How to hire a contractor and pay without being burned

There is no best way to hire a builder. The choice is about who buys the materials, who carries the risk when prices move or materials go missing, and who supervises. Decide this before you approach anyone.

The lowest price is usually not the best choice. A builder who is cheap and unreliable costs more than one who is fair and competent, once delays and repairs are counted. Choose on capability first and price second.

1. 1

   Find candidates from several sources

   Ask people who have built recently in your area, your architect or engineer, and suppliers who know who pays and who delivers. Avoid hiring a stranger who approaches you on site.

2. 2

   See their work

   Visit at least two finished projects, and one under way. The finished houses show quality, the one under way shows how they run a site: neat or chaotic, with labour present and supervised or not.

3. 3

   Speak to previous clients

   Call at least two. Ask what went wrong, how the contractor handled it, whether the final cost matched the quote, whether they finished on time and whether the owner would hire them again.

4. 4

   Check how they are organised

   Ask who will actually run your site, how many people they have, how many jobs they have running at once and what they have on the books. A contractor with too many sites is a risk.

5. 5

   Check registration and standing

   For larger or complex work, ask about registration with the Pakistan Engineering Council and tax registration, and ask for the details of any relevant licences. A registration does not make a contractor good, but not having one for large works is worth a question.

6. 6

   Assess their finances

   A contractor who is short of cash will ask for advances and use your money on other jobs. Ask for the name of their material suppliers and check with them whether they are paid on time.

1. 1

   Prepare the tender package

   Approved drawings (architectural and structural), a specification of materials and workmanship, the BOQ, the draft contract terms and payment schedule, the programme you expect, and the date and format for the bid.

2. 2

   Hold a site visit

   Take all bidders to the site together on the same day. Anything said to one should be said to all.

3. 3

   Take questions in writing, and answer in writing to all

   Set a date for queries. Send questions and answers to every bidder, so none has an advantage.

4. 4

   Receive the bids

   Ask for the BOQ priced, the programme, the key people, and the terms they propose. Set a deadline.

5. 5

   Check the arithmetic and compare

   Re-multiply quantities by rates, add up, and compare using the table in the cost guide. Look at the big items, not only the total.

6. 6

   Interview the shortlisted two or three

   Ask about outliers and exclusions. Ask them to confirm in writing what they will do about each point.

7. 7

   Negotiate on terms, not by cutting scope

   It is fair to ask for a better price, but make sure it comes from a better rate, not from an item being dropped. Any change must be written into the BOQ.

8. 8

   Award in writing

   Send an award letter naming the documents that make up the contract. Sign the contract before work starts.

A contract exists for the day something goes wrong. It should be written, signed by both parties and witnessed, and say who does what, for how much, by when and what happens if not. Ask your lawyer which stamp paper and formalities apply in your province. Banao also keeps contract templates you can read.

Money is the owner’s only real leverage. A contractor who has been paid ahead of the work has no reason to hurry, and an owner who has paid it all has no way to get defects fixed. A good schedule keeps the unpaid balance bigger than the cost of finishing the job and fixing the faults.

The principles

• Tie each payment to a finished and inspected milestone, not to a date or a percentage the contractor says is done.
• Keep the advance small, and pay it against something you can see, such as materials delivered to site.
• Hold back retention, a small percentage of every payment, released after the defects period.
• Pay by bank transfer to the contractor’s account in the contract, and take a receipt. Never pay cash without a signed receipt.
• Let nothing be paid while a critical or major defect is open on that milestone.

1. 1

   The contractor tells you the milestone is complete

   In writing, with the date and the BOQ items it covers.

2. 2

   It is inspected against the definition of done

   By you or, better, by an independent engineer. The inspection checks quality as well as quantity. See the inspection guide.

3. 3

   Defects are listed and agreed

   Critical and major defects are fixed and re-inspected before the milestone is passed. Minor ones go on a list with a deadline.

4. 4

   Payment is released

   By bank transfer for the agreed amount, less retention and any deductions, against the approved milestone certificate.

5. 5

   Everything is recorded

   Keep the request, the inspection report, the approval and the receipt together.

What escrow adds

With escrow, the owner funds a milestone in advance and a third party holds the money until the work is approved. The contractor knows the money exists and will not be argued out of it, and the owner knows it cannot be spent on anything else. It addresses the two fears each side has: not being paid, and paying for work not done.

Almost every build changes: you move a wall, add a point, choose a different tile. Changes are fine. Unpriced changes are not, because they turn into arguments about what was agreed, usually at the end when you have least leverage.

1. 1

   Describe the change in writing

   A short instruction with a sketch: what is to change and where.

2. 2

   Get a priced quote before work starts

   The contractor prices it using the BOQ rates where an item exists, and a fair rate for new items. Note the effect on the programme.

3. 3

   Approve it in writing

   Sign a variation order with the price, the time effect and the date. Add it to the BOQ.

4. 4

   Reject verbal changes

   Tell everyone on site that nothing is done on a spoken instruction. This includes you.

When the work is late

• Find out the reason in writing: weather, labour, materials, your own late decisions or the contractor’s management.
• Agree a recovery plan with dates. Compare progress with the programme every week.
• Apply the delay clause only where the delay is the contractor’s. Rain and the owner’s late decisions justify more time.
• Plan around the monsoon, extreme heat, Ramadan and the Eid holidays, when labour availability and working hours change, and agree in advance how they affect the programme.

1. 1

   Hold a short weekly meeting

   Owner or representative, contractor, and engineer if there is one. Cover progress against the programme, what is next, decisions needed from the owner, defects open, payment status and problems.

2. 2

   Keep a site diary

   Daily entries by the contractor’s supervisor: weather, labour numbers, materials delivered, work done, visitors and instructions. Sign it weekly.

3. 3

   Use a three-week look-ahead

   Each week, list what is planned for the next three weeks, what must be decided, and what must be ordered. Most delays are decisions or materials that were not ready.

4. 4

   Approve materials and samples before they are used

   Approve tiles, paint, sanitary ware, hardware and fixtures from samples, in writing, before ordering. Keep the approved samples on site.

5. 5

   Keep every record

   Drawings and their revisions, instructions, variation orders, delivery slips, inspection reports, photographs, payment requests and receipts, in one place that you can reach from anywhere.

If the relationship breaks down

1. 1

   Put your complaint in writing

   State what is wrong, which clause or specification it breaches, what you want done and by when. Keep proof it was received.

2. 2

   Give the contractor time to fix it

   The contract should provide a notice period. This is also what protects you if the dispute reaches a lawyer.

3. 3

   Have the work measured independently

   If you must part, an independent engineer measures what has been done, checks its quality and values it, so that the final account is based on facts.

4. 4

   Secure the site and the materials

   Make an inventory of materials and equipment and protect the work from weather and theft.

5. 5

   Take legal advice before terminating

   Terminating wrongly can cost you. Follow the contract’s procedure.

Handover