Should Homeowners Be Wary of Contractors?

jchandle profile photo

I have participated on this board in the past and have been criticized for being too harsh on contractors. So, let me get right to the crux of the issue. Should homeowners be wary of contractors?



I say, the short answer is: “Yes.”



I say “yes” not because I think contractors are bad people, but because conventional wisdom and common practice have worked to put the average homeowner in unnecessarily weak position when using a contractor.



What do I mean? Let me illustrate what I mean by comparing commercial contracting with modern home improvement contracting. When a commercial GC wants to bid a renovation project for a public entity or a major corporation he or she must put up several hundred dollars in deposit money to get a set of plans and specifications for bidding (nowadays these deposits are becoming non-refundable!). Next, after several weeks of working up a bid the GC must submit it with a bond in the amount of 5% of the total bid. This bond is a contractor's offer of assurance that he or she will actually sign a contract should one be offered based on the bid. This bid bond is mandatory. And it represents many thousands of dollars put at risk by the contractor simply for the privilege of bidding a project.



Further, this commercial GC will be required to post performance and payment bonds should they be awarded the job. These bonds are surety instruments issued by bonding companies on the GC's behalf which guarantee performance of the work and payment of all bills related. Getting a surety company to post such guarantees for a GC is no easy matter. It requires years of successful past performance and a good deal of cash in the contractor's bank.



Now, contrast this to the home improvement contractor you call out to bid your rehab. This contractor will not be depositing any kind of bid guarantee with you, nor will he or she be providing a surety guarantee of performance and payment with a bonding company standing behind them. No, quite the contrary, this contractor will almost certainly be expecting (and often demanding) that YOU pay an upfront cash deposit to them before any work is done or any materials are delivered to the site.



Unbelievable!



Nothing more clearly elucidates my thesis than this. In this loose world of home improvement construction the consumer had better watch out!



There's more. The commercial GC will start a project, mobilize men and materials onto the site and produce thirty-days of work before billing for payment. Then the work is closely scrutinized and compared against the billing. If the bill seems greater than actual progress then the owner will adjust the bill downward. Further, after the bill is finally accepted for payment and the check is cut for payment, the GC knows it can take another couple of weeks before receiving the check. And then, when the gets there it will not be for the amount of work agreed upon. No, the contractor will only receive 90% of that amount. He won't complain, though, because he knows that his contract calls for ten percent of every payment to be retained by the owner until the end of the project when all work is fully completed and accepted.



Will a homeowner see any such service as this from a contractor?



Finally, the commercial GC routinely works off a highly detailed set of plans and specifications, often massive enough that you want a wheel barrow to cart them around. This GC will perform according to many strict, unbending administrative rules and thorough project management requirements, including performing according to a set progress schedule. Monetary damages, known as “liquidated damages,” will be assessed against a commercial GC for every day his work extends beyond the contracted completion date.



Now, that is hardball.



When viewed in this context, I repeat the question: Should homeowners be wary of contractors? I think you might see why I say, yes.



A home improvement contractor won't see any kind of demand or detail as this from a homeowner. As a consequence the bids a homeowner gets from several competing contractors will often be for different products, using different methods and different materials, rendering comparison by the homeowner, trying to ascertain the best bid, all but impossible. Plus, after an upfront deposit ransom payment the hapless homeowner is often left to wonder exactly what the contractor will do, when it will be done and what it will look like.



My purpose in this article is not to blame contractors. It's the process that is screwy. I've heard all the arguments from contractors about why they need an advance payment. But there are workarounds that a homeowner can use that address these contractors' concerns and that don't require that they make an advance cash deposit into the contractor's bank account.



I've worked both commercial and home improvement contracting and I've seen firsthand the glaring differences. Someone should conduct a study of the percentages of satisfied homeowners who have used a contractor. I expect it to be low. I base that on the simple fact that home improvement contractors rank among the top consumer complaints in the nation. Right up there next to used-car salesmen. And how might commercial contractors rate? I would expect by comparison their satisfaction rate to be astonishingly high.



Why?



Because these contractors are required to be invested in the project. In other words, they have something to lose, often very significant involvement. A home improvement contractor by contrast expects YOU the homeowner to invest, and that investment is to be made in the form of advance cash and its resulting weakened position that it places you in throughout the rest of the project.



This is simply bass-ackwards.



A homeowner doing such a thing (and it is all to common today) inevitably inherits more risk, less power (in a process that they are fully funding), and they stand to become the prime loser if and when things go wrong.



It shouldn't be that way. And it needn't be that way. There are sensible methods that are used every day in commercial construction that cross over easily to home improvement construction. But no one seems to know about them.



I'm often criticized by contractors, so let's be fair here. Home improvement contractors can't help the fact that homeowners don't wish to pay the top dollars that government and corporations pay for construction work. Those construction projects run smoothly because professional project managers make them run smoothly. Since homeowners don't hire project managers they must learn to exercise competent oversight themselves. It's amazing how many homeowners don't even attempt it. They turn over the keys and hope for the best. Or they interfere clumsily causing conflicts to arise. I can understand why contractors would want to gain the upper hand and hold it to the end. It's exasperating and costly to work in a loose, ill-defined arrangement. The end of a home improvement project is no time for a discussion by a homeowner about their expectation of a different result.



But frankly, contractors can (and some do) assist a homeowner in the better management of their rehab project. It's, indeed, to the contractor's advantage. But many, many contractors do not do this or don't know how to. But in the final analysis it's still the homeowner's responsibility.



Homeowners need to practice sound management techniques for their sake and the sake of their contractors. They needn't hire a contractor off the street on a “hope and a prayer” that they'll find someone who will take care of them. That passivity does not pay high dividends. Home improvement consumers will only gain back the power they should naturally hold in this transaction when they grasp the knowledge of how to do it in an acceptable way, just as the pros do it. There are time-tested techniques that good contractors will respond to positively. How do I know that? It is because these are techniques that contractors use themselves when managing their own projects with subcontractors. Good contractors recognize good project management and will respond to owners who exercise it. Other contractors need to be taught, and project owners and project managers are the ones who teach them. That means YOU, the homeowner.



But first there need to be some changes made. Consumers today are in weaker bargaining positions when buying a home improvement from a contractor than with most any other purchase they make. It's amazing that it has become so commonplace. The more consumers learn about the workings of contract management the better off the industry will become for all of us. And the odd thing is, the more homeowners begin to practice good project management, the more contractors will positively respond to them. Contractors respect sound common sense principles of construction management, but only if the consumer practices them. If contractors see that you don’t know any better they can easily take advantage (whether from self-defense, greed, or whatever...), and in many cases you will never even know it.



Without such knowledge, you lose.

Comments(0)

Add Comment

Login To Comment