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6 Secrets to Stop You Wasting Thousands of Dollars on the Wrong General Contractor

The wrong General Contractor can turn your dream into a nightmare, but the right General Contractor can turn your home into exactly what you want with a minimum of fuss and expense. So how do you choose?

1. Initial Contact to Contract-What’s the Process?

The process of hiring a General Contractor (GC) can be a challenging one depending on the person, or company leading the process. I say leading the process, because as General Contractors (GC) we have a responsibility to lead the customer in the most consumer-centric, efficient way possible to ensure an overwhemlingly positive customer experience.

“I’ve contacted a few General Contractors...now what?”

I want to share with you the process I think you should go through whilst in search of a GC to undertake your remodeling and/ or renovation project...or even a new home for that matter. To set the scene as an example, I will detail the scope of work and then spell out how I think the process from Initial Contact to Contract should play out. Here goes…

Project Scope:

  • Basement remodel/ bathroom &/or laundry remodel

  • New kitchen including dining room remodel

  • Master bedroom, ensuite and walk-in closet renovation / addition

Initial Contact

If you have made contact with a GC, a competent operator will have a process of qualifying your inquiry - this is GC best business practice. Assuming you’re serious and you qualify, the GC will meet with you for a no-cost, obligation free, site visit. I would expect the outcome of this meeting to outline clearly your project needs and requirements.

Let's break it down!

As it relates to the basement/ bathroom/ laundry remodel, kitchen and dining room remodel, and assuming all the work is merely aesthetic and non-structural, a building permit in most cases, will not be required. An experienced GC will have a good understanding with regard to local municipality building permit and inspection requirements.

So, best practice would be to have concept drawings done with 2D plans and 3D renderings to help you visualise the finished product. A reputable GC should be able to provide this architectural service to have these done. These drawings would also include the master bedroom/ ensuite/ walk-in closet addition and be used for building permitting application processes.

I would expect the GC to present you with a quote to provide all of the following:

  • Concept drawings.

  • Build Cost Estimate as per detail contained in the concept drawings.

  • Construction Blueprints.

  • A specifications and inclusions list as it relates to final construction blueprints

  • Engineering and inspections if required.

  • A Build Cost Quote including Building Permitting and City Hall inspection costs as per detail contained in the final construction drawings.

The interesting thing to note at this time, is how some inexperienced GC’s will provide you a quote to build soon after the initial site visit, using only the scratch drawings, and based on very little, tangible details and specifications. This is the first red flag!

All the hard work is in the planning stage!

A clear list of what’s included and excluded, all textures and finishes, types of materials used, and colours and fixtures required, you now have a good visual understanding of the finished product. You will have invested several thousand dollars up to now, however, in doing this, you have minimized the chance of nasty, expensive surprises like...“Oh, I thought that was included in the price?”

You are now ready to enter into an agreement with your GC to begin the construction process.

 

Blank Check 2

2. Why Would you give Your General Contractor a Blank Cheque?

Do you realize you have an option as to the type of Building Contract you enter into with your General Contractor?

Do you know any better?

I recently made a call to a brand new customer inquiry to discuss some of the details around his renovation project. When I asked him what style of contract he would like to enter into, he did not know. He just assumed a Cost Plus Arrangement would be typical.

As he fumbled with an answer to my contract question, I interrupted him and asked him if I could offer him what I think the right answer is. He was happy to hear it…

What is the best contract arrangement?

I’m always focused on delivering value to our customers and delivered it to him this way. The most secure way to set up a building agreement is as follows:

  • A fixed price contract - emphasis on fixed.
  • A detailed payment schedule.
  • A list of specifications, inclusions and exclusions (“The specifics!”).
  • A commencement date.
  • A completion date.

What’s the downside of this contract arrangement?

For the general contractor to provide this level of commitment to the customer, a unique system has to be employed by the general contractor to ensure the outcome is win-win.

A fixed price is a result of the general contractor undertaking a complete takeoff of all of the items and components, materials and labor, delivery costs that it would take to complete your project.

Upside - a fixed price gives the customer security and reduce the risk of cost overruns...no nasty surprises.

Downside - for a general contractor to provide that fixed price specifically for a renovation, there are  cushions and contingencies built into this fixed price. It will be calculated pursuant to what we call ‘Scenario A’. And because of this, the fixed price will naturally be slightly inflated.

Specifications and inclusions - the purpose of the specifications is to remove any ambiguity as it related to what’s included and what’s not included. This provides clarity and supports a positive GC/ Customer relationship.

