We commonly hear from homeowners that they want the most competitive price for their proposed home remodeling project. You may have said this yourself at one time or another. When a remodeling contractor hears this, it typically translates to, we want the cheapest price. We commonly hear from homeowners that they want the most competitive price for their proposed home remodeling project. You may have said this yourself at one time or another. When a remodeling contractor hears this, it typically translates to, we want the cheapest price.
If the total project price is the determining factor for your home remodeling project, than to reach your remodeling budget goal requires a long and hard look at the financial exposure you may not be aware you are accepting with the cheapest bid. The common risk associated with any home improvement and remodeling projects are;
- Additional Cost Risk
- Workman Safety Risk
- Quality Risk
- Consequential Risk
In order to properly assess unforeseen risk exposure, we must understand more about the type of work that is required and recognize the owners tolerance for risk acceptance. There are risks that the homeowner may understand and accept, while there are other risks that they have not considered or do not know exist. We will have a discussion about the factors that increase the probability of owners home remodeling risk and what you can do to mitigate this risk.
Defining the Project Scope of Work
Developing a clear scope of work is essential when attempting to mitigate the owners risk. Developing bid specifications and supporting documents for a home remodeling project are required to compare apples to apples. It starts with understanding what actual work is required to be done and secondly recognizing the difficulty in the required skill to achieve the desired result. For example, the painting of your interior walls is not the same skill required as remodeling your kitchen.
The project scope of work is the detailed instruction manual for the bidding and execution of your home remodeling project. The scope of work should include the following documents;
- Set of plan drawings including the immediate and surrounding areas,
- Dimensional floor plan drawings,
- with elevation images,
- Detailed construction sections of the required assembly,
- Description of materials required to be used,
- The required level of acceptable tolerance for workmanship,
- The grade and quality of materials acceptable for use,
- Detailed description of the required workmanship performance standards
These documents set an even playing field for remodeling contractors to prepare equally measured bid proposals. They also clearly define what is expected of a remodeling contractor. Without these documents, the owner only has the remodeling contractors bid proposal and the undocumented information provided during pre-bid conversations. If the remodeling contractors bid proposal is incomplete or lacks the details of the step by step process and procedures of the project, the owner is completely exposed to many of the following systemic performance risk;
- Substitution of inferior materials,
- Low grade products,
- Substandard workmanship,
- Poor overall project performance
Selecting the Proper & Qualified Remodeling Contractor
There are many different remodeling contractor types to select from when evaluating your project needs. There are remodeling contractors that work for daily wages which we will call pick-up truck contractors. There is a second type that has a few crews that do the work and the owner will handle the sales and project management. We will call the second type of contractor a self performing contractor. We will call the third type of contractor a home improvement contractor. These types of contractors are usually larger in size and have multiple crews to handle multiple home replacement products. The final type of contractor is a general contractor. They can be a combination of any of the previous three examples, but will undertake projects that require multiple trade skills to accomplish the projects goal.
Selecting the proper remodeling contractor for the qualifying project is half the battle. If your project requires one contractor, such as a painter for interior painting or installing a new roof, you are well advised to hire a home improvement contractor that specializes in these practices. Although the risk of hiring any home improvement contractor remains unless you require these contractors to provide you;
- Certificate of Liability Insurance
- Certificate of Workman’s Compensation
- Detailed Proposal including Scope of Work, Description of Materials, Fixed Price,
- Exclusions of Scope of Work
Understanding Consequential Risk
This is one of the home remodeling risk that is often misunderstood. If you hire a remodeling contractor that does not have proper workman compensation insurance and a workman gets injured or dies while working on your project, you can be found liable for the cost of his damages realized. Depending on your homeowner insurance policy, you may also be personally liable for their death or injury.
It is common for older homes to have their water supply pipes replaced at some point or to have their roof replaced. If the home improvement contractor does not have the proper comprehensive general liability insurance and your homeowners policy requires you to carry builders risk insurance during remodeling projects, your exposure could be catastrophic if your home experiences water damage from defective workmanship.
Understanding and requiring the proper insurance is the only effective method at mitigating the consequential damages that can happen during a home remodeling project.
Evaluating Project Risk
So what is the decisive factors in assessing the proper risk associated with these two different home remodeling projects. Looking at these projects from a worst case scenario, we attempt to understand how an owner can mitigate their risk. Let’s use the example of home improvement contractor, like a painter and a roofing replacement contractor.
Both home improvement contractors in our example can expose the homeowner to the same risk factors. Either contractor tasks, if careless done can cause damage to the home. The painter can drip enamel on fabrics (carpet, drapes, upholstery), while the roofer can misapply flashing that causes rain water to infiltrate and damage the interior finishes. Both contractors can get hurt while working on your home. Both contractors can do poor job, which requires the owner to pay someone else to redo the previous contractors work. These types of occurrences happen every day.
So as an homeowner you must carefully evaluate the specific task of each of the contractors proposals to determine your risk exposure. The other option you have is to hire an adviser to assist you in developing your risk assessment. The third option that is available is to hire a general contractor to handle these matters for you. Although home product replacement projects get more expensive then dealing directly with a replacement contractor.
Home remodeling is an expensive proposition and the hiring of remodeling contractors can lead to greater issues than the original problems. As a general rule, there should not be much more than a 10% price difference if you are comparing comparable home remodeling contractors. If there is a larger price spread between competing contractors, this should be a red flag to you as the owner that something is missing or you do not have comparable contractors. You should go back through the risk factors we have reviewed and determine the source of the disconnection.
So the cheapest price presented may not be the best price presented. Rather in many cases the cheapest price can result in being by far the most expensive price.