How To Evaluate A Contractor

Dan and I spent a few hours yesterday with a couple who are in contract on a place near us and about to embark on a similar renovation. They’ve asked that I write a post on how to properly evaluate a contractors. So here it goes…

There’s a lot that goes into making one contractor better than another and the first thing I’d say is don’t shoot for perfection. If you’ve got a $10M townhouse on the Upper East Side or in Greenwich Village you can ask for perfection. But people with $10M townhouses have bigger budgets and they pay a high price for perfection – and even then they might not get it. The rest of us have to shoot for less than perfect contractors.

First – Beware of slick sales people. Personality is important – you want someone you get along well with, but we had a contractor a few years back for our apartment remodel who had a great presentation but then was Casper The Ghost when the project was underway. That project wound up in a lawsuit.

Instead, go for contractors who seem like genuinely good guys. Contractors who are a bit too honest and reveal details hurt their image are actually the ones you want to go with. At the price range Harlem townhouse owners are at, the contractor who seems perfect is hiding something – and that will inevitably turn into problems down the road.

Second – See the contractors work – as much of it as possible. And take someone else along with you when you go see things – they’ll spot stuff you missed. Or one person will be engaged in a chat getting info that way, while the other is taking a close look at the workmanship. Along the same line – take lots of photos ’cause you can spot things you missed by looking at the photos.

Look at the quality of the workmanship, but not necessarily the quality of the finished materials since they may have been picked by someone else. Are the floors solid feeling? Do doors close properly? Has the finish stood the test of time (to the extent the contractor is responsible for the finish)? Are walls flat and defect-free? Is woodwork properly mitered at corners? Are there any unsightly gaps in things? etc.

So for example – one contractor we interviewed showed us a Section 8 apartment building he renovated. All the materials were very low end – that wasn’t a problem because low end materials were appropriate for a Section 8 building. The problem was the moldy wall we came across in one of the units – that means he didn’t waterproof properly – that was a problem with workmanship, not a problem with materials.

Another contractor proudly showed us a project he completed a few years ago. He said he built the cabinet doors, but they looked awful – the finish was wearing off them – the just weren’t wearing well. He then showed us another project where he had done structural work and a new roof. There was just plywood subflooring down but the problem was that the floor wasn’t level. When we went up to the roof it was literally flat – it didn’t slope at all and there were puddles of water on the roof. At one point he was our #1 choice – he had glowing recommendations from clients, but the quality of his work just wasn’t there.

When you look at the work they’ve done it’s OK to see projects that are different than yours, but you should see at least one that’s at least roughly like your project. Your project shouldn’t be the the nicest (or worst) project in their portfolio. You should see aspects of your project in their projects. The contractor we settled on showed us everything from rental grade townhouses to free standing homes in Brooklyn to apartment remodels in nice buildings. Nothing was exactly what we wanted, but there were aspects of what we were looking for.

Third – Evaluate the contractor’s work load. Simply put – how important will your project be to the contractor?

One contractor we interviewed (the Section 8 example above) was used to doing much larger buildings. He was upfront and said our project was “extremely important to him”. We got the sense that he had been hit hard by the bad economy and was about to go out of business. That could be a problem if his debts catch up to him and he goes out of business in the middle of your project.

Another contractor showed us a place he was working on that was INCREDIBLE. When he was done all the original detail would look like the day the house was built – only there would be tons of modern amenities as well. He was more than capable of doing a wonderful job, but we got the sense that our project wouldn’t be a high priority for him.

We went with the contractor who said “your project will transform my business”. He had a solid business, he had done aspects of everything he’d need to do on our project but he wanted to get into the townhouse market – working for owners, not developers. Our project is his most important project. When he gets done with the project we know he’s going to want to show it to other prospective clients…

Related to how important the project is to the contractor is how quickly they’ll get it done. A contractor who has a heavy workload can promise you the moon – but do they really have the resources to get things done quickly if they’re distracted by other projects?

Fourth – References are only so important. Go ahead and talk to the references the contractor gives you, but they shouldn’t be the most important factor in your decision. The most important references are the ones where you see the work and get to meet the owner in person.

