don't care if it is a simple, one page piece of paper, just get the deal in writing. . . .

If you decide to let the contractor purchase the materials, have them provide receipts to prove each material cost."

You should always work under a written contract, but a one or two-page document isn't sufficient. It's just asking for trouble because you can't include enough information on one or two pages to cover yourself and the job. A professional contractor should write a multiple page contract with a fixed price for the work to be done, similar to what you can create using our Fast Track Proposal Writer software. Receipts for the materials? No. You don't have to prove your costs, it's none of their business.

The conclusion is where things get real ugly.

"Conclusion:

Those are the seven things to never say to a contractor . . . Oftentimes, we get busy, and try to take shortcuts in life. Do not take shortcuts with contractors or you will regret it. Take the time to do things right, and be very careful when working with contractors.

A lot of contractors actually have a criminal background. This doesn't make them bad people, it is just important to know someone's history from an ethics perspective. If you do not fully understand how serious working with a contractor is, you will get taken advantage of."

A lot of contractors have a criminal background. Not a few, a lot. As in, when you meet a contractor, there is a good chance they have a criminal background because a lot of them do. I'd sure like to know the source for that statement. It's damning and discredits all of us. It's a broad and ugly swipe at the entire industry, and it's not true.

It's also their explanation for the article; it's why you need to watch and control everything a contractor does. The problem is a contractor's ethical perspective. They'll cheat you if they can. It's who they are.

To wrap everything up, they make us feel better by closing the article with:

"On the opposite side of the coin, don't try to screw over your contractor. It is very important that the people you hire make a profit. I actually have a great video that further explains why making a profit is a good thing in business.. I encourage contractors to make a profit, just not at the expense of you."

How gracious. It's good to know a contractor is allowed to make a profit on jobs, although I don't know how they can with all the control the writer wants to hold over them. And what do they mean by "just not at the expense of you?"

You can read the entire article here. I've shared the worst of it.

This "expert" doesn't know the construction industry that I know. I've dealt with flakes, but they are few and far between. There are far more quality contractors in this industry than there are scumbags, but the scumbags make the news. Most construction-related business owners are salt-of-the-earth people whose goal is to provide quality work while they provide for themselves and their families. They aren't out to cheat their clients. They aren't ethically-warped. They'll treat you right if you treat them right.

If you're a contractor: Be professional. Return your phone calls, show up to your appointments on time. Don't be one of the low life contractors this guy seems to think are everywhere in our business. Do a good job of your presentation and you will have more business than you can possible handle.

If you're an owner reading this: remember that when you hire the cheapest contractor you can find, you have only yourself to blame when things go wrong.

 

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