GC Contract - What to include.
I’m about to sign a contract with a GC for a full renovation of my four-story, 1874 brownstone. My architect simply wants to use the standard AIA form and doesn’t feel anything extra needs to be added. I’m not sure I agree. I would love to know what people who have already gone through this…
I’m about to sign a contract with a GC for a full renovation of my four-story, 1874 brownstone. My architect simply wants to use the standard AIA form and doesn’t feel anything extra needs to be added. I’m not sure I agree. I would love to know what people who have already gone through this process suggest.
Also, what percentage deposit have people given with these types of contracts? And what do you think is an appropriate deposit.
Many thanks for your comments.
Well Said Espresso. I also agree with the post regards the labor force utilized in City Bid work versus High end renovation work. There is such a difference & the poster who is talking about Contract work for city & state entity’s should try to work in the high end market. It is not at all the same. I have been in the business for 25 years never had an issue getting a deposit. Never had an isuue completing a project & never used other peoples money to finance another project. We set up a line of credit for such emergencies should they ever arise. Making a living has been tough. Does the poster want to see my 167 item paint punch list from our current project Try making profit on that sort of detail. It was not a bad paint job just a detail oriented architect & client
Setting the trust issue aside briefly, the motivation for down payment has to do with practical implications. Most general contractors have limited direct labor on their payroll, say for example carpentry. They probably do not have other trades( plumbing, electric, hvac, demo, debris carting, etc.) on their payrolls. Since there is so much pressure to come in with the lowest bid, a GC will usually try to bid out a job to different sub contractors, who in some cases have not worked with that particular GC before. Although the total construction cost for a job may be 750K, a particular sub contractor’s take on that job may only be 30K, or 50K. As such, they will require a down payment in order to cover the cost of mobilizing, covering overheads, and buying material. This point in particular addresses the idea that one should only pay for what one receives. The problem with construction is that the consumer doesn’t see what he/she’s paid for, for some time. They don’t see the cost of purchasing materials with long lead times, they don’t see the tens of hours invested in bidding a job, in negotiating and closing a contract with each sub-contractor, they don’t see the extents of coordination with the architect and his/her consultants. But despite the fact that the consumer doesn’t see it, this work is taking place, and the consumer is benefiting from this work. The ultimate deliverable of a GC may be a product, but the mechanism for delivery is a service. And like any other service profession out there, you have to pin down a retainer(down payment) in order to get the gears rolling. There are few lawyers, architects, engineers, catering companies, and endless other service vendors across a broad spectrum of different industries who will begin work unless they got a retainer to get going. Given that an owner has done their job vetting the GC, and that the GC has done his job vetting the subs, the issue of % down has to do with providing a stable cash flow environment so the job can get done. So bottom line is, if you’re a reasonably savvy owner, have a good team behind you in your architect and legal adviser, and have done research on your contractor, then there is little reason for holding out on a down payment, on the basis that all contractors are scum and are making a boat load of money and don’t deserve trust or respect as working professionals, that’s just bogus.
guest at October 11, 2007 11:16 PM wrote:
“…..Contractors that “finance” improvements on projects such as schools or parks make such a huge mark-up on the project……Home owners will spend many hours visiting web sites researching how to save money on their renovation project- schools just pay up.”
“Huge” markups? If I had a $100 for every lump sum bid I’ve been involved in, in competition with half a dozen other contractors (the typical way that public projects are contracted) where at the end of the spreadsheet the profit percentage addition was 5% or less, I’d be a rich man. And then, in all likelihood, if the bids are over budget, the two low bidders are asked to, at their own expense, come up with value engineering ideas and encouraged to “sharpen their pencils” to get the numbers down to what’s acceptable. The tightly controlled, cutthroat, competitive atmosphere of public bidding makes the typical home gut reno proposal process look like a walk in the park.
Working in the residential sector and working on public capital improvements are apples and oranges.
Contractors that “finance” improvements on projects such as schools or parks make such a huge mark-up on the project that they make a profit even while paying prevailing union wage to semi-skilled workers and waiting 90 days for payment.
If a home owner had the budget that a public capital improvements project had, home improvement contractors would find a way to finance it, but the profit in the residential sector is not that great. Home owners will spend many hours visiting web sites researching how to save money on their renovation project- schools just pay up.
Besides, would you want the same crew that works on school projects restoring the plaster or woodwork details in your brownstone? That is the difference between a laborer and a craftsman.
guest at October 11, 2007 6:39 PM
Then please explain to me why your position is any different from that of a contractor doing, say, a $500,000 improvement project on a City school. There’s no way that he would get any money up-front. Sure you could say that in cases like that the client is a corporate, governmental or corporate entity and that payment for work done is more assured than in the case of an individual but I would argue that this is by no means always the case and that a well managed contracting company should and would check the ability to pay and past payment history of an individual client. Furthermore, the trust issue runs both ways. Why are you so much more trustworthy than an individual that you deserve up-front payments that major contractors neither ask for or receive? What’s to stop you from using my 20% deposit to finance one of your other jobs that’s going badly and may ultimately put you out of business before you start even the demolition on my project?
It’s a virtually blanket convention in commerce that the customer pays the supplier in exchange for actually receiving something of concrete value. I see no reason whatsoever why mid-sized building contractors should be an exception.
Funny
so if we purchase a car we pay nothing until the vehicle is in hand & if we can walk out of a showroom with the car as these dealers are huge & can surely afford to let me take the car without a penny until I have driven it & made sure all is o.k.or I decide we do not like the color of the “steering wheel” we say take it back I dont like it & screw you we will not pay a penny. This is ludicrous to think that people are so honest throughout the city & country that they will pay without question following work being completed. I am not familiar with companies financing projects. I understand banks make ther money on financing projects. Unless someone pays me 7% on my money I am not financing a project for a client who is a Banker Attorney Doctor or other. They work on Multi Billion dollar deals & eat the opposition for breakfast never mind a few Hundred thousand dollar project. If a client dsecides they did not like what a contractor did. Try getting money from them. Honest contractors deserve a deposit. They need to pay there sub contractors & vendors & hopefully pay there men at the end of the week. Does everyone truly believe that renoavtion work garners huge rewards that we can finance someones home renovation. Guess again my friends. You purchase furniture or drapes pay 50 or sometimes 100% up front & wait 12 weeks for delivery. 20% should not be an issue if you trust your contractor & he has been in business for many years.
We do about 40 construction projects a year and never pay anything until some of the work is put in place.
guest at October 11, 2007 4:30 PM wrote:
“everyone still needs a deposit before they start a job, even a huge construction company like Tishman”
I’m sorry, you’re dead wrong. I’ve been in the construction industry 40 years…..and your first-hand knowledge of this is….?
everyone still needs a deposit before they start a job, even a huge construction company like Tishman. It’s more of an act of good faith than anything else. If you put down money, you’re making a commitment.
10-20%