Commencement date - The purpose of establishing a commencement deadline, is it’s important to the customer to rest assured, the General Contractor will start when he says he will. Customers are inconvenienced when a renovation is taking place so it’s imperative the job begins on time.

Completion date - The purpose of establishing a completion date, is to make it clear to the customer how long they will be disrupted and inconvenienced. The only variation or extension to this completion date, will be due mostly to change orders.

You might have found the best value General Contractor!

I know that general contractors are human but also know that the organisational expertise of the general contractor influences the building process. Asking how the general contractor organises and schedules the project, would be a good way to help you determine which builder is the right one for you.

The reputable general contractor you choose, should be using a cloud based, estimation and job management software. To be able to deliver an efficient, accurate building quotation, and accurately plan the building schedule including the completion date. This technology naturally improves the general contractor’s ability to do this.

CA Frame

3. Budget, Speed or Quality...Choose Your Medicine.

I’m no different to anyone else in that, I love a DEAL and to save as much of my hard earned cash as I can. Recently I went out to get the “best price” on a laptop but because I enjoyed the buying experience at the first store I visited first, was happy to complete a purchase. This is because the ‘Positive Customer Experience’ I enjoyed, became more valuable and important than just the purchase price - thanks Jas!

How does this apply to me and my building project?

Well, the first thing you as the homeowner must determine is, what is my priority. This is because, to determine the level of quality and service you receive, will be directly related to your position as it relates to Budget, Speed and Quality. Let me explain these in a little more detail as well as the impact each of these will have on your experience procuring a General Contractor for your building project.

Budget:

Homeowner - Typically, this is the focus of many that have limited finance available. These folks will be penny pinching and shortcutting in an attempt to get as much as possible for the finance at their disposal. This can be viewed as prudent however, many a homeowner have spoken of regret regarding their budget focused escapade. First-time home renovators or those with little understanding of the construction industry dynamics, often become victim to unscrupulous and/or dishonest operators who sense the vulnerability and over promise and underdeliver. They promote quality, service and savings with a price that’s too good to refuse. But in hindsight, the naive homeowner realizes the error of the ways and the lure of a supposed great deal that overcame their good judgement.

Investor - As a general contractor, I have done many deals with investors. The major difference between a homeowner and an investor, is the investor is not one-eyed. This is because, usually the investor has access to sufficient finance but is always focused on Return On Investment (ROI). Typically, they will investigate both the premium level product, service and finish and compare it to the entry level product, service and finish. They would investigate the positive or negative impact on their set of objectives and make decisions inline with these deliverables.

In summary, both an entry level product and a premium level product will have certain characteristics and that has to be the focus when focusing on budget. More often than not, you get what you pay for!

Speed:

No matter whether you're a homeowner or investor, speed in completing the project is always important. As a matter of fact, it would be the one commonality with every customer despite their individual objectives. A homeowner wants their renovation project completed as soon as possible so they can begin to enjoy the improvements made. Or, a customer building a new home wants to move into their newly completed home to begin a new chapter of their life. An investor normally would be waiting on the completion of the project so they can begin receiving income and because of this, becomes very insistent as the project moves closer to completion.

My warning to those that insist that speed as their priority is this. An obvious compromise brought about by speed that is common, is the level of finish. And, is normally always reflected in the various product installation activities. This is not to be confused with lesser quality, only the level of finish. For example, whenever the pressure is applied to trades personnel, there is no question that they will have an attitude towards their scope of works, that in order to comply with the said deadline, the attention to detail may be compromised.

Quality:

There's no question that working for this type of customer, is an experience that often delivers an almost perfect finished product to a very satisfied customer. These customers understand categorically, that you get what you pay for. However, they are still very concerned about how and where their money is being spent.

The benefit to them is usually one or all of the following. Their project is given priority, the best trades put to work on their project, the products structurally and aesthetically are top shelf, and the best value for money long-term will be experienced because of the level of investment upfront. They will also receive the admiration of friends and family for the beautiful new home or the amazing remodel - the type of accolade that warms our hearts.

couple standing plans for ca site

4. Comparing Apples to Apples.

So you have three quotes from General Contractors on the table. This stage in the renovation game is critical and can be hard to navigate. Quotes for scope of works and inclusions may look the same or similar however, may actually have several subtle differences.

Systematically, compare each of quotes...

  • Are the quotes set out in a way that you can understand the cost break down?

  • Are all aspects of the project been clarified and systematically covered?

  • Can you identify the black spots or inconsistencies that could affect your final decision?

  • Is it obvious to you how much time and care has been spent assembling the quote?