When you talk to them don’t just go on whether they say good things or bad things, but get into the details of their projects – was their project like yours? The contractor we used years ago that later wound up in a lawsuit – in hindsight one of the warning signs was that his references were people who were flipping apartments. Owners and flippers think very differently. The flipper just wants it to look good until it sells. The Owner cares about whether it will stay looking good and whether there will be leaks, etc. in 5 or 10 years. This time around there was a contractor who one reference said could practically walk on water – she said he had rescued her from disaster. But he was the one with the awful doors, uneven floors and literally flat roof. In the end the reference didn’t know what she was talking about.

Fifth – Make sure the contractor can do all the aspects of your project well. Some contractors are great at finishing work. Others are great at structural. Some have never installed a heating system. Townhouse renovation has a lot of components – make sure your contractor is comfortable doing all of them (or has good relationships with sub-contractors who can take care of them).

For example we interviewed the contractor we wished we had used for our apartment remodel. When he saw our townhouse his comment was “tell me when the structural work is done and I’ll be happy to give you a proposal for finishing things off”. Luckily he was upfront about what he could do. If you get a smooth talking contractor who’s a “fake it until you make it” sorta guy it can be a real problem when they hit something that’s beyond their level of competence.

Sixth – There shouldn’t be too close of a relationship between the contractor and your architect. I’ve touched on this with another blog post, but it’s  problem when your contractor and architect are too close. When the architect and contractor are close (e.g. design/build firms – but not just design/build firms) the architect will sign off on bad work because the relationship with the contractor is more important to them than the relationship with you. It’s fine if they’ve worked together before, but if your architect doesn’t have anything negative to say about the contractor – that’s a problem. You want the architect to be your advocate and have your best interests in mind.

Seventh – Make sure your contractor has a senior “money guy” on his team that will watch the budget and cash flow. It’s rare for someone who’s good at construction to also be good with accounting – be skeptical if the contractor says he’s handling both jobs himself.

Eight – Understand your contractor’s financial position. Where is he getting the money he’ll need to handle cash flow issues? Does he have a large amount of cash in the bank? Does he have good credit and access to lines of credit at reasonable interest rates?

Ninth – Consider asking him to bond the job to ensure that all sub-contractors get paid and none of them put liens on your house.

I Feel Like Goldilocks Picking A Contractor In NYC

goldilocksFinding the contractor who’s “just right” for our Harlem townhouse renovations makes me think of Goldilocks… There are so many different types of contractors and so many of them just aren’t right for our particular project.

Uptown vs. Downtown

One thing we’re noticing is that a lot of the good contractors usually work on projects downtown that have big budgets. One construction manager two days ago kept throwing out the number $2 million when he was discussing a budget. That’s nearly 4 times our budget and the fact that he kept using that number over and over and over again to us meant he just wasn’t right – he’d probably never understand our budgetary constraints.

Then there was another contractor who seemed to have rich clients that kept changing their minds. To him the design was fluid and he expected it would change substantially while it was being built. In contrast, we know we have to get it nailed down as much as possible before contractors give their final bids so there are as few change orders as possible. I’m sure he’s great with rich clients who really don’t have budgetary limits and want their every whim to be indulged, but we do have budgetary limits and we need the contractor who understands that.

One of contractors who’s made it onto our short list was a guy who came in with his partner who does structural work. One of the first things they asked was how much we paid for the building and how much we thought it would be worth when we were done. They then threw out a number that was close to our budget and understood that we needed to come in near that number.

Large Projects vs. Small Projects vs. Townhouse Guts

The other day we had a contractor in who we had wished we had gone with for our apartment renovations (he was too expensive). He does incredible work. He came into our townhouse and was clearly overwhelmed. He told us he could only bid on the project once we had floors in place so he could get a sense of the scope of work. The structural work completely freaked him out. We explained it was being funded with a rehab loan and it was an all-or-nothing package deal.

Then there are the guys who only work on huge projects. The mechanical engineer our architect had us sit down with just didn’t understand (initially) that you don’t need the same level of heating and cooling systems in a townhouse as you would a commercial space with the same square footage. It took him a while to think small. The same goes for some of the contractors who work on larger buildings and are used to huge HVAC (Heating, Ventilation and Air Conditioning) systems. They just think big and big comes with big price tags.

