General Contractors ARE NOT All Created Equal

According to the US Department of Commerce, construction and contracting businesses have one of the highest failure rates of any other business. Up to 96% of these companies fail before reaching 10 years in business (Dec 2019).

Obviously, there are many factors that can influence whether a company stands the test of time or whether it goes out of business after just a few years, however the length of time a General Contractor has been in business, and in particular, in the area where the Owner has a project is a critical consideration. The importance of longevity can often times be linked to dependability, trustworthiness, ethical & moral clarity as well as the ability to adapt to changes and disruptions within the construction industry.

So, the question to ask your potential General Contractor is… “How long have you been in business and how long have you been in business here?”

Longevity seamlessly segues into the next important factor to consider which is Referrals. One of the most effective ways to glean information about a General Contractor is from referrals. Of course, former Client referrals would be an obvious start but ANY General Contractor who has been in business for a substantial amount of time can provide a list of former Clients who would gladly provide a complimentary / positive testimonial…those are easily obtained.

But what about the Clients that would not provide a complimentary / positive testimonial? You will not likely receive the names of those Clients from a General Contractor during your review process BUT a quick online search at the County Clerk of Courts website could reveal any pending or settled lawsuits where the General Contractor was a DEFENDANT (meaning the General Contractor was being sued). When a General Contractor is a DEFENDANT in a lawsuit, that usually means there is a very dissatisfied Client (Plantiff).

To help in your General Contractor evaluation, here is the link to the Walton County Clerk of Courts website… https://waltonclerk.com/courtrecords where a search of a General Contracting Company’s legal history can easily be revealed and viewed. Very important…Beware of General Contractors that have consistent legal issues.

Assuming legal issues have not been found, (which, if they have, should cause IMMEDIATE concern) former Client referrals of a General Contractor can certainly assist in your decision making process, however there are far more meaningful referrals that can be obtained and those referrals would be from subcontractors, vendors, HOA managers and bankers. Hearing what those referrals have to say about the General Contractor would be very beneficial because those are the people with whom the General Contractor works with on a consistent, regular basis.

Questions of subcontractors & vendors would be…

• Do invoices get paid on time and without delay?
• Is the General Contractor easy to work with, organized and considerate of subcontractor & vendor time when making schedules?
• Does the General Contractor “cut corners” during the construction process?
• And a “tale tell” question to ask a subcontractor or vendor would be…If you were building your own personal home, what General Contractor would you choose and why?

The answers to THOSE questions should not be taken lightly. Those are the people who really know the General Contractor well and would be able to communicate why their choice is, in their opinion, the best choice of a General Contractor.

As for HOA managers and banking referrals, it would be prudent to ask HOA managers whether the General Contractor has ever been cited or fined for not complying with HOA rules & regulations or if the General Contractor or its subcontractors & vendors have ever been a nuisance or persistent offender of HOA rules & regulations.

As for banking referrals, a very good inquiry would be to ask if the General Contractor has ever had any banking or cash flow issues, i.e returned checks, insufficient funds, etc.?

Make certain you obtain referrals from ALL of these sources so that you are equipped with a COMPLETE “referral picture” for analysis.

Although the cost of a construction project is an important factor to consider when selecting a General Contractor, for most uninformed Owners, the Cost factor is mistakenly the most important factor. Unfortunately, the mindset of cost being the most important factor is an absolutely flawed mindset. Why? If cost is the determining / deciding factor when comparing General Contractors then one is assuming that the quality of the construction and final product delivered will be the same regardless of the General Contractor selected. That assumption could NOT be farther from the truth.

Selecting a General Contractor based mainly on cost to produce a newly constructed home or project is NOT the same as “shopping” for a Range Rover from a new car dealership. When comparing prices of the same vehicle at competing dealerships it IS true that the vehicles ARE THE SAME and the ONLY difference between the vehicles is the cost. That is NOT the case with a new home or construction project. Unlike a vehicle that is assembled on an assembly line in a climate controlled factory with precise machines & technology, a new home is built on site by numerous subcontractors & vendors that are directed, supervised and led by a General Contractor. While vehicles are built repetitively by performing the same process over and over, each completed custom built home or construction project is unique; the finished product is one of a kind. And, the quality of construction, efficiency of construction, problem solving during construction, and Client satisfaction during and after construction is determined solely by the General Contractor.

Simply, the exact same set of construction drawings and exact same specifications provided to 3 different General Contractors will unequivocally yield 3 different experiences for the Owner and 3 different final products.

