New Business Owner Enlisting Your First Contractors? How Can You Ensure The Work Will Be Finished?
Posted on: 3 October 2016
If you've recently launched your own business, you may still be adjusting to the myriad demands on your time and attention as a business owner -- from making the marketing decisions that will provide the most bang for your advertising buck to handling disputes between employees or complaints from dissatisfied customers. Enlisting contractors to repair or make improvements to your building can also seem like a much more complicated process than when you were a civilian. How can you ensure the work is done to your satisfaction? What recourse do you have if the project is taking longer or is more expensive than you anticipated? Read on to learn more about some of the tools at your disposal to ensure contractor compliance with your terms.
A surety bond can provide you with a substantial safety net if your contractor doesn't fulfill the terms of the agreement or the finished product suffers inordinate delays. This type of bond is issued by a third party (generally a business insurance agency) on behalf of a contractor, and it secures the quality and completion of the contractor's work. If the contractor completes the work as asked and you're satisfied with it, the bond will be released; but if you have problems with the work, it remains incomplete, or is otherwise not up to snuff, you'll be able to contact the bond issuer instead. You'll then be able to recoup some of the funds you've spent on this project and perhaps even the funds needed to finish it (up to the total amount secured by the bond).
Hiring a contractor without requiring that he or she take out a surety bond to secure completion of the work could lead to legal and financial messiness later, as you find yourself seeking either a court order to force completion (or pay liquidated damages) or suing the contractor in civil court to recover the amount you've already paid and the costs you've incurred in repairing the substandard work. You'll want to ensure the amount bonded is more than enough to cover the cost to complete your project; taking out a surety bond of $25,000 on a multi-million dollar project isn't likely to provide you with many protections, but taking out a $1,000,000 or higher one may. For more information on surety bonds, check out a company like NFP, P & C, Inc.
Protracted payment arrangements
Another option that can help a business owner preserve his or her capital until a project is satisfactorily completed is a spread-out payment structure. Many contractors will require a payment of at least half the total cost of a project up front, with the remainder due at some point near the mid-point or end of the project. However, making smaller and more frequent payments according to a timeline agreed between you and the contractor can improve the contractor's cash flow while the project is ongoing without requiring you to pay half (or more) of the total cost of this project without receiving any tangible benefit. You may even wish to set up a separate bank account in which to deposit payments before their release to the contractor, like an escrow account, in order to provide assurances that the funds are available and set aside.
If a contractor is unwilling to budge from the half-up-front payment model, even with a payment arrangement that covers all the supply and labor costs at each stage of the project, this can often be a sign that you may need to seek contracting services elsewhere. You may want to contact fellow business owners in your area to see which contractors have the best reputation for timely and high-quality work, as well as which you may want to avoid.Share