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Reviewing contractors more important now.

We are all very much aware of the impact of the current economy on the construction industry, especially in the Northeast. As a result of these financially difficult times, those fortunate enough to have remained capable of proceeding with any large-scale projects must be especially concerned about the ramifications of the slow economy for the construction industry.

Today's builders will find prices are down since contractors and sub-contractors are now bidding in a very competitive market. However, one must be careful to determine if the bidding is based on sound business judgment or merely on an effort to stay alive in the industry.

The normal process of bidding and awards in today's market should be re-examined to more fully protect your project. In this regard, it is important to insure that the scope of work is both clearly developed and fully understood by all parties concerned, leaving little or no room for substitution of less expensive materials or undesired extras. Separation of large contracts into smaller components that are given to several contractors -- as opposed to one major contractor -- would aid in this respect. Additionally, this type of apportionment would serve to increase minority participation. A breakdown into smaller contracts can also reduce exposure of failure by one major contractor, which would serverely hamper the project's timely completion.

Prior to awarding a contract in the 1990's, more than the normal due diligence is required to determine the contractor's financial stability. The following suggested steps should be used as a guide in determining such financial stability.

1. Speak to your contractor's suppliers to determine:

* Their line of credit

* If payments are current

* If their line of credit would be extended for your project.

2. Speak to the unions involved to determine:

* If pension and welfare payments are up to date

* If the manpower will be supplied when required

3. Contact the contractor's bankers to determine:

* If the bank would extend their credit

* Their past performance record

4. Speak to the bonding companies to determine:

* If the contractors are bondable

* Their past record with the bonding company.

5. Check on projects the contractors are currently working on, not only with the General Contractor or Project Manager, but with other trades to determine if they are properly staffing the job and keeping up with schedules.

Further considerations prior to awarding a contract include agreement on a trade payment breakdown. Any hint of front loading, even a few dollars, should be avoided in order to provide assurance of sufficient funds if substitution of a new contractor become necessary to complete the work.

A realistic CPM construction schedule of both time and manpower should be agreed upon prior to finalization of any contracts.

In order to assure delivery in a timely fashion, long lead items including switch gear, pumps, and HVAC equipment should be ordered directly by the owner and assigned to the responsible contractor. This will prevent a supplier from refusing shipment because of problems on this or another project, or default by the ordering contractor.

As you can see from the above, while construction in the 90's offers certain advantages, it also presents unique problems. While today's developers may find that under the current economic situation they can buy a job at a better price than under normal conditions, they must also be a realistic and know what the best price should be.

Forcing the price too low may well cause delays and problems as the job progresses. Accordingly, it has become increasing important to do your homework, get the needed answers and not be blinded by a price you know to be unrealistically low. While we want the best price, we also want the project completed both on time and within the alloted budget.
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Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Construction & Renovation Supplement
Author:Bolen, Jason E.
Publication:Real Estate Weekly
Date:Apr 22, 1992
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