These are just a few indicators that will help reassure you that your making the right decision. However, if you are still a little unsure, the following are a few questions you can ask to assist you in your assessment. They are as follows:

  • Have you completed a job like mine recently?

  • Is it possible to read some testimonials or could I make contact with some of your previous customers?

  • Is it possible to confirm your credentials?

  • Are you a member with an industry association?

  • How particular are you when selecting building materials and products?

  • Does this quote have a level of finish you can define/ explain?

  • Does this quote include any warranties or guarantees?

Getting down to business!

The next part of the process, is to meet with your potential General Contractor. This meetings’ top priority is to shake out all of the grey areas or points of ambiguity. In this process, you will also develop more of a feel for the General Contractor as this type of meeting does put the General Contractor on the spot and under pressure. This experience will assist you in making an informed decision as to who will be the successful General Contractor.

The Build Cost Total at the bottom of the quote may not be the most important thing yet.

What do I mean?

What about…

Experience:

  • What have they done in the years they’ve been in business?

  • How long has the business operational?

  • What depth of experience does the team or crew who will be undertaking the world have?

Quality:

  • Which major manufacturers or suppliers, provide your major building products?

  • Do you have a reliable network of sub-trades that do the work?

  • Are those companies licensed and offer any warranties or guarantees?

Communication:

  • What’s your experience been like so far?

  • What system or process do they use to communicate with throughout the build?

  • Do they include scheduled meetings with you throughout the build?

Contractor Chemistry:

  • Who do you seem to have a natural fit with?

  • Is there precision and professionalism in the way they deliver the information?

  • Have the questions you've presented, been answered competently?

  • Do you feel they are knowledgeable as it relates to your project?

Different builders for CA site

5. Why are Quotes from General Contractors Soooo Different?

Requesting three quotes for a building project you want done from different general contractors should be a fairly simple, straightforward process. Until you receive those quotes and you wonder why is there such a variation in price.

What the…?

A typical convention as it relates to procuring the services of a General Contractor, is to request a quote from each of them - this is a good idea, one would think. However, upon reviewing the quotes presented, you may become more confused or unsure than before. This is because, procuring the services of a local General Contractor is not like walking into a car dealership to purchase a new motor vehicle.

How can the prices of these quotes, be so different?

I will do my best to explain this phenomenon...I’ll digress slightly to do so.

When you begin negotiations to buy a new motor vehicle, it’s prudent to visit at least two, maybe three dealerships in an effort to obtain the best price. Normally each dealership is very aware of their competition and certainly have a good idea as to each of the competitions’ price points. So, it would be fairly accurate to state that they would all be within a very close price range.

This is where the confusion begins when reviewing quotes from General Contractors; and this would be why.

With new motor vehicles, the same branded motor cars are sold at different dealerships, but are made by the same manufacturing plant. Therefore, the finished product is virtually identical. The fact is, what separates the new car buying experience from procuring the services of a General Contractor is, each general contractor will have different perceptions, experience, processes, ideas, methods, skill sets, company size, human resource...just to name a few.

So, because of this individual, human element, the chance of a massive difference between project quotations will be very high.

What's the difference between a Quote and an Estimate...isn't a price, a price?

The answer is no...let me explain the difference. Before I do, check out the official definition of each:

Estimate (def) - “an approximate calculation or judgment of the value, number, quantity, or extent of something.”

Quotation (def) - “a formal statement setting out the estimated cost for a particular job or service.”

As it relates to the construction industry, below is my best attempt to explain -

Estimate - an estimate will be exactly that, an approximate calculation. This would usually occur when the homeowner has little or no specifics i.e. blueprints, interior/ exterior, finish types and finish qualities...all which require the general contractor to make assumptions of to produce an estimate.

(Not binding and unreliable)

Quotation - for a quotation to be provided, all of the creative aspects of the project, should be already decided upon. Items such as, design/ layout, ceiling heights, roof angles, window types, interior and exterior finishes including countertops, cupboards, door hardware, floor coverings, bathroom/ kitchen tile selections, light fixtures, appliances, again, just to name a few.

This means, all the guesswork has been taken out, blueprints are available, a clear scope of work including specifications (Scope of Works) has been laid out. It's now up to the General Contractor to calculate the costs associated with the supply, delivery and installation of those items along with an acceptable profit margin to complete the total price. (Very reliable)

'How much profit does a builder make' I hear you ask?

This component of each of the general contractor's quotations, could vary also. Why? That's because, the demands on each general contractor will be different.

