How to handle a contractor had $10k materials stolen from site?

Question

Long story short,

I am stationed in San Diego, and the property is in Missouri (I'll be flying there in two weeks, in part because of this)

My GC fired a sub-contractor for shoddy work on another property on Friday. On Monday they go into my project and ~$10,000 in materials is stolen. Next-door neighbor is supposedly willing to witness seeing sub-contractor taking stuff out of the house on a police report, so I believe my GC's story.

Here is where I get iffy on the situation. I understand property owner is generally on the hook for missing materials, but

A. why was ALL of the flooring, drywall, cabinetry, etc ($10k) sitting in the house at one time, as opposed to buying as needed.

B. sub-contractor supposedly bought materials and is obviously not talking to my GC anymore, so he can't provide me receipts.

My initial reaction is that it seems a bit fishy to have this much material disappear, without receipts. Should I just say I'm willing to reimburse for the receipts I'm provided, everything else is on my contractor? How would you guys handle this?

Man, for those of you who know me well...I can't win for losing this year hahaha. Lessons learned, and still making money despite these headaches, woohoo!

Ted Rud · Answer

Let's back up the train on this a little bit. Who originally paid for the $10,000 of materials that was "stolen"?

If it's the subcontractor, Great! It wasn't actually stolen, just never installed per the agreement that the sub had with the GC. Next step - GC finds a new sub and you might see a bit of a delay in the work.

If it's the GC, that's an issue that the GC is going to have to work out with the subcontractor. Not your problem.

If it's you, now we have a problem. I don't pay my contractors until the project is complete (or partially) and material is placed and to my satisfaction. I NEVER pay in full for anything that has yet to be finished as this is my only leverage to making sure the contractor fulfills his contract and doesn't up and leave me with a partially completed project. From the sounds of it, you don't have any receipts so I'm guessing those materials were not paid for by you?

The property owner should never be on the hook for missing materials that are caused by a feud between the GC and one of their own subs! Always use a lockbox and make sure only the contractors you want working in the house have the most up to date codes. As mentioned above, the contractor should also have insurance to take care of theft and other issues that may arise during construction.

To Answer your remaining questions -

"A. why was ALL of the flooring, drywall, cabinetry, etc ($10k) sitting in the house at one time, as opposed to buying as needed."

This is more than likely a logistics thing on the contractors end. This is another reason why it is important to have a lockbox and only allow the GC and his subs access to the site while performing their contracted work. Another reason why it is important for the GC to have insurance.

"B. sub-contractor supposedly bought materials and is obviously not talking to my GC anymore, so he can't provide me receipts."

I don't see why receipts from the sub would matter? You, or should I say your contractor, is obviously not going to pay the sub for work that hasn't been performed. Fill me in if I'm missing a key piece of information here.

"My
 initial reaction is that it seems a bit fishy to have this much 
material disappear, without receipts. Should I just say I'm willing to 
reimburse for the receipts I'm provided, everything else is on my 
contractor? How would you guys handle this?"

I wouldn't "reimburse" anything. Pay your GC for a finished product. It's up to the GC to manage his own subs, employees, materials, logistics, insurance, etc. and then you will pay the GC  once the project is complete or when certain milestones are reached as agreed upon up front (pay requests for completion of certain items).

Sarah Cleopatra Wilson · Answer

The GC should have insurance that covers theft.

Chad Miller · Answer

@David Pere

Perhaps its different in CA but here in WA, general contractor's liability insurance only covers damage caused by the contractor or it's subs.

Things like fire and theft, not caused by the GC, would be covered under a builder's risk policy, purchased by the Homeowner.

Hai Loc · Answer

@David Pere

Handle his neck

Mike Cumbie · Answer

I recommend checking your insurance policy.

I've had materials stolen and since I was doing the work I was told tough. However my general rider for vacant houses actually would have covered if it was a contractors materials (not myself doing the work though). If I was in your shoes and the insurance would cover it (and go after the sub with their army of lawyers vs making it my problem) The GC and me would easily come up with a solution for the deductible. Give your insurance person a shout.

David Pere · Answer

@Ted Rud Some great points, and I really appreciate them! I have definitely learned a lot about the payment system, and ways for me to improve it. I was doing draws, once he showed me work completed I would send him the money for the next step(s) and he would complete them. In this case, I suppose he then gave the money to his sub-contractor to buy the materials, but didn't provide receipts to the GC (or me) for these materials, then said materials disappeared...but I have no proof the materials were actually in the property, or the sub-contractor actually bought them.

At this point, I've basically told my contractor that if he finishes the project under our agreed-upon budget I'm happy. If not, the cost of those materials will not come out of my pocket without the receipts, police report, and his insurance all validating the story, and his insurance denying his claim...even then I'm hesitant that it is my problem, sounds like his problem.

Will Barnard · Answer

What does your contract with the GC say about materials on site? The GC should have insurance as should you.

I also agree that having all that material in site is a bit much and would hold GC responsible for that. That said, your contract will have a lot to do with how this is handled. If there is nothing in the contract about who is responsible for materials being stolen, then I would hold the GC accountable for that and his insurance.

Sarah Cleopatra Wilson · Answer

😂

David Pere · Answer

@Sarah Cleopatra Wilson Thank you, this was one of my initial thoughts too. I'm just double-checking with people before I tell him to pound sand haha.

How to handle a contractor had $10k materials stolen from site?

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