Another guy came in and he seemed like a good guy who would do a great job. But he was used to doing commercial work where everything is spec’d out in incredible detail by the time he gets called in. He said he wanted absolutely everything spec’d before he gave a proposal – the HVAC system, structural, the windows, the doors – everything. In contrast our goal in bringing the contractors in early was to understand the ways they would do things to stay on budget. We didn’t want to spec a system that could be done more cheaply. I felt a little sorry for him ’cause it was clear he was used to working on buildings that were much larger than ours but he said at the moment he’s just doing a few little jobs and that our project was substantial enough that would keep him going for a number of months. I mentioned that other contractors were giving us estimated budgets with allowances for materials that hadn’t yet been spec’d. A light bulb went off in his head and he said “Oh, I could do that”, but then he never did get back to us with a proposal.

NYC vs non-NYC, Harlem vs. Other Neighborhoods

Then we’ve had some contractors who’ve come in from places like Long Island who seemed freaked out by the City. One was shocked that he got a ticket one time when he left his car for 5 minutes while he was giving out pay checks. Experienced NYC contractors have guys watching or sitting in their cars while they’re at the job. The ones outside New York also don’t seem to know how to deal with NYC Department of Buildings. They complain about how long it takes to get approvals and inspections. The experienced NYC contractors talk about their expediters, and how they’ve done enough work in particular neighborhoods (Harlem) to get to know the inspectors and the types of things they look for.

Then there are others who just won’t work in Harlem because there tend to be theft problems in Harlem (e.g. tens of thousands of dollars worth of copper piping getting stolen). Compare that to a contractor who does a lot in Harlem who said “Yeah – I just put in a temporary alarm system – when there’s a break in, the police are called and my partner and I are called.” He knew how to deal with the neighborhood – it was no big deal to him.

Developer vs. Homeowner vs. Flippers

Yesterday we had a contractor come by. He and his partner were great guys who were extremely nice to deal with. They flat out asked our budget, we told them and they said “Wow – that’s exactly the number we were thinking when we did rough cost per square foot numbers yesterday”. HOWEVER, when I looked into the projects he’s worked on there were a lot of large apartment buildings (50+ units), and the townhouses were all chopped up into floor-through rentals. Property Shark had interior photos for some of the brownstones he’d worked on and they all showed low-end “builder’s grade” materials.

When we did the renovations of our bathrooms and kitchens in our old apartment we went with a guy who mostly worked for people who were flipping apartments. We learned that was a bad idea. People who flip come out with places that look great, but they don’t care about long term quality. The foreman he assigned blew up at me when I told him green board couldn’t be used in showers. I pulled the product spec sheet and showed him that it specifically said it couldn’t be used there and his response was “I’ve used it in million dollar homes” as if that mattered.

Simply put, homeowners want different things than people who are developing for renters or to flip. A developer/landlord wants something that’s cheap and functional. A flipper wants something that looks good and doesn’t care how long it holds up. A homeowner wants something that looks good and will stay looking good for a long time. Each of those types of customers need a different type of construction and hence a different type of contractor.

Contractors Who Finish vs. Those Who Don’t

Another criteria we’re starting to look at is whether the projects the contractor works on ever get their Certificates of Occupancy. A remarkable number of townhouse projects never actually get a new C of O. They may get a couple temporary ones, but then just never finish off the final details to get the final C of O. Since you need a C of O to legally rent an apartment it’s something we’re looking at pretty closely.

General Contractors (GCs) vs. Construction Managers (CMs)

Going into this we knew what a GC (General Contractor) was, but had never heard of a CM (Construction Manager). One CM came by to do a pitch and in the process they explained how they’re different than a GC. What it boils down to is that a GC hires all of the sub-contractors and is responsible for them. You pay a GC and he pays the subs. If you have a problem you have it with the GC. A construction manager is a consultant who takes a percentage as a fee. They’re not responsible for the sub-contractors instead they try to help the owner choose and manage the subs.

While I think a construction manager is a perfect solution for a busy executive who has more money than time, in our situation we want one person who’s responsible for the project. If the plumber is interfering with the work of the electrician we don’t really care – we want one and only one person who is ultimately responsible for making sure everything goes smoothly.

“Just Right”

So, after quite a few contractor interviews we’ve finally decided we want someone…

  • Who has worked on a lot of townhouses
  • Who has worked a number townhouses in Harlem
  • Who can deliver significantly better than “builder’s grade” finishes
  • Whose projects get C of Os when they’re done
  • Who is comfortable with structural work without overdoing it
  • Who knows how to do work on a tight budget

Luckily we do have a few options who seem to meet many of those criteria. We’re still vetting them – calling references, looking at previous projects, etc. The short list is taking shape and should be in place by the time we’ve got all the specs ready.