4 Steps for Vetting a General Contractor | Think Realty | A Real Estate of Mind

4 Steps for Vetting a General Contractor

Navigating new development projects begins with the builders

Embarking on a development project of your own is an exciting and rewarding endeavor. However, it is also a venture that comes with many obstacles. This is particularly true if you are a first-time developer and not familiar with navigating the construction process. The key to a successful build is assembling the best team for your specific project. This starts with finding your general contractor. So how do you vet these individuals for competence, experience, and overall best fit to your development?

Here are a few essential steps when vetting a general contractor and how to protect yourself within the construction contract.

No. 1: Capability and Compliance

First, you will want to ensure that your general contractor has a solid track record within the community working on projects like yours. You would not want a contractor who has built only offices to build your residential home. Request a breakdown of projects completed in the past few years that are similar to your vision. If you end up finding several contractors who have a commendable record of similar projects, then you can always narrow your search based on overall aesthetic. Next, you will want to make sure that your contractor is in good standing with the state. Request a copy of all business licensing and any state certifications. This will not only ensure that your contractor is compliant with all local and state regulations but will also show your contractor that you have done your research and are leaving no stone unturned. Also, you will want to request a list of references. If a contractor is worth working with, then they should be more than happy to provide a list of references including past clients and subcontractors/employees. Call prior clients to verify that the build went according to plan, finishing on time and on budget. Call prior subcontractors to verify that they were paid for their work in a timely manner, the job site was clean, materials were on site when they needed to be, and that there were no major safety concerns. Most importantly, you will want to verify that lines of communication were open with the contractor for the length of the project. There is nothing more frustrating than not being able to get a hold of your contractor when something urgent comes up.

No. 2: Insurance Capabilities

There are risks associated with construction. To protect you, the owner, and the contractor from any undue financial burdens, it is a good idea to have multiple insurance policies in place. When vetting your contractor make sure that they have a general liability policy. This type of coverage helps a business pay for bodily injuries that a client or third party may incur on a contractor’s jobsite. It also covers the contractor for any accidental damages caused to someone else’s property. Another crucial type of insurance is workers’ compensation, which protects the contractor from any injuries suffered by employees on their jobsite. Without these policies in place, your project is one missed step or dropped hammer away from being halted entirely. If you hire a contractor without these protections and one of the carpenters falls off a ladder, then the contractor is stuck footing the bill for all associated medical expenses. This situation has the potential to cause serious delays in your project as the contractor may not have the funds to purchase all necessary building materials or pay his workers after paying for all medical expenses from the accident. Having these policies in place protects you from any additional expenses due to a delayed build schedule. During the vetting process be sure to verify which insurance policies each contractor has for their business.

No. 3: Self-Perform vs. Sub-Contractor Labor

Ideally, you will want to find a general contractor who will be self-performing most of the project themselves. This ensures a level of quality control that is not always guaranteed when you have ten different entities piecing together your project. It is a general contractor’s responsibility to play the role of account manager and orchestrate all trades on site at any given time. This is not to suggest that sub-contracting work is a poor indication. It is common to have certain phases of construction like electrical, plumbing, and roofing done by subcontractors allowing the general contractor and his employees to work on items like foundation or framing. This saves time. However, you will save money if the general contractor self-performs more work by avoiding the mark up of materials and labor costs when utilizing subcontractors. Try to get an idea how much work each contractor typically self-performs.

No. 4: Legal Actions

Finally, you will want to ask all general contractor candidates about any legal actions, pending litigation, or complaints that they have been involved in within the last five years. This is a step that many eager first-time home builders regretfully skip. A thorough dive into each contractor’s business history to uncover any potential lawsuits or unresolved claims will save you a large headache down the road. First, ask the contractor yourself and then do the research. This gives the contractor the opportunity to be forthcoming and honest about any legal actions they have been involved with. They can disclose all instances of legal action taken against their company and amicably defend their case to you. Alternatively, they could take this opportunity to deny any legal actions. The truth will come out regardless via deep research into their firm. This is a great opportunity for you to test a contractor’s character. Never hire the contractor who lies about legal action taken against them; at least consider the contractor who is honest about their legal history, and seriously consider the contractor who claims no legal history with the research supporting said claim.

Vetting a contractor who will be the best fit for your project specifications is crucial. This individual or company will be responsible for building out your vision according to your plan, your timeline, and your budget. It is imperative that communication and documentation between you and your contractor is seamless.

Taylor Miller is Project Specialist at Owner Builder Advisors (OBA), a company offering a full suite of construction monitoring and risk management services. A former commercial Real Estate Appraiser and Construction Analyst, he assists OBA clients in navigating the ground-up development process. Taylor is a new father who enjoys spending time with his family and taking long bike rides.