YOU and the General Contractor (GC)
Often I am in the position of putting together a construction loan for a person who has no experience at all in construction. And they decide to hire a GC to build a house, fix a major problem or renovate. And I often see a contract that is really padded in favour of the GC. Which is great for the GC but it presents problems for me. Here is what you should be doing when you hire a GC and what you need to see in your contract.
Hiring the GC
You want to hire a company that is established, licensed and insured for liability. Even if your neighbours and friends refer someone, you still need to prequalify them for licensing and liability.
Most GC’s do not have a fancy building or office. They may work out of their home. But that doesn’t mean they are not extremely good and qualified to perform your job. In fact they may be amazing and not as expensive because they don’t have the overhead that a bigger contractor would have monthly. But you still need to make sure that they are licensed and insured.
The contract should have a specific budget for material.
Example: Granite counter top allowance – $20K.
Kitchen Cabinets- $60K
When you don’t have these allowances then how do you know what material quality you can expect to be installed? If there is no allowance then you really have no idea, apart from your imagination, what the finished product will look like when completed.
And how do you know how much money to pay the GC from the construction draw if no allowances have been stipulated in your contract?
The contract should tell you what your finishing materials will be and the allowance for this material. For example:
So now you know what the quality of material will be installed and how much is being allocated. You can come to an agreement with the GC about how much to pay and when it will be released.
If you have a budget of $1 million, hopefully you have $250K in that budget of your own money. Then we can pay you directly to pay the GC. GC’s do not want to run into a problem paying the trades and buying material. Sometimes they will ask for a deposit up front for that reason. And this might be OK but it needs to be reasonable and explained. It also needs to be in the contract.
I have heard so many stories in the past 25 years of how people get into a fight with their builder GC and the reasons can vary off the map in terms of variety of reasons. But it’s fairly safe to say that these are the top reasons disputes happen.
- You don’t pay the GC or pay on time;
- Construction is taking too long and your mad at the GC and want to fire the GC;
- THE WEATHER doesn’t cooperate and puts the job behind schedule;
- Trades or suppliers are on strike and the GC is stuck waiting;
- You’re expecting a specific material to be installed but something different has been installed and you hate it;
- Important work is installed like the framing and it doesn’t pass a building inspection. You want to fire the GC and he refuses to leave because he has a contract with you, liens your jobsite;
- You’re extremely fussy and you’re calling the GC constantly complaining about every tiny little thing, driving the GC crazy. Believe me, they won’t have much patience with you if you drive them nuts. I highly recommend that you have a healthy respect for the GC and his trades;
- Your schedule and the GC’s schedule for work to be completed is way off. It’s possible that an important trade that the GC had planned to show up didn’t show up. Now the job is delayed and you don’t understand why. Trust me, there are always delays. It happens all the time. The material could be delayed, the cabinet installer is sick for a week. It happens all the time. So try to be patient.
- Unforeseen problems happen. They might run into an environmental issue that has to be remediated. Like a buried fuel tank. That will delay the job and easily put the budget behind over $100 Thousand.
Upgrades are pretty straightforward if you have an allowance in your budget and you want to go over budget for that material.
But this can become a problem when you tell the GC “you know, I want to move this wall from here to there” and he looks at you and says “OK, that will be an extra $5K”.
You see, your looking at the wall and thinking its easy, but he see’s possibly 4 trades who are not available to move that wall for a few weeks, and nobody likes to make these changes after the wall is built because it delays the job. So try to be OK with drawings from the beginning or catch a change that you want before they have started working on it.
So make sure that you prequalify the GC, have your lawyer check out the contract. And have reasonable expectations, pay the GC on time too.