Contractor overages

[Ray S.]

I've been doing a rental property rehab. The contractor hasn't come close to meeting any of his target dates, and has gone over budget many times. What is the best way to keep him on track and hold him accountable for overages? In my experience withholding payments just keeps them from working, what else can I do? I do have a clause that he has to compensate me if he goes over, and he is at that point, but I know contractors will always try to get out of that, so I know I won't get that money back without a fight. 

Also, is there anyone I can hire, like a consultant, to bring in that could oversee his budget and see if his numbers for what he's charging are reasonable or not? And if they aren't, how do I renegotiate after he has already started? 

[Patrick Connell]

Ray Slater I read through this post and have seen a lot of good stuff coming from several people, but one thing keeps reappearing through this thread that I wholeheartedly disagree with; and that's you blaming the contractor for missing stuff.

The contractor didn't miss anything, YOU missed it, not him. We all have to start somewhere, but at the end of the day, this is your project, your money, your responsibility. Are there things he could have mentioned, sure, but those things should have been mentioned simply because you overlooked them, not because you didn't know to look for them yourself.

You got in over your head with the whole project, failed to vet the GC, and failed to understand the true scope of work needed to complete the project.

It sucks, hard lesson to learn, but man up, acknowledge its your responsibility, and move on.
You'll likely not make any money on this project, but education is expensive.

[Mike F.]

Whoa, so many things...

I think it's very telling that you complain that contractors won't share your risks.

I think it's very telling that you have the same problems over and over again, have done many renovations and don't have any relationships with contractors established. Every location has good and bad contractors, your area is no exception, you  should consider how you've continuously eliminated working with the good contractors and have continuously hired the bad contractors. The answer lies within your criteria and vetting process which historically almost always ends up being hiring on price instead of reputation.

You can put some penalties in your contract but good contractors won't work for you if they are unfair, only the bad ones will accept your business. 

To protect yourself from contractors who don't fullfil their obligations with progress and timelines I'd look less at penalties and look much more at payment schedules. The only way you really protect yourself from this in the future is to keep leverage in the payment schedule. 

But in all honesty you don't need all these protections if you  simply hire quality contractors, those are the ones who you can't get to come work on your  project with a few days notice, those are the ones who don't need your project, those are the ones who charge appropriately for their services...good contractors are qualifying their customers too, good ones simply leave the bad customers to their competitors.

After a couple of projects you really should have a decent stable of go to vendors on your team, if you don't you really need to ask yourself some tough questions why? How are you sabotaging yourself over and over again? 

[Denny Pugh]

I think this all depends on what the contract / agreement says. If he is getting paid for labor and materials plus markup and was under contract for a list of items the owner prepared and he priced, how is he at fault if hidden problems arise not on the list ? If he is getting paid time and material plus markup and included the walls that needed repairs in the original price the final cost would really be the same as it would be if they were added later. If he was including the new HVAC and water heaters under his scope then I agree the electrical might should have been pointed out, however if the owner contracted for these items with someone else I am not sure that the contractor is responsible for electrical deficiencies that arose later.

I think this is the danger in having a time and materials contract and sometimes it works sometimes its does not. In every project someone is taking a gamble. If the GC gives you a hard bid and a hard completion date and promises a code compliant turn key product he is taking the gamble and most likely has some extra $$$ just in case. Sometimes he has more than enough and makes a little extra, sometimes he does not and does not make as much as he would have liked......but that's why its a gamble. I think owners sometimes do not understand that by going T&M they appear to be saving money but they have now become the gambler and sometimes they win, sometimes they lose also. My experience is they are not prepared for the losers and start looking to shift that loss elsewhere. T&M has its place, but if you are inexperienced it can turn ugly quickly.