How to deal with Contractors

First, I would like to apologize for not posting for a very long time. Let's just continue quickly!

If you have already picked your contractor, then congratulations! Because you're almost done with the hard part.

For the sake of fairness, respect and maintaining good relations, it is advisable that you or your Construction Manager, issue a Notice of Award to all contractors who participated in the bidding. It is important to inform everyone including the designing architect who the winning contractor is. There are several reasons why this should be done. First, as I stated, to show respect to everyone. Second, it wouldn't be so hard to negotiate with the other participating contractors if your deal with the winning contractor didn't go well for some unexpected reasons. You, your Architect and/or CM would not be tagged as staging a ghost project to solicit bid bonds and free information.

Dealing with contractors will most likely be easy if the contractor that you have chosen is a good one. A good contractor is usually transparent and will be willing to explain to you in detail your contract with him. Feel free to ask all your questions. They are probably expecting it! It is also actually good for them because they will have a clearer view of your expectations. Just make sure you are only asking questions related to the project. Avoid asking comparative questions. Don't compare you're projects to other projects.

If you hired a Construction Manager, you should not ask your contractor questions directly. All questions should be coursed through your CM. The CM can answer all the basics in the construction. And you can expect an unbiased answer. And sometimes, there are questions that should be intended for the Architect/Designer and not for the contractor.

If you only have a small project and you think hiring a Construction Manager is too much for you, then you just have to trust your contractor. If you have no knowledge in construction, avoid intervening in construction site works. It will only delay your project. A good contractor, would fairly deliver and would not gamble to risk his name and reputation. It is advisable that you keep your concerns on things that you should as a client as much as possible. Don't stress yourself on going into the detailed process and focus only on the agreement and schedule.

When negotiating a contract with your chosen contractor, make sure you consider the following;

1. You or your CM should review the bid estimates including the inclusions and exclusions and also terms and conditions. Normally, the detailed list of items in a bid estimate includes everything necessary to completely deliver the project accordingly. But it would be great if you also do some research about the specifications so you can negotiate for upgraded items. Like for example, door handles or faucets. If you have preference for these, you can haggle and maybe given a free upgrade!

2. Insurances, Warranty and Retention. I think I already mentioned this in my previous article. You may backread to review if you feel the need to. But basically, these guarantees should be clear in the contract. Warranty period is normally 1 year after the turnover and acceptance date. After this, the 5-10% retention can already be released to the contractor. If there are defects that the contractor failed to rectify, the owner may opt to hire other contractor to rectify and charge it to the retention cost.

3. Permits and Bonds. These includes all permits like Baranggay Clearance, Homeowners' Permit, Fencing and Building Permit and other required permits. Although, you may opt to hire a third party liaison to handle this, it is mostly practical to just include this to the contractor's responsibilities. Don't forget the Occupancy Permit. This is legally very important that some owners ignore. If something happens to you or your property, you will have a hard time to charge who's responsible since you do not have permit to occupy. Most subdivisions require Construction bonds and Delivery gate fee. This is for unexpected damages that may be caused in the subdivision during construction period. To avoid being bothered every time permits is required for delivery or certain construction activity, it is also recommended to just include this in the contractor's scope.

4. Construction Schedule, Payment and Penalty Clause. Target dates should be clear in the contract. It is not required but would be better if milestone dates will also be considered such us Major Concrete Pouring, Shell Enclosure, etc. As discussed also in my previous articles, the ideal payment schedule is thru progress billing. This can be according to monthly accomplishment as evaluated by your CM. If you don't have a CM, you can also do it yourself or better hire a construction professional that can make monthly assessment for you. Just make sure that this is stipulated in the contract. Penalties should not happen as much as possible. But if the contractor neglects the project and failed to deliver in time, the cost of penalty should be agreed in the contract.

