PAYING A CONTRACTOR - The Do's and Don'ts for homeowners

One of many services offered by architects is called "Construction Administration" (Terminology may vary by firm). This service is often provided at the end of the project's design and documentation phases. After the owner and contractor execute an agreement, an important part of the architect's services are just beginning, administering the contract for construction. We have all heard of bad contractors who abandon projects half complete after owners paid out hard earned cash. Here is a story in our local area from today:

The goal of this blog entry is to arm home owners who solicit work from contractors on their own with ways to protect themselves and the project. Some of the methods and procedures used by architects during the Construction Administration phase are similar to things home owners can do to ensure a properly delivered project. (Disclaimer: Not all contractors are bad. Many of them are professionals, great at their trade, and fair. Most of the ones that have been around a while have because they get many referrals from happy previous customers. If contractors object to the concepts below, that should be your first red flag. Even ones with long work history and many satisfied customers should be held to these concepts) Estimates Often times, the scope of the work to be performed isn't well defined. There are often ideas, or concepts, and your contractor must attempt to understand and quantify your vision before starting work. Estimates provided by the contractor demonstrate that they understand the concepts of the project you discussed with him/her. A well written estimate should break out various trades, such as electrical or plumbing work, and should include specific materials or allowances for materials. Simply bidding carpet can mean a lot of different things to different people.

Contract/Agreement Your agreement can be very simple, one page document. Outline the terms of the agreement. The contractor is going to perform a certain amount of work for a specified amount of dollars. Don't forget to include a provision for schedule or at least some milestones. Tie the agreement back to the estimate. I don't suggest the use of this homemade agreement as a means of a legal form, but rather a "binding understanding". To get the project off on the right foot, its best that both parties understand the parameters of the project. When things start to get off track, refer back to this agreement and remind the contractor of the project goals. Paying your Contractor Do not. I will repeat. Do not, give your contractor money to "start" the project. Do not agree to paying your contractor a certain dollar value that isn't tied to the installation of the project. For instance, do not pay your contractor 50% down and $1500 per week. Paying your contract based on time and not performance could encourage your contractor to pursue other projects as he knows he will get paid from you even if the work doesn't equate the bill. You should come up with a "billing cycle". Once every two weeks, you will pay your contractor for the work that has been completed (as documented in the estimate above) or partially for materials that have been delivered to the project site. Modifications/Adjustments Most construction projects need adjustments to the scope of work after the construction has started. When evaluating the change, determine if the change is necessary, if it should have been included in the original estimate (could the contractor have known), and if the additional cost is fair. Don't be afraid to solicit another contractor to price the change in work to validate the contractors proposed changes to the project cost. Also, be aware that deductions to the project cost can occur. If the changes add costs, be sure to evaluate potential savings from the adjustment.

Hold-back/Retainage Many projects start off great. When they get closer to the end, its often tying up a bunch of loose ends and minor repairs. The end of the project also means that your contractor has received most or all of the money aligned with the installed work. So, how do you get him back to finish up the last few things should he disappear? One method would be to hold back the last payment until all items are complete. The way architects do it is keep 5 - 10% of all monies cut to the contractor through the contract off to the side. This is called "retainage" and in order for the contractor to collect the 10% of the project cost, he has to complete all of the final items. Keep in mind, once you release 100% of the agreed upon project costs, it can sometimes be difficult to have the contractor called-back. We hope that these tips help you to better, and more confidently, higher contractors and other skilled trades on your own and avoid the story posted above. Let us know if you have any questions in the comments section!