Influencing factors such as:

Large or small crews - some general contractors have large crews of payroll employees and they need to keep their people busy. These contractors may drop their price to “buy” the work (meaning, they reduce significantly their profit just to have cash flow) to win the job. (Price Low)

Full schedule - in the event a general contractor receives an inquiry, typically, they will undertake a site visit and an initial meeting. But because his work forecast being healthy and full, he may increase the quotation having the philosophy that if his bid is successful, the profit margin will be worth the re- arrangement of his work schedule to accommodate this new project. (Price High)

Lack of experience - in some cases, a General Contractor may have limited experience in many areas. This limitation will result in underestimates (or sometimes over estimates) of quantities and profit margins which will give off the appearance that this General Contractor is the cheapest. It's not until you’re mid-way through construction when this ‘Priced too Low’ deficiency becomes known.

The reputable General Contractor you choose, should be using a cloud based, estimation and job management software. He will be able to deliver an efficient, accurate building quotation, and accurately plan the building schedule accurately predicting the completion date. This technology naturally improves the General Contractor’s ability to do all of this.

Angry clients for CA site

6. How do I NOT get Ripped Off by my General Contractor?

Whilst considering this, I considered the difference I wanted to make and the positive influence I could bring because of it. I receive emails daily from home owners who have fallen victim to unscrupulous contractors. Operators, who for whatever selfish reasons, take the money and run.

Firstly, let’s look at some stats...the renovation marketplace is alive and well in Canada!

According to an article in the Financial Post printed July 4, 2017, renovation spending in Canada will reach $72.7 billion in 2017, up from from $71.2 billion in 2016, and climb to $74 billion in 2018.

The entire new home market was worth only $53 billion showing that Canadians are spending about $1.33 on renovations for every $1 we spend on new home construction.

So, it seems that because the demand for renovation services is significant, an opportunity for even a less qualified, less reliable construction practitioner is available. Some of these individuals are very persuasive, appear to be good people and who might look like they deserve our trust. However, having a more detailed understanding as to how to qualify them is required by homeowners before engaging a General Contractor and handing over your hard earned cash.

“My contractor doesn’t have an online presence...”

In my experience, customers do business with people that they know, like and trust. With our digital footprint, customers know a lot about us before we meet face-to-face. In this day and age and with the digital world being a great research tool, I would think someone without some sort of up-to-date digital footprint may have something to hide... but not always.

In defence of the General Contractors, they are not banks or financial institutions and should not be obligated to carry for a prolonged amount of time, any financial weight as it relates to your project. In summary, the following is what I think might be a fair and equitable system for the release of funds to General Contractors for small or medium size projects.

Insist on a fixed priced contract rather than a time and materials, cost plus fee arrangement.

I’m sure there are arguments that support the fact that you save money when a time and materials, cost plus fee agreement is used. However, the majority of grievances expressed to me by homeowners have been experienced whilst under a cost plus fee agreement.

To support a fixed price contract, a list of specifications clarifying what is, and isn't included should be detailed. Further to that, a start date as well as a completion date should be determined.

Stage claims made in percentages of the contract amount is the most secure way for the homeowner to ensure they get what they pay for. Initially, a maximum of 10% should be handed over at the signing of the contract. How the remainder of the funds are to be distributed, should be determined by a payment schedule and in percentages relating to the amount of work completed.

Other influencing factors would include project duration, types of materials used and degree of difficulty. (If you can avoid it, never pay using cash)

What’s the best outcome?

A completed renovation or Custom Home project, with a favorable outcome for both the General Contractor and the homeowner is the goal. Trust is important but having the majority or even better, all of the grey area removed by using the Fixed Price Quote as outlined above, will minimize or remove the ambiguity almost totally. This should be championed by the General Contractor as they are the ones operating in this arena every day.

Summary

A competent General Contractor should set boundaries and manage his customers expectations. Over promising and under delivering, is the quickest way to destroy a positive Customer/ General Contractor working relationship.

Open, honest communication, both verbal and backed up by email or some written form, is a sure way of maintaining a clear line of communication, avoiding tragic breakdowns in communication.

Assumptions by either party will almost inevitably end in tears, so everything should be checked and double checked with agreement from both sides.

At Smith & Sons Remodeling Experts, Customer Service isn’t a department, it’s an attitude. We trust this ‘Guide to Recruiting a General Contractor’, will be useful and a tool that ensures you select the General Contractor that will serve you best.

All the best with your building project!

The Smith & Sons Team

For any more information, please get in touch, we would love to hear from you.


 

 

 

 

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