The Importance Of The Right Contractor & Contract

Tomorrow we’re going to court (again). The contractor we used 6 (+/-) years ago to renovate the kitchen and bathrooms in our old coop is suing us. I’m not going to comment on the case until it’s over other than to say it’s a huge hassle but we feel very optimistic about the outcome. This blog post is more about the things we’ve learned to avoid hassle and drama with contractors.

First: Use A Standard AIA Constract

Back then our architect told us to use a standard AIA contract. We didn’t because we didn’t want to seem difficult. Thing is, good comprehensive contracts avoid problems. We shouldn’t have worried about what the contractor thought of us. We should have done what we needed to do to avoid problems down the road.

However, for our townhouse project we did use an AIA contract and having read the contract I can see why he told us to use it. For starters, AIA contracts keep you out of court. In the contract both parties agree to binding arbitration by someone who is approved to handle disputes related to AIA contracts. Arbitration would have been so much easier than what we’re going through.

AIA contracts also stipulate that when the owner and the contractor disagree the first line of arbitration is the architect. I’m not sure that would have avoided our current lawsuit, but it’s coming in handy on our current project – the architect is the voice of reason who balances the various points of view.

Second: Avoid Design/Build Firms

You can go one of two routes when you do a major project. You can hire an architect and then hire a contractor, or you can hire one company that does both architecture and contracting (design/build). While one stop shopping may sound good, in practice there are major problems with it.

For starters the architect is going to do whatever is best for the person who is signing his/her checks. An independent architect will do what’s best for you. An architect in a design/build firm will do what’s best for the design/build firm. The architect for a design/build firm is less likely to spec things like sound insulation in walls, or higher grade materials that will last longer.

But more importantly, you will have disagreements with your contractor – even when you have a great contractor. If there’s no independent architect who can act as a mediator, then the disagreements are more likely to end badly. If you’re wrong, you may not believe a design/build architect as much as you’d believe an independent architect. If the contractor is wrong, an independent architect is more likely to push the point and get the contractor to do it right.

Third: Have The Contractor Sign A Waiver With Every Payment

When we closed on our place our real estate attorney gave us a document and told us to have the contractor sign it every time he gets a payment. In the document he should affirm that all subcontractors have been paid for work covered by the payment and he should also waive his right to put a lien against your property for the work covered by the payment.

Our construction loan is from Wells Fargo and I was pleased to see that they require the contractor to sign exactly that type of waiver before they cut the check. If your bank doesn’t include the waiver, ask your real estate attorney for one.

That waiver would have solved a lot of problems for us since our old contractor started all the drama by putting a lien against our coop.

BTW, if you do get a lien filed against you, just bond the lien to make it go away. You’ll need to put give a bonding agent 110% of the lien amount, and two years later you’ll get your money back (with interest) if the contractor fails to sue you during that time.

Fourth: Pick Your Contractor Very Carefully

It’s really difficult finding just the right contractor. Try to find friends who recommend people they’ve used before. Examine the work closely to see if it’s a level of finish you’d be happy with. Don’t be put off by the fact that your friend may have had a few problems during the process – dig deeper and ask how the problems were resolved. Problems will always come up – the issue is how the contractor dealt with them.

Be wary of referrals from people you don’t know, or people who aren’t in the same position as you are. For example the contractor who is suing us had a lot of referrals from people who were flipping apartments. Flippers have a very different outlook than homeowners. Flippers don’t care if things fall apart in 5 years. They just want it to look good for the sale.

In the end go with the person you trust the most in your gut, but realize that you may have to cut things from your project to afford the contractor you trust. And don’t move forward until you’ve found someone you really, honestly trust to do the job right.

2 thoughts on “The Importance Of The Right Contractor & Contract

  1. Jay, this is a really helpful post, what do you think about using an architect who is recommended by the contractor but not part of a design/build firm. We have a contractor we like (recommended by a very good source). We started with an architect we ultimately could not afford, but the contractor feels we have a sense of vision of what we want and what we really need is a practical architect who can get all our filings in order so he suggested someone he has worked with before. We are nearly at the moment of choosing, so your opinion on this set up is valuable.

    • I’d be leery of an architect recommended by a contractor for a number of reasons.

      First, contractors have no sense of design and you want the architect to be great with design.

      Second, the contractor will recommend someone who was “easy to work with” which isn’t what you want at all. You want someone who puts his/her foot down and makes the contractor change things when there’s something that’s not quite right.

      The opposite – a contractor recommended by an architect – can be a fine provided the relationship between then isn’t too close.

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