How to Make a Successful Construction Investment

FOR COMMERCIAL AND RESIDENTIAL BUILDING OWNERS

How to make a successful construction investment

Taking time to read this booklet can save you thousands of dollars and a lot of unnecessary heartache.

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Evaluating the 5Ps of a construction project P ROBLEM S How do you know if you’re getting the best solution for your problem or project?

P RODU CTS How do you select the proper products or installation procedures?

P ROCES SES How can you be assured you’ll have a wonderful customer journey?

P EOPLE How do you qualify a contractor?

PR ICE How do you know when a price is fair and competitive?

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CCN (Certified Contractors Network) serves to provide guidance and training for its networked independent contractor members to provide building owners with the highest quality construction services at the lowest possible competitive rates.

CCN networked members commit to our “code of ethics” to provide professional service for their building owner clients.

CCN provides you with a toll-free number 1-800-396-1510, so you can access the following information: n Specifications for contracting projects n Consumer tips n A member’s standing within our organization n Arbitration service In the unlikely event, you’re ever dissatisfied with one of our members” service, CCN can serve as an arbitrator helping bring the dispute to a quick, friendly resolution for all parties.

All construction projects end with the customer being either satisfied or dissatisfied. CCN discovered there are clear-cut patterns in both the satisfied and dissatisfied situations.

We wrote this handbook to help you identify tell-tale patterns, so you’ll understand the contracting progress better.

If you do your homework and take the time to make the proper decisions, you’ll be one of the satisfied owners and not one of the victims.

Most dissatisfied construction project victims limited their focus to:

“how much will the project cost” and “when can the work get started?”

However, authorities have suggested focusing on many other questions before awarding your project to anyone.

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Most building owners aren’t familiar with the contracting process. There’s a lot to learn before awarding your project, including what products are available and which procedures to use.

Therefore, it’s vital to know you can rely on the contractor you choose to advise you about those products and procedures new to you.

Selecting the right contractor is the most critical factor in a successful construction project.

That’s why CCN put this booklet together on selecting a contractor. We designed the questions in this booklet to help you determine the reliability, reputation, and experience of the contractor and their dedication to delivering a project to your satisfaction.

Architect associations, building material manufacturers, trade associations, and consumer protection agencies have published guidelines for selecting a contractor.

Carefully determine if a low-bid contractor is providing fair value for their low price.

Studies clearly show most dissatisfied homeowners chose a low-bid contractor.

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The concerns for most owners are: n What criteria should you use to qualify a proposal and contractor? n How do you tell if the contractor is a professional and will deliver what’s specified? n How do you determine if they’ll stand behind their work or be financially responsible if there’s a significant flaw in their work? n How do you determine if the price is right?

While there’s no clear-cut simple answer to these questions, there are several indicators to help you qualify certain contractors and reject others to protect yourself and get the best return on your investment.

CCN hopes this booklet will be helpful to you.

We strongly encourage you to take these suggested “action steps” to protect your interests.

SELECTING A CONTRACTOR The right contractor is the critical factor for success in any construction project. A qualified, professional, experienced contractor knows what results are required for owner satisfaction and how to avoid mistakes that lead to owner dissatisfaction down the road.

Give yourself at least one hour to sit down with each contractor. Both of you need to explore the problems, products, and prices. You’ll be surprised at how many options and questions you can discuss with a professional contractor.

Taking at least one hour to get to know and qualify the contractor before awarding your project can save endless hours dealing with painful problems and overall dissatisfaction.

Most dissatisfied owners didn’t fully understand the details and specifications of their projects.

A professional contractor takes pride in their work and has no problem discussing your options, their experience, and their list of satisfied customers.

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ASK THESE QUESTIONS 1. What’s the full name and address of the company?

All contractor selection guidelines start with this question because most dissatisfied owners chose low-bid undercapitalized contractors.

Automatically reject any contractor without a permanent place of business!

If the contractor isn’t permanently established, how can you be confident they’ll complete the work? How can you be sure they’ll be in business if their work needs service in the future?

What do you do if the project fails and you’re financially harmed, or the contractor isn’t financially responsible?

The courts are full of dissatisfied owners with worthless judgments against insolvent contractors. While there’s no way to guarantee any business is financially stable, there are some tell-tale signs and action steps you can take to protect yourself and assure your satisfaction.

Visit the contractor’s place of business. Does it look like it’s been established there for a long time? Does it appear the equipment, labor, and wherewithal are available to complete your project in a professional and prompt manner?

Automatically reject any contractor without substance!

Don’t be fooled by an amiable contractor and their attractive low price. It’s not worth the risk.