5. Extra Work or Change Orders. It is quite normal during construction period that you realized you want to add or change something in the agreed plans or scope of work. It would be unfair to the contractor if you would ask this for free specially if this has a significant cost and may contribute delay on schedule. It is just fair to have extra charges aside from the agreed unit costs. But this should also be properly detailed in the contract.

6. Standard Items, Others and Special Cases. A contract should not be limited to the items listed above. If possible, ask a lawyer to review the final draft of the contract.

You should expect that there might be differences or variations in every projects, This is just a guide and not a sole standard reference.

Remember, always try to establish a good relationship with your contractor. Treat them the way you treat your doctor or your lawyer. The project will greatly benefit if there is harmony and understanding.

Tips in Selecting Contractors

After you completed the list of your potential contractors, next is to select your top picks.

Again, we will be assuming that your project is a common mid-cost residence probably ranging from 2M to 6M pesos. Cases might be different on higher or lower cost projects. I am also assuming that projects worth 6M up already is worth hiring a Construction Manager and he is the one handling or assisting the OWNER in dealing with the contractors.

According to what you found out on your initial gathering of infos, give more points to contractors with a good office and warehouse, has proper business documents, and has client references. Narrow down your pick into top 3-5.

Schedule a meeting with these contractors. It is recommended that you are the one who goes to their office since contractors might not accept your invitation if they feel that they have a very little chance of getting the project. They actually know if a Client is just soliciting information from them. Also, another advantage is, you can see and feel how the contractor treats his client and he will also feel that you are serious in considering him thus making him give you further information you need. This will probably be your second visit to their office.

Things to ask on your initial meeting with a contractor:

1. How many on-going projects they have. Actually, the lesser on-going projects they have, the more advantageous to you. Simply because, you don't share attention with too many projects. Chances are, your project will have the most out of the contractor's resources. Although, contractors tend to adjust as the number of their simultaneous projects increases.

2. Ask for reference project. If your project is a 2-storey residential with floor area of more or less 300sqm, ask the contractor of specific finished project with the same description as yours. If he is in construction industry for several years, he should have gotten similar project as yours before. This is to prove that he already has the experience and the expertise perfectly fit for your project.

3. Ask for basic contract terms and conditions. Some items that you should clarify are the following:

   a. Down payment. For these type of project, down payment usually range from 20-30%. Also, it is important to request a Guarantee Bond equivalent to the down payment. This is in case something goes  wrong and the contractor abandoned the project before it even started, you can claim back your down payment from the insurance company. Just make sure that the insurance company is reputable.
   b. Construction and Surety Bond. Aside from the Guarantee Bond, it is important also to have these so that you will be assured at any point during the construction period.
   c. Duration of Construction. This is for you to know how long they can finish your project. Also, this will help you manage your cash flow.
   d. Mode of Payment. The best mode of payment for contractors would be through Progress Billing with pro-rated down payment and retention.(We will discuss this further on my next articles)
   e. Excluded items. Although you are probably dealing with a General Contractor, there are still items that you will prefer to be excluded in the contract. This is because these items are owner-preference dependent. And/or for you to save on overhead charges if included in the contract.

4. Before you meet with them, prepare a set of blueprints and a copy of the Material Specifications prepared by your architect/designer. You will be giving each contractor a copy of these to be their basis of the estimates/quotation you will be asking them. If possible, give them also a standard bid form. You can ask your architect/designer or CM to make this. This is for apple to apple comparison of bids.

Expect that they will be asking further question upon reviewing the plans. If you can not answer their questions, or the questions are too technical for you, you will have to forward these to your architect/designer. Even if  only one contractor asked a question give your answers also to the other contractors. This is to keep them aligned and maintain a good cost comparison. In the architect's office, these are called bid bulletins.

Estimates usually takes a week or two to finish. If you are not in a rush, you can set the deadline of submission of bids 2 weeks after transmitting the bid documents to them.

For these types of project, a Closed Bid is usually the way to go. This means that they will be submitting their bids with their best price in an enclosed envelope and it is up to the client to decide on whom the project will be awarded.