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Posted at 05:30 AM ET, 01/30/2013

What to do when problems arise with a contractor

Former Marine turned real estate investor Justin Pierce writes an occasional column about his experiences buying and selling houses in the Washington area.

Finding new talent in the real estate and construction business usually means some amount of trial and error.

It’s nearly impossible to maintain a seamless long-standing relationship with a contractor. Sooner or later there will be problems, disagreements and diverging interests.  When problems arise, you’re often left with few good options.  It’s best to try to work it out if possible.  Changing contractors in the middle of a project is extremely difficult and lawsuits should be avoided if at all possible  There are no perfect solutions to construction disagreements — every one is different.  Most times you just have to make the best of a bad situation.

For the past four years, I relied heavily on one general contractor to do most of my major construction.  In that time, we developed a good rapport required for a good construction business.  He was reliable and trustworthy.  His prices were always higher than I wanted.  I knew that I was paying more than my competition for the same work but I felt the performance justified the price.

Things were going well until about a year ago when he opened a nice storefront in Fairfax. From that point on, the prices he quoted went up significantly because of his overhead costs. Moreover, it took him longer to submit quotes to me, and when he did they were not detailed. He left me sitting idle waiting for prices on which to base my offers. I was paying more and getting less attention.

This was no way to do business. I was ultimately forced to go shopping for a new go-to contractor.  For those of you who have shopped for a contractor, you know how hard and daunting this process can be and it’s no different for an industry professional. 

After going through all the usual steps one takes to find contractors — which I detailed in a previous blog post — I ended up settling on a contractor whom I’d used a half dozen times in the past for smaller jobs.  The firm had been good and it had performed reasonably well for me.

So I contracted the firm to take the lead on a fairly simple single-family home project.  The home needed less work than most of my projects.  The kitchens and baths required full tear out and updating but the rest of the home was purely cosmetic.  It was the perfect project to try out a new contractor.

The project went reasonably well.  There were some problems but I attributed them to the standard learning curve and rapport-building process that comes with new construction relationships.  I simply identified the problems, discussed them with the contractor and figured they would be corrected.

I was so confident that the problems would be corrected that I went ahead and awarded this contractor a second job.  I promised him that if he did good work I would line up another project and promised to keep him busy for the foreseeable future. 

The second project started off okay and seemed to be progressing reasonably well, so at about the halfway point I felt confident enough to sign a deal with the contractor for yet a third project.

This turned out to be a mistake.

Instead of improving, the contractor’s performance went on a steady decline.  The work was taking far longer than it should and the quality was unacceptable.  When he finally reported that the home was finished I went to conduct the final inspection. 

I noticed problems with the quality of the finish of the carpentry, drywall, ductwork, floors and kitchen cabinets.

I’ve had more than my share of problems with contractors in the past. The problems on this project were severe enough that most experts would probably recommend that this contractor be fired but the reality is just not that simple. Construction projects are extremely difficult to mediate and bringing in a new contractor is time consuming and expensive.

To make matters worse, I have a contract with this firm to do another home and I’ve already paid an initial draw — or down payment.  Yes, the smart thing for me to do would be to cut my losses and get another contractor and take this contractor to court to recoup my losses.  However, I don’t have the time for all that nonsense.

Left with few other options, I decided to present the contractor with a punch list — or items that need to be fixed, completed or corrected — and with explicit instructions on how to fix them.  I also put them on notice for the next job and modified the contract to establish well-defined progression points where they could easily be released if quality didn’t improve. 

 The contractor agreed and promised the problems would be corrected and performance would improve.  Fortunately for me they at least acknowledged the mistake and stuck around to try to make it right.  The problems are hard to excuse but they blamed it on a subcontractor and promised that this specific sub would not be working for them anymore.

Problems with contractors rarely have simple solutions and they almost never have happy endings. Often you’re forced to choose between several bad options. 

It’s always worked best for me to try to get through the project before parting ways with a contractor.  Communication, close oversight and an explicit draw schedule — which outlines and defines when the contractor has earned another payment, usually based on progress — are your best tools for navigating these troubled waters.  Your project can be salvaged but your budget and your expectations may be adversely affected. 

 

Read more about Pierce’s experiences as a real estate investor

Justin Pierce is a real estate investor in Northern Virginia. In his occasional column, he writes about investing in real estate.

  

By Justin Pierce  |  05:30 AM ET, 01/30/2013

 
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