Select only a contractor who’s financially committed to their business. Select someone you can call if a problem arises in the future.

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A professional contractor has no problem giving you a tour of their facilities and provide whatever financial proof you need for your peace of mind. Don’t be afraid to ask. The professional respects these questions and knows sharing answers with intelligent buyers is time well spent.

2. Does the company carry insurance, and is their coverage adequate to protect you and your property?

This is the second most important question.

Uninsured or inadequately insured contractors have financially harmed owners.

Automatically reject any contractor without proper and adequate insurance!

A contractor should provide you with a certificate of insurance for comprehensive liability, worker’s compensation, and completed operations insurance that protects you in case of an accident or offers financial coverage for a failed project. The insurance should be adequate to cover your property.

Contractors may also carry other forms of insurance, including health insurance and vehicle insurance. Don’t be confused by these policies. Don’t allow the contractor to pass them off as their proof of “contractor’s” insurance.

Call their insurance company and verify coverage.

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Contractor insurance policies are for one year.

Dishonest contractors often change the dates.

Carefully check the dates on their certificate of insurance.

Are they current?

Worker accidents: You can be sued for injuries on your property. Most owner insurance policies exclude outside contractors, so it’s critical to ensure proper and adequate coverage.

Don’t be fooled by the contractor who says they don’t need insurance because they’re self-employed.

A tell-tale pattern on an uninsured or underinsured contractor is the low bid. Be very wary of the low bid. Also, be mindful of multiple low bids. You may have several uninsured contractors bidding your project.

Today, insurance to protect workers and your property is a significant cost of any construction project.

Workers’ compensation premiums are typically no less than 20% on top of the worker’s wage and can go as high as 100%, depending upon the type of work.

A contractor working without insurance saves a lot of labor cost by operating without insurance; but they put you at significant risk.

A contractor working without insurance generally has no assets and nothing to lose, so you, as the owner, are exposed to any losses.

A professional contractor will readily provide you with a certificate of insurance and phone numbers you can call for verification.

Job site safety: Safety violations are causing projects to shut down, and penalties levied against involved parties. Some owners have been stuck with incomplete projects due to violations and the contractor’s unwillingness to pay fines or return to the site. In some cases, owners can be classified as the employer, and they can be responsible for fines.

Ask the contractor about their safety plan, which is required by OSHA/WSIB.

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Professional contractors will readily provide you with a safety plan, so you’re protected.

The safety plan is another tell-tale sign of a professional contractor. The lack of a safety plan exposes an unprofessional contractor who puts you at risk.

3. Is the company a licensed contractor?

Is the contractor a member of a trade association and in good standing?

Automatically reject any contractor who isn’t licensed!

However, don’t be fooled by a contractor with a license. Generally, licensing requirements are minimal, and the law is poorly enforced. A better test is to question the contractor’s commitment to their trade. Are they a member of a trade association?

Call the association and verify the answer.

Ask if the contractor is taking continuing education training, like other up-to-date professionals.

Ask to see their certificates.

A professional contractor will be happy to respond to your questions.

Automatically reject any contractor who blows off your questions as not being important. There are many other issues they’ll consider unimportant and will blow off, one being your satisfaction!

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4. How long has the contractor been in business?

The more experienced, the better.

Under-five years is often a tell-tale sign of an unstable business. Most contracting businesses (96%) fail within the first five years. Examine new businesses with extra care before awarding the project.

Check references carefully.

Current references are only valuable to see if owners are happy with a contractor’s work. Long-term references are the only proof of the actual performance of a contractor’s work.

Most failed construction projects don’t happen immediately. They usually deteriorate over the years. New project references should carry minimal weight in your decision-making process versus.

A professional contractor will gladly provide long-term references and want you to speak with their customers.

Automatically reject any contractor who can’t provide a reference list of customers.

5. What is the contractor’s track record for handling complaints?

Automatically reject any contractor who says they’ve never had a complaint. The best of contractors find themselves in disputes for one reason or another!

Ask the contractor for the name of a problem account and explain how they rectified the complaint.

Most quality contractors, in business for many years, and with thousands of completed projects, are exposed to disputes. The question isn’t if they’ve had disputes, but what they did about a dispute after it occurred.

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6. What’s the contractor’s warranty for workmanship?

Typically, contractor workmanship warranties are for one year or more. Longer warranties aren’t more valuable than shorter warranties.

The warranty’s length is less critical than the contractor’s intent and ability to stand behind their warranty. The professional contractor often performs well beyond the written warranty period because they know this builds customer loyalty and referrals.

