When you are a homeowner or business owner, one of the things you will eventually have to do is hire a contractor to perform some sort of construction or renovation work at your home or business.
One of the challenges one can face is finding the right contractor for your specific type of project that will do a good job and give you the best price.
For larger projects, using an owners representation company or construction estimating company might be a good idea to start preparing budget pricing, preliminary estimates, and even some of the planning of the projects.
An owners representation company can even help you hire the right architect for your project.
For the purposes of this article, we’re going to focus on finding the right contractors and the best methods to use to negotiate your projects for the best price and keep your project on schedule.
How to Find the Right Contractor
Once you have preliminary drawings done and an idea of what you are going to build or remodel, the first thing you want to do is start researching contractors.
Quick tip: not all contractors are created equal even if they are licensed.
Contractors will have their own experiences and specialties in the types of projects they work on.
The first thing you want to do Is make a list of potential contractors for you to contact and interview.
Here are some great places to find qualified contractors:
- Home Advisor
- The Blue Book
- Google Maps
- Angies List
- Home Depot Certified Contractors
- Ask friends and family
If you are going to do a commercial project, you can expand to include The Bluebook, iSqFt, and Google Maps to find local contractors.
Many of these platforms have reviews so go through them and find the contractors that seem most qualified with the best reviews for your specific type of project.
For example: if you are going to be doing a kitchen remodel, it might make sense to focus on contractors that specialise in doing kitchens instead of hiring a general contractor that does all types of construction.
Contact the companies and set an appointment so you can meet them.
Send them your plans if you have them already so they can start giving you quotes.
References & Reviews
Now that you have narrowed down your search to a few contractors, start your background research on each one of them.
You are going to want to look for reviews and ask for references.
You can do a search for their company on Google with the word reviews after their name and you might find a bunch of different types of reviews from multiple websites such as:
- Google My Business Reviews
- Yellow Pages
- Home Advisor
- Better Business Bureau
- Their Website
Get an idea of what their specialty is and what others are saying about them.
Some people might be raving fans while others may have had a disagreement or a bad experience.
Try to be objective and not let one or two bad reviews deter you from using that contractor.
Many consumers are quick to put a bad review even if it’s not the contractors fault.
Next, look for pictures of the work that they have completed in the past.
You can usually find a bunch of pictures on their website.
If not, feel free to ask their office to email you some pictures, a portfolio of work, and even some addresses of projects so you can pass by and take a look at.
Qualifying Credentials & Work History
At this point, you should have a very good understanding of the pros and cons of using these contractors.
You have looked up the reviews and you have an idea of the specialty they focus on.
Now it’s time to look at their credentials and work history.
There are three extremely important credentials your contractor needs to have.
These are Worker’s Compensation Insurance, General Liability Insurance, and Licensing,
These two insurances are very important to require from your contractor to make sure you protect yourself.
If they break a water pipe and cause significant damage to the existing structrures, you need to make sure there is an insurance company that will pay for repairs for an unforeseen circumstance like that.
Worker’s Compensation Insurance will protect the contractor, and more importantly you from injuries to workers.
If a worker gets hurt on the job, the common legal practice is to sue everyone involved.
If your General Contractor has Worker’s Compensation insurance, that insurance will cover our injuries and medical expenses for anyone he hires including his own employees.
You also want to get someone that is licensed by your local building department.
This ensures accountability with the law and protects your money and interests.
Lastly, if you haven’t found a work history through your review research, ask the contractor for a list of projects they have done that are like yours.
If possible, make sure they give you some images, and ask for a reference for those specific projects so you can call those previous clients.
Contractors may be a little hesitant to give out their clients private information so do not take it as a red flag if they can’t give you the clients personal contact info.
Create Accurate Drawings & A Scope of Work
As you narrow down your search, you can hire an architect to prepare detailed drawings and a scope of work for your contractor.
Most building departments will require final drawings so they could give you a permit to build.
However, your contractor might be able to put together a simple sketch of the work to be perform If it is a small project.
Regardless of who does your drawings, it is paramount that you have an accurate set of drawings and a detailed scope of work.
This will prevent conflicts of the work to be performed in the future, and it will prevent additional costs from things that were not agreed to or miscommunications on what was agreed to in the beginning.
This will make sure your contractor is accountable to whatever is shown in the drawings and in a list of specifications and scope of work.