Routine practice for residential new home construction projects is a Cost Plus contract with the Owner where the contractor is paid for all costs plus a fixed percentage of the costs as profit. Commonly, the fixed percentage can range from 10% - 25% depending on the complexity of the project. When comparing General Contractors costs, it is the fee or fixed percentage that should be compared. There should be no significant cost differences between the materials needed for the project from one General Contractor vs. another General Contractor. All General Contractors source their materials from basically the same vendors and all General Contractors employ MANY of the same subcontractors to perform subcontracted work (site clearing, foundation installation, framing & siding installation, plumbing, electrical, HVAC, painting, drywall, etc.). So, the “hard costs” of the project are in essence fixed and the same from one General Contractor to another.

The real difference between one General Contractor and another is the ability of a General Contractor to extract from the subcontractors the highest quality of work at fair & reasonable price within an efficient time schedule. Beware of low prices and low fees because “all that glitters is NOT gold”. As Benjamin Franklin so concisely and accurately stated “The bitterness of poor quality remains long after the sweetness of low price is forgotten”.

Cost of construction dovetails perfectly into the next important factor which is Oversight. A custom home with masterful craftsmanship and impeccable detail does not, unfortunately, just pop up out of the ground or fall out of the sky. Nor is the final product of a masterfully crafted custom home produced by luck. It takes persistent & consistent oversight to produce a well built custom home or construction project.

It would be naïve to believe that there are not ever any issues or challenges that need to be resolved or addressed during the construction of a custom home or unique construction project. No matter whether big or small, there are always issues and challenges during construction because, as was stated in #3 Cost factor, each completed custom built home or construction project is unique; the finished product is one of a kind.

Therefore, unforeseen or unknown issues are typical and to be expected. Persistent & consistent oversight is the cornerstone to minimize unforeseen or unknown issues. Oversight allows the unforeseen or unknown issues to be addressed sooner rather than later which mitigates compounding costs and wasted time. Additionally, the oversight must be provided by a competent and experienced professional. An inexperienced superintendent or construction manager will not be able to provide the oversight that is required to produce the desired custom home or construction project. So, it is critical to ask the potential General Contractor who will be overseeing the project and how often will the General Contractor be present on the job? After all, it is the General Contractor that directs, supervises, and leads not only construction managers & superintendents but also the subcontractors & vendors that are employed for the project.

Beware of absent, uninvolved General Contractors that allow superintendents to “build” custom homes or custom construction projects. Lack of oversight will result in poor construction quality and time delays.

Assuming the previous 4 MOST IMPORTANT FACTORS A HOMEOWNER SHOULD CONSIDER WHEN SELECTING A GENERAL CONTRACTOR have been successfully evaluated, the 5th most important factor must be carefully considered and it is not as easily quantifiable as the others. Meaning, there isn’t simple factual data that can be found. For instance, Longevity is based on an actual amount of time a General Contractor has been in business within the construction area, Referrals are obtained by speaking with former clients, subcontractors, vendors, HOA managers and bankers, Cost is evaluated by comparing a fixed percentage of construction from one General Contractor to another and Oversight is determined by determining who are the persons that will be on the job site day in and day out. All of these factors are finite. They are not based on feelings, they are based on facts. That is why the last Important Factor A Homeowner Should Consider When Selecting A General Contractor is so important. That factor is Synergy & Relationships.

Synergy is defined as - a mutually advantageous conjunction or compatibility of distinct business participants or elements (such as resources or efforts) Merriam Webster. Although the time it will take to complete a custom built home or new construction project will vary depending on the complexity of the project, there is no doubt that the process from start to completion will take time. As stated previously, no matter whether a project is big or small, there are always issues and challenges during the construction process. Having Synergy between the Owner and the General Contracting TEAM is critical for a smooth, efficient and enjoyable construction process. A relationship between the Owner and the General Contracting TEAM will be formed at the outset of the Construction process and that relationship will last, in many instances, for more than 2 years. So, being able to communicate clearly, being able to manage expectations, and being able to work well with one another is critical to a smooth successful construction project.

In addition, business relationships between the General Contractor and other business partners will also have a great effect on the efficiency of the construction process. Obviously, strong relationships with subcontractors and vendors is important, but also, strong relationships with HOA managers, County Building & Planning Department personnel, local architects and civil & structural engineers are also just as important to a smooth successful construction project.

So, pay attention to the Synergy between the Owner and the potential General Contracting TEAM along with established relationships between the General Contractor and its business partners because that factor can be the MOST IMPORTANT factor in determining if, at the end the construction process, the build is smooth and enjoyable.