Automatically reject any contractor with an unbelievable warranty. The warranty is just a sales tool to that contractor, and you don’t know what other “bill of goods” you’ve been sold.

The manufacturer provides long-term warranties. You must be sure the contractor will install all products according to the manufacturer’s specifications, or there will be no warranty regardless of any document the contractor gave to you. With many materials, warranties are often only valid if the contractor is “certified” to install the product.

Ask to see the contractor’s training and certification certificate from the manufacturer. Call the manufacturer to determine if it’s valid, and the contractor is still in good standing.

Professional contractors have no problem providing this proof. They’ll usually present their credentials before being asked.

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7. Specific questions for specific projects Compliance with local ordinances - Ask the contractor about what’s required. Contact the local building department for verification. Ask if the contractor included the permit’s cost in their proposal. Verify they’re responsible for obtaining the permit.

Product selection - Make sure the proposal includes a specific reference to your chosen product and color. Your proposal will be your proof of purchase in later years.

Manufacturer warranty specifications - If a manufacturer provides a warranty for the project, confirm the agreement states the work will conform to the manufacturer’s specifications.

Clean-up – Demand a contractor specifies daily clean-up in their proposal to help minimize safety issues and exposure.

Payment terms – The contractor should detail the schedule, terms, and payment method in the agreement. Establish an agreement about payment delay if a particular part of work is left incomplete or there’s a list of incomplete items.

Preliminary inspection - Plan to meet with the job supervisor who who’s responsible for your satisfaction. Make sure they fully understand the specifications and promises made by their company. Establish the condition of your property before the work starts in case there’s property damage during construction.

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UNDERSTANDING THE CONTRACTOR Just as you’re qualifying a contractor, the contractor is qualifying you. If you seem unreasonable, they may not bid. For example, if you won’t allow the contractor ample time to explain the project to all involved parties, so they’re confident you understand everything about it, the professional will often not bid.

Professional contractors fear a bad experience or lack of referrals from a non-satisfied owner who has misperceived expectations.

The professional knows they’re not a mind reader, and the owner isn’t a qualified contractor. They recognize the critical importance of this first step of the process not to take the risk. Show the contractor you’re looking for both their and your best interests.

GETTING A CONTRACTOR TO BID YOUR WORK Some owners are confused when contractors aren’t overeager to bid the work. If contractors believe you’re not ready to buy the work or are just a price shopper, they may feel you’re not worth their time. Here’s how you can get them to bid. n Tell the contractor you’re getting only three bids. You aren’t looking for ten. n Tell the contractor you aren’t looking for the lowest bid, but the best value for your dollar. n If someone referred you to the contractor or saw your work and liked it, make sure to mention that. n Tell the contractor all involved parties will attend a meeting and set aside adequate time to discuss details. That way, the contractor will be confident everyone is in alignment, and they’ll be able to achieve 100% client satisfaction.

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DISPUTE AVOIDANCE AND RESOLUTION Construction work isn’t an exact science.

Contractors and projects are exposed to many uncontrollable conditions including unforeseen weather delays, material delays, and labor problems. Working projects expanding in scope can affect schedules of pending projects. Any of these conditions can trigger a dispute.

WHAT TO DO IF YOU HAVE A DISPUTE WITH A CONTRACTOR I ndependent studies of contractor/consumer disputes show most disputes are caused by: n Communication problems n Unrealized expectations Unforeseen additional costs, not caused by contractor negligence (wherein the contractor would be 100% responsible), or product failure.

Just because you perceive the situation to be in dispute, don’t allow your thinking to erode the initial trust and confidence you had in the contractor. What initially appears as contractor negligence may not be.

Problems - communication & unrealized expectations A contractor is negligent if they fail to perform the work as specified in the contract. The contract is the critical deciding factor for resolving disputes. To avoid communication problems and unrealized expectations, protect yourself by ensuring the contract clearly specifies your expectations.

If you have a special request, never rely on verbal communication. Get it written into the contract document.

“The palest ink is better than the best memory.”

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STOP! Automatically reject any contractor who refuses to allow you to modify their proposal to clarify specifications to a mutually fair understanding!

Problems - unforeseen additional costs A contractor is negligent if another contractor could install the work in dispute without additional costs.

However, a contractor can’t bid, or include unforeseen conditions in the specifications.

“You can’t bid what you can’t see.”

If the contractor anticipates unforeseen conditions, if possible, have an expected fixed cost or formula for calculating additional expenses included within the contract. That way, you’ll be prepared for the unexpected and will avoid the feeling of being taken advantage of by the contractor once the work is in progress.

