Labor-only renovation / norms on payment & paperwork

[Lisa Caro]

Hi! My contractor is requesting a third of total renovation cost as down payment - but I've hired him for labor only (I'm providing the supplies etc). I would feel more comfortable paying a normal labor rate as we progress. What's reasonable in this case (when/how much)?

Also, can I request a copy of contractor's ID? No idea if I can legally request that, but this is my first renovation project and I'm just nervous. 

[Kevin Keith Beck]

Lisa,

If your Contractor is requesting ANYTHING upfront, they are not "hourly"

Hourly means hourly. After you work one hour I will pay you "x".

To ask for anything upfront (no matter the %), means something isnt being communicated clearly. Not a great place to start.

Not to pick on you Lisa, I see this a lot with new folks jumping into house flipping business, but it may help to learn a thing or two about how a lot (not all) contractors run their businesses. 

Let me start by saying I am a 30+ year General Contractor who has built and remodeled a lot homes and spent a good part of my "retirement" training and educating new contractors how to build better. Part of that education centers around how they treat their customers. 

Back to what newbies and others who hate working with GCs,

Before hiring a contractor you need to do your due diligence and research compatibility and successful projects they've done for others. 

Before they come out ask them questions over the phone.

REMEMBER, all contractors don't nor are they required to operate the same in every state and you should follow all lien guidelines to protect your investment. 

In my market (CA), most GCs do not work "hourly". There are too many "gray" areas that can be misconstrued like: milage to and from job site, and time spent picking up supplies.  By the way, "providing materials" is not the same as necessary construction supplies necessary for most remodels so be clear with your contractors who is bringing what to the job site. You would not believe the amount of time and materials a simple remodel can take. 

That's why most contractors insist on "Flat Bid" contracts. "I'll build you this "x" for this amount of money". I, as the contractor, need to build, buy, hire, rent, etc. anything and everything to complete the project". In these relationships, the more detailed the better.

If you're starting out or you're not quite sure about certain aspects of the remodel, ask your contractor if they'd be willing to enter into a "cost plus" contract. I've entered into several of these contracts with clients who wanted to proceed but hadn't yet determined final finishes yet. Because of these "unknowns" it doesn't make sense,  nor would it have been fair to enter into a flat bid contract. Instead I was very transparent and showed them my labor burden for each employee that would be there. Labor burden is the cost I pay that employee plus the insurance, taxes, medical, SS,..... I need to add to their hourly to stay in business AND make a profit. Most construction labor in my market runs $25-$100 an hour based on skill and task of the individual. You cant change an employee's hourly based on a task. Which leads to subcontractors. If the GC will agree to a Cost-Plus contract, the next negotiation will be about the "Plus" part. We settled for 15% attached to each invoice we received from a subcontractor. This is all negotiable.

The least favorite topic is O&P, overhead and profit. This is where I have to protect my fellow contractor. Remember, for any of us to have successful businesses we have to make sure we're charging the appropriate amount of profit and overhead so we can feed our families and be here down the road when you need us again. 

So, I our example above Mr. & Mrs. Happy Client agreed to:

Project Manager (Jeff) 65/hr (40s projected)

Lead Carpenter (Matt) 55/hr (160 hours projected)

Carpenter (Tony) 45/hr (160 hours projected)

Laborer (Steve) 35/hr (165 hours projected)

Owner (Kevin) 100/hr (5 hours projected)

Subcontractors- Cost plus 15%

Subtotal 

Overhead @ 6%

SubSubtotal

Profit @ 20%

Total

Now, any of these rates, terms, timelines, can all be negotiated. The key for us was detailed, on site meetings with PM and owners to review costs and progress. 

The KEY is communication. 

Don't let Contractors intimidate you but remember they're people too and provide a great, skilled, efficient service if done well.

Good luck to you!

Kevin Beck

Owner Representative