If you are contemplating a major home improvement project, you can save money if you act as your own general contractor. When you hire a general contractor to perform work on your home, it is like “one-stop shopping”.
The homeowner tells the contractor what you would like them to achieve, and after the price is agreed upon, the contractor takes care of all of the details. These details include getting prices for materials and setting up delivery times, getting prices from sub-contractors, scheduling the times when the sub-contractors will come in to do the work, and etc.
Time is money to the general contractor and the homeowner will be charged for every task that they have to perform for your job. With each task, the general contractor adds a markup for overhead and profit.
A general contractor’s liability insurance is based upon the gross annual sales. As an example, if a general contractor is doing your job and his portion of the job is $5,000.00, but he has to hire an electrical sub-contractor to perform $2,000.00 worth of electrical work, the general contractor has to pay liability insurance on $7,000.00 worth of business.
For this reason, the general contractor has to add on a percentage of the sub-contractor’s $2,000.00 bill to cover the expense of paying the additional liability insurance. The general contractor also adds on a fee for scheduling and overseeing the work of the sub-contractor. Using this example, if the homeowner hired the electrical contractor direct, a substantial savings would be realized.
Depending on the size of the project, and how many suppliers and sub-contractors the general contractor has to hire, the markup can amount to a lot of money.
If the job requires the use of a roll-off dumpster, that cost is added to the job and the general contractor then adds on a percentage to cover the scheduling of the dumpster being delivered and picked up, and the cost of the additional liability insurance.
For each material supplier and sub-contractor that a general contractor has to hire and run through their books, a percentage of each of their bills is added on to the general contractor’s bill as part of their overhead and profit.
When preparing a quote for a homeowner, a general contractor will build-in and hide these additional markups and just give the homeowner a lump sum price for doing the job. It is highly unlikely that a general contractor would “breakout” these markups even upon the request of the homeowner.
With all of that being said, if you are planning on a home improvement project that involves hiring contractors, the more things that you can do, the more money you will save.
You can hire sub-contractors using the same tactics that you would use when you hire a general contractor. Get price quotes from each sub-contractor needed for the job, and get a contract and proof of insurance for each one that you hire.
Tell each contractor that you hire who the other contractors are that will be working on the job so that they can work out the scheduling between themselves.
Pay for the building materials at the supply yards and schedule the delivery of the materials. By doing this, you are eliminating the contractors markup on the materials. If the contractor has to put the materials on their charge account, they are going to add an additional percentage for using their account. Contrary to popular belief, most supply companies don’t give contractor special discounts.
Let it be known when you are requesting price quotes from contractors that you will take care of any job cleanup. Even if you don’t do it yourself and hire someone at minimum wage, you will save money by eliminating the contractor from doing it at a premium wage.
Stay away from hiring a contractor on a time and materials basis. For the contractor, this is like getting a blank check. Even if the contractor puts a cap on a price, you can rest assured that the final price tag will be at, or almost at, the capped price.
As always, get 2 or 3 estimated, check job and supplier references, and get a contract that stipulates the down payment amount, draw payment schedules, and final payment amount. Make sure the start and completion dates are clearly stated on the contract, along with detailed information on any specific materials that you want used on the job. It is also recommendable that the contract states an hourly rate for any unforeseen conditions that would require extra work to be performed above and beyond the scope of the contract.
Last but not least, make sure you get a certificate of insurance for each contractor that you hire and get a release of lien from each contractor before you make the final payment.