You may also wish to negotiate the “option” to use a different contractor for the additional work phase into the contract.

If possible, try to avoid engaging another contractor because it triggers “split responsibility” and could cause problems with project coordination, project performance, and damage liability.

A contractor is negligent if there’s damage to the owner’s property that would not normally occur with another contractor.

Suppose there’s damage, and it would’ve happened regardless of the contractor. In such a case, that damage is considered an unforeseen or unavoidable condition, not contractor negligence, and would be repaired as a change order. In many cases, your homeowner’s insurance covers this additional work.

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Step one: Stay calm! Evaluate the situation from both your and the contractor’s position.

You need to look at both sides’ situation because if the dispute is arbitrated or litigated, that’s what the mediator or judge will do.

Step two: Establish positive ground with the contractor. Discuss what’s right about the project so the dispute can be put into proper perspective and doesn’t overshadow the entire project.

“You get more bees with honey than vinegar.”

Step three: Discuss the owner/contractor relationship and how a mutually agreeable resolution would benefit both parties.

A satisfied owner pays their bill promptly, writes letters of satisfaction, and refers their preferred contractor to others.

A satisfied contractor goes the “extra mile” for their customers and stays in business to provide service after the sale.

Also, contracting is a highly competitive business, and contractors work on extremely thin margins. That’s why most contracting companies fail.

If there are unanticipated extraordinary costs in a project, a contractor would typically “absorb” the additional unexpected cost rather than risk a dispute triggering a dissatisfied customer. However, if the contractor is requesting more money, it’s safe to assume they have no room for absorption in their initial contract price.

Step four: In some cases, the contractor may perceive the owner is “nitpicking” or triggering the dispute to avoid payment.

The best way to eliminate the dispute settlement concern is to set up an escrow account with a mutually agreeable third party.

After that, the escrow is released to the contractor when the dispute is resolved as outlined in a mutually agreeable “settlement agreement.”

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Step five: Re-examine initial negotiations and contract discussions with the new data triggering the dispute.

Is it possible if both parties knew in advance the dispute would occur, the contract would be different?

Is so, the dispute doesn’t damage the owner.

The dispute is then an unforeseen condition and should be handled as a change order to the initial contract.

Step six: Reduce the dispute resolution to writing. In many cases, the dispute becomes a change order to the initial contract, so the completed work meets the owner’s expectations. In some cases, neither party acts. The “no-action” resolution must be reduced to writing, so each party aligns with the resolution.

We at CCN hope this booklet will help you make a wise contracting decision. Sure, it seems like a lot of work, but if you’ve ever had a bad contracting experience or know someone who has, you’ll be glad you invested the time to select the right contractor.

The time required to do your homework is minuscule compared to: The problems you can have if you select the wrong contractor The time and money it takes to rectify a bad situation

“Only the extremely wealthy can afford to make a poor contracting decision... Because they have the money to do it again.”

Please feel free to call CCN’s free dispute resolution service if you disagree with one of CCN’s members, who’s pledged to the enclosed code of ethics.

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CODE OF ETHICS CCN members pledge to observe the highest standard of integrity, frankness, and professional responsibility when dealing with their owner clients: 1. By making no false promises or claims in advertising.

2. B y providing professional, courteous reception when the owner calls with an inquiry or request for bid.

3. By keeping appointments at the agreed scheduled time. (if a conflict arises to contact the owner and reschedule before the appointment.)

4. By providing adequate time to meet with all involved parties to ensure clear understanding and mutual alignment with their proposal and specifications.

5. By providing a professional appraisal of the owner’s needs.

6. By providing written specifications for the required project according to manufacturer specifications and industry standards.

7. By encouraging only projects which are structurally and financially sound.

8. By being licensed by local authorities and following local requirements.

9. By being a certified installer by manufacturers when applicable.

10. By providing proof of insurance to owners.

11. By providing a customer reference list to owners.

12. By fulfilling contract obligations.

13. By providing manufacturer long-term warranties when applicable.

14. By providing contractor labor warranty.

15. By communicating with owners about schedule changes, scope of work changes, and unforeseen conditions.

16. By providing safe work conditions according to OSHA/ WSIB guidelines and industry standards.

17. By being professionally responsive to owner service calls.

18. By attending continuing education programs.

19. By aspiring towards 100% owner satisfaction.

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PERSONAL NOTES: Open issues to discuss and clarify with contractors.

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We prepared this booklet to aid you during the contractor selection process for your construction project.

We based the material in this booklet on information from architectural, manufacturer, trade associations, and consumer protection groups. They provide this information as “contractor selection criteria guidelines” for building owners.

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