Wednesday, March 27, 2019

In Today’s Construction Boom, Developers Must Thoroughly Vet Potential Contractors



With construction in Boston booming, it’s more important than ever for owners and developers to carefully screen the contractors they are considering hiring for their construction projects.  In a busy
market like this, even bad contractors are working.  This means that many unqualified contactors are getting opportunities to bid on projects outside the scope of their expertise and beyond their capabilities.  Once on your job, they often fail to secure qualified subcontractors to perform various trade work and projects frequently fall behind schedule with said delays costing owners/developers dearly.
 
Owners/developers can protect themselves from these pitfalls by requiring all “would-be” contractors to submit detailed financial information during the bid process.  Examples of the type of information to be requested is:  a reconciliation of work-in-process and owner contact/ reference information; the contractor’s work backlog; financial statement/credit worthiness/bank reference; bonding/insurance capacity; a list of frequently used subcontractors/suppliers.  Armed with the foregoing information, owners/developers can perform the necessary due diligence to allow for an informed decision about a contractor’s financial stability, and its wherewithal to get their project done and done on time.

Information is power.  Owners/developers should:  interview other project owners about the contractor; inquire of the contractor’s lender as to its credit status, and the availability of funds for use on the proposed project; verify through subcontractors/suppliers whether the contractor is current in its payments to them and whether it obtains lien waivers as requisitions/invoices are paid; obtain assurances from the contractor’s insurance agent that the contractor will be able to obtain the liability, worker’s compensation and bonding coverage required for the proposed project; and confirm through the state in which the proposed project is located, that the contractor’s license is currently in force and in good standing.

Once you have selected a contractor, negotiate and implement a payment schedule and review process which does not permit the contractor to “get ahead of” the amount of work it has actually put in place on the project.  Require that partial lien waivers be executed by each of the contractor’s subcontractors and suppliers contemporaneously with the issuance of progress payments.  Require the contractor to provide a base-line schedule for the project and to update that schedule with each payment requisition submitted.  Additionally, require the contractor to provide a two or three week “look ahead” schedule outlining all upcoming construction activities.  Finally, consider adding a liquidated damages provision to your contract that will compensate you for damages you will incur for each day that the contractor fails to complete your project on-time.

The heightened demand for contractors in 2019 mandates that owners/developers employ heightened vigilance during the contractor selection and contracting process.  By thoroughly vetting the contractors bidding on their projects, owners/developers can ensure that one of the most important decisions they will make, (who will build their project), is an educated one.

Co-chair of REBA’s Construction Law Section, Hugh Gorman leads Prince Lobel’s construction group.  His practice focuses on the representation of developers, owners, contractors and subcontractors with respect to legal issues impacting the construction industry.  Hugh can be contacted by email at Hgorman@PrinceLobel.com.

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