Hiring the Cheapest General Contractor: A Dangerous & Risky Mistake
So, you’re finally ready to break ground on your building project? Congratulations! You’ve done your research, collected bids and it’s time to make a decision and get started. After reviewing the bids from your general contractors, you notice there’s quite a difference in the range of prices from one contractor to the next. This is common. Some of the bids are quite high, some seem surprisingly low in comparison & some bids fall right in the middle. How do you know which contractors bid to choose?
If this is your first time hiring a general contractor, this might seem like an easy decision. Hire the contractor with the lowest bid. Right? Well hold on for just a minute. Hiring the cheapest guy might seem like a money saving decision now, but there’s an old saying in the industry that says, “cheap means inexperienced.” Hiring the cheapest, but least experienced, general contractor may save you money now, but we can guarantee that it will become much more expensive during and after the construction process. Here’s why:
First and foremost, they are less likely to be insured. This is a big red flag. A lot of new and cheap contractors are not insured when they should be. Or if they are insured, they only carry general liability insurance and not workers comp insurance. This creates a lower bid because you are not paying for their insurance. However, this is not something you should overlook because a lack of insurance can cost big bucks down the road if something goes wrong. A natural disaster, a job site injury, or any other human error has the potential to cost you, the building owner, more than anything else on this list. If something bad happens, you could be held liable for the damages even though the contractor is the one that’s uninsured. Make sure you hire someone that has general liability and worker’s compensation insurance and while you’re at it, make sure they are also licensed and bonded.
Change orders are more likely. A change order happens when you planned to do one thing on the construction project but then it is decided to do a different thing. A change order calls for an amendment to the contract and can happen for a number of reasons:
Flaws in the design, unavailable materials, delays in construction, a change in price, etc.
Very few construction projects will be completed with no change orders but it is important to keep them at a minimum because they can be very costly. Hiring an inexperienced, cheap general contractor might cause you to end up with more change orders than if you would have hired someone with experience that could have given a more accurate bid in the first place. Inexperienced general contractors give unrealistic allowances, which cause cost overages and change orders.
You will have to pay to fix mistakes or you will have to take the contractor to court. The worst-case scenario is when the cheap contractor actually makes big mistakes that will need to be fixed. In this case, you will have to find another contractor and pay them a lot of money to do the work. This could cost you almost twice as much as hiring an inexperienced contractor in the first place. If you want to take the cheap contractor to court and sue him for his faulty work, you will have to spend a lot of time and money and lawyers aren’t cheap.
The building will be of lower quality. You will have to pay more down the road in repairs because of poor craftsmanship. Do you want to be performing roof repairs, for example, five years from now when it should have held up for 15? Or how about needing to replace a floor one year after you replaced it the first time? Those would be quite the expense. Also, it’s likely that the lowest bidder is using cheap materials to win your business with a low bid. With a commercial building, especially those that get a lot of traffic, using high quality materials is vital to the longevity of the building.
If they are still the cheapest contractor, typically the quality of their work is poor or they are unreliable.
Prices are going up and it is recommended that you find a contractor who will be open about the true cost of things and explain why the price that he is quoting is what it is.
At First Choice Construction, we use an open book, cost plus pricing system, which allows our customers to work with us to help make sure their costs stay under control. They get to see what the cost of their project, and whether they are over or under the budget in each category of construction every 2 weeks through the process. It is a way for both First Choice Construction and our homeowners to work together to insure that we are still friends at the end of the project.
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