It is in the best interest of both you and your general contractor to finish your project successfully. All parties should leave the job happy. You should feel like you acquired the best building that money can buy and the general contractor should make a profit so they can continue to do business. If this is your first time working with a general contractor, you may not know how to go about things. To protect your interests before, during, and after the building process you should a) hire the right contractor b) thoroughly review the contract before signing c) make cautious but timely payments and d) avoid liens.
Hire the right contractor
We can’t stress this enough. You need to hire a general contractor that has the right amount of experience, expertise, and knowledge. It’s best if you hire a contractor that has done the type of work you’re looking for. For example, if you are needing a new church building, it is best to find a contractor that has built churches before. Their experience will be able to help you immensely, allowing for a smoother construction process. It in your interest both financially and emotionally to find the best person for the job.
To find a great contractor, check with other business owners so you can see who to talk to and who to avoid. Check with local building inspectors to see which contractors regularly meet building codes. Make sure that each contractor that you talk to is licensed and insured. Finally, secure bids from at least 3 contractors so that you can compare prices. But one word of caution - make sure you tell each contractor the same information so the bids are accurate.
Thoroughly review the contract
When your chosen contractor drafts up a contract for your project, you should read over the document and preferably have a lawyer read over it as well. A thorough contract will include the scope of the work to be performed, prices listed in detail (labor, materials, subcontractors, markup, etc.), a project timeline, a payment schedule, a clause that says that the contractor will acquire permits, the contractor’s warranties, insurance, provision for additional work, policies for termination of the contract, and information about conflict resolution.
The contract may give the contractor more control than you want him to have. If so, you will need to meet and come to an agreement. Be sure to cross out any blank spaces in the contract so they can’t be filled in later. Protect yourself by being careful, reading thoroughly, and signing slowly.
Make cautious but timely payments
You will have to put some money down in order for the project to commence. Usually contractors require 10-15% of the total project cost. If your general contractor is asking for more than that, you might want to avoid working with him. As we stated above, your contract will include a payment schedule that needs to be maintained so the project can move along according to schedule. To protect your interests you should make sure that the work that was supposed to be completed at the time of each payment is actually done. Be sure to pay by check so that you can prove the payment was made.
If you are financing the building with a third party lender, make sure the lender gives you money that you give to the contractor. Don’t allow the lender to give money directly to the contractor, bypassing you, so that you can make sure the work was actually done.
There will be third party subcontractors such as roofers, plumbers, masons, etc. that will have their own contract with the general contractor. If the general contractor doesn’t pay them, the subcontractors can place a lien on your property until the debt is paid. To avoid this, you need to make sure that the contractor is paying the subcontractors. You should monitor all entities that have the ability to place a lien on the property and mark them off the list when paid.
You can request a conditional release document that explains how much is due and that any lien will be released once the amount is paid. Each of the lien holders (or potential lien holders should give you a release document when the amount is paid. Make sure all subcontractors and materials suppliers have been paid by the general contractor before you make the final payment to him.