Once you have drawings and you have narrowed down your list of contractors to three or four qualified candidates, it’s time to get final pricing and start negotiating.
Quick Tip: Never hire your contractor based on price alone.
Many people are quick to hire the contractor that gives them the best price.
If you notice, you have done a ton of research on each of these companies, so by this point, they should all be equally qualified to perform the work.
Because they are all equally qualified, you should be able to hire on price at this point.
It should be an apples-to-apples comparison between all candidates.
Here is our simple strategy that we use all the time when hiring contractors.
First, ask everyone to provide a formal quote in writing with a scope of work of what is included.
Once you receive this, review the scope of work and make sure that everyone is including the exact items.
Next, determine who is your low bidder.
Call all the other candidates and tell them what the low bid price is and ask them to beat it.
Next, to win the job, the other contractors are going to try to beat that number and send you new proposals.
Now you should have new prices from all your candidates.
Continue repeating this process until no one is willing to lower their price anymore.
Congratulations! You have just decided on your contractor based on reviews, referrals, and lastly, price.
Let’s move on to a few ways you can lower costs now on the project itself.
Value Engineering to Save Money
Now that you have your contractor selected, we are going to try to find some alternatives to save some money on your projects, or get you better materials for the same price.
This is called value engineering.
Now that your contractor has received a verbal hire, they are going to be willing to help you find better pricing on materials and offer alternative solutions to get more for your money.
Often, architects and engineers will design something a certain way because that’s what they are used to, but since contractors are always working with different architects and engineers, they are able to see how other design to accomplish the same things.
They can typically offer you alternative methods that can save you money.
Look at things like:
- Discounts from suppliers that they can pass on to you
- Using different suppliers or vendors that they know of that they can pass savings on to you
- Offer to buy certain materials directly in exchange for a discount
- Design certain parts of the project in a different way to save costs (for example, use metal framing vs. wood because metal framing is more readily available and quicker to install)
Your contractor will know the best ways to save money.
Negotiate Payment Terms & Keep Control of the Job
Before finalising your contract, talk to your contractor about payment terms.
I typically recommend no money up front for commercial projects, and no more than 20% up front from residential.
Contractors should be able to finance their projects.
Sometimes residential contractors are smaller companies and need a little help in financing the beginning of projects.
20% once materials are delivered is an acceptable number for the job.
The goal is to always keep money on your side to keep the contractor financially incentivised to finish on schedule and with good quality work.
The money needs to be on your side to make sure they don’t use your project’s money to finance others they have going on.
This is common in construction.
They mismanage some funds, or charge you a lot up front, and then realize their other projects are not properly funded.
Contractors are some of the busiest people since they are usually smaller operations.
They are usually juggling the estimating, meetings, deliveries, accounting, and supervising jobs.
Sometimes construction companies are completely run by one person.
Therefore, it’s difficult for them to juggle the finances for multiple projects.
This does have its benefits though.
One or two person companies typically have much lower overheads than companies with large staff.
More employees means more costs to clients.
Have your contractor provide you a schedule of values.
This is breakdown of milestones where they will be paid.
For example, if building a new house, this can be a schedule of values for it:
- Mobilization Fee (20%)
- Shell (15%)
- Doors and Windows (7%)
- Interior Walls and Ceilings (15%)
- Plumbing (8%)
- Electrical (8%)
- HVAC (7%)
- Interior Finishes (10%)
- Completion (10%)
Writing or Reviewing a Contract
The final part of hiring your contractor is to finalise your agreement with a contract.
Your contractor has given you great ideas that modifies the original price slightly, and they’ve also given you some scheduling details.
Your contract should include (in detail) everything that you both have discussed and agreed to.
This should include pricing, payment terms, scope of work, specifics on materials that are not found in the drawings, etc.
Most contractors will have their own standard agreement, but if you need to write one up, make sure you either get an attorney, or you can use some services like Legal Zoom that has standard agreements.
Another option is the American Institute of Architect’s Standard Agreements. These are great resources.
Finding the right contractors doesn’t have to be challenging.
If you use the tools available to us like reviews and general negotiation strategies, we can find the right contractor for the right price.
Contractors are notorious for being difficult to work with and having difficult payment terms.
But by using the strategies mentioned above, you will also get the best price and payment terms.
You’ll even have a contractor actively helping you on ways to value engineer the project and save money.