Last Tuesday James Dainard hosted Part Two of our four-part webinar series, Construction 101: Setting Up Contracts, Negotiating Contractors and Timelines. If you missed it, you can check out parts one and two here. The last 30 minutes of the webinar is dedicated to questions from our viewers. We’ve chosen two questions from last week to answer in-depth on our blog. Additionally, if you have any questions you would like answered, please comment on our post and we’ll get you detailed answers as soon as possible!
What is the recourse to get money back from a contractor who didn’t perform the work, and now they won’t call you back?
The importance of a detailed contract cannot be overstated. Not only will it protect you if someone walks off the job, but it also prevents that from happening. With a contract that clearly states expectations, contractors are more likely to stick to their agreement. However, when this is not the case; it is nearly impossible to enforce or chase any contractor without an agreed upon scope of work, signed by both parties. Your contract will serve as proof that the contractor knew the expectations and either didn’t complete the projects, or did not complete them to a reasonable standard. The second step is to document every piece of poor workmanship, or uncompleted projects, the more photos the better! Bonds cover neglect and bad workmanship, but do not cover theft.
Use your fixed bid to calculate the value of work uncompleted. This is where things can get tricky; find an attorney that will file a lawsuit for you. In the past, we have used an attorney who takes payment based on a percentage (about 40 percent of what we’ll get back). If the contractor isn’t showing up to the job, and won’t answer your calls, chances are they won’t show up to court either. If this is the case (which it most likely will be) the judge will issue a summary judgement, that is sent to a bond company. From here, the bond is transferred over to a collections company. It’s very common to not get anything back, simply because many of these contractors don’t have anything to pay you with. However, if the contractor tries to start a business, then you might get some of your money back.
What is the typical markup for general contractors who hire their own subcontractors? When is it better to find subcontractors yourself?
As a general rule, most contractors tack a 10% markup on subcontractors. General contractors will take advantage of flippers, and inflate markups 15-20%. When it comes to a cost-benefit analysis for your projects it is subjective to your own time and effort. Using a contractor’s subs can be a huge advantage for investors because you don’t have to manage the subs, saving you a lot of time and energy. However, if you can find your own subs for a better price, and you don’t mind managing and keeping them on task it could be worth it to you to save that cost. Ultimately, you should not be spending more than a 10% markup, if your contractor is trying to charge more, then it’s probably worth the time to find your own subs.
Take into consideration your contract with your contractor. If you have a fixed price contract, then you pay the same price regardless of markups. If this is the case, Heaton Dainard lets the contractors hire whomever they want, as long as they work inside our budgeted timeline.
Still have questions? Add a comment below and we’ll get you a detailed answer ASAP!