How to Negotiate with Contractors

Before you get to the point of signing a contract to build your project, usually there is a period in which you negotiate with the builder.

 

Among the 6 most common issues for discussion are:

1. Cost

Be fair and ask for breakdowns / itemization of cost if something is unclear or seemstoo high.  Ask for explanations in a non-antagonist way. Also be wary if an item is too cheap- they may have missed something. This can be a problem because the builder may try to “make it up” later in the job when the ommision is discovered and mysterious charges appear.

2. Schedule

Get it  in writing with verifiable milestones so everyone can monitor progress. Don’ t make it too short, where quality may be jeopardized, nor too long when inattention and inconvenience can damage the project.

3. Payment installments and invoicing

Keep it consistent and commensurate with project completion.  Make sure invoices are issued at agreed intervals so money can be ready.  Indicate a means of prompt payments.  Assure that each payment is accompanied by a receipt or a lien waiver.

4. Retainage

This is an agreed portion of payment withholding to make sure the contractor has good reason to complete your project. Hold back the last 10% until everything is done to your satisfaction.finger-pointing

5. separation of responsibilities (who does what)

Whether you are supplying kitchen appliances or medical equipment, it needs to be stated so there is as little grey area for mis-interpretation.  If you are bringing an indepandent sub-contractor like a painter, that too needs to be clearly understood.

6. penalties and bonuses

Incentivize when it does not create a reason for hurried,  low quality work.  If construction delays create additional cost for owners, such as additional rent or lost revenue streams ,i.e because a store cannot open for holiday sales, penalize fairly in an open-book, rational method.

Suffice it to say there is only one time in the project when the ball is in your court, because most builders are eager to get work in this economic climate.  However, once the project is underway and the builders are on the job, the builder has the upper hand because they know that the owner wants the work done quickly.  They often will leverage this to full advantage when changes occur – their prices are often substantially higher than they would have been if the scope of the change was in the original project.

My suggested strategy:

1.Do your homework first. Find out from others what similar projects have cost, how long they have taken, what the pitfalls are, etc.

2. Start first-yes you address the price first.  The concept is called “anchoring”.  It establishes the boundaries.  These boundaries have to be realistic-not some flea-market tactic-low-ball-offer.  Because if you do the “low-ball” -you immediately show that you are uneducated on this topic or project and will have little clout and should NOT be taken seriously.

3. Listen for the unspoken – is his schedule too long? That usually means he has too much work and is not too hungry-accordingly bumps up his price.  Is his tone clipped and nervous? That usually means the project is not in his wheelhouse-and he is protecting himself with a higher price to guard against items they missed in the bidding. Finally, “know when to fold ’em”. If the distance is too far apart- don’t move ahead.  If he comes down too much -that means his price was too inflated and that bodes poorly for trustworthiness, or if they sign on- they will try to make up the “under-bid” with extras and change orders later during construction-which can become adversarial later.

4. When you can’t get flexibility on price- get more flexibility on scope– Have the builder throw in a couple of easily achievable items.

Let’s talk and see where you stand 914 674 2950-ask for Steve.