It’s the nightmare scenario every homeowner dreads: you do an exhaustive search, find a contractor, iron out an agreement, he or she starts work (and you hand over a deposit) and then…it all goes bust. For one reason or many, your contractor becomes unable or unwilling to finish your project, leaving you in the worst possible position.
The annual cost of contractor failure in the U.S. is $5.35 Billion. This is larger than the entire combined economies of Barbados and Seychelles.
We wish we could tell you this is a rare occurrence. Alas, it isn’t: 1 in 30 projects go under because of contractor failure. It could be due to contractor incompetence – he may not know how to run his business. Or it could be due to factors out of his control (such as a sudden and expensive divorce). Either way, it means a dire outcome for your remodel.
If you do find yourself in this unenviable spot, the first rule is: don’t panic. Here are some guidelines to lead you back from the cliff’s edge.
First, determine whether your contractor has indeed failed. How will you know? Typically your contractor will tell you. Or you may see things slowing down for no apparent reason (you’ve paid your invoices, and everything should be going according to plan, but there are no workers on site/materials delivered, and all you get is excuses). Eventually, you’ll get a notice from a liquidation agency informing you that your contractor has gone into bankruptcy (sometimes, it may even arrive right after you’ve handed over your advance payment).
Once you’re sure it’s a failure, pivot immediately.
As soon as your contractor fails, your project alters dramatically. Your new project is now…to complete your project. This may not mean, “complete the project that you intended from the beginning.” Rather, it is, “complete the project that you’re now capable of completing.”
As soon as your contractor fails, your project alters dramatically. Your new project is now…to complete your project.
Hire a completion contractor…and know what you’re getting into.
The first priority is to bring in a completion contractor to finish the job. Granted, this will mean dealing with a whole new set of factors – the worst being that the new contractor knows you’re in a dire situation. Since the work has already begun, you can’t go through the normal bidding and planning process, meaning you’ll have less ability to negotiate on price. Also, completion contractors charge more because they’re picking up someone else’s work, meaning they’ll need to double check the work that’s already been done. There’s a premium to picking up the pieces.
The other crucial factor is lost time. Make sure to bring the completion contractor fully up to speed as quickly as possible. It may be an existing project for you, but it’s a new project for your contractor, and there are always multiple ways to complete a job.
When it comes to money, be prepared to make some tough choices.
If you’ve lost your deposit money, you may not have all the funds you need to complete your intended vision. Unfortunately, you’ll have to do the best with what you have.
f your project cost, say, $100,000, and you still had $30,000 left of work to be done, you may need $50,000 or more to finish the project after your original contractor failed.
If your project cost, say, $100,000, and you still had $30,000 left of work to be done, you may need $50,000 or more to finish the project after your original contractor failed. So you can either: 1) come up with the additional money; or 2) don’t complete the project the way you want, and live with a substandard home, which you’ll have to look at and live in every day.
You could also decrease the scope of work, and save some of it for a second phase (in other words, wait to do certain things the next time around).
You may be able to get some of the lost deposit back…but don’t count on it.
If you handed over a $30,000 check and the contractor went belly up a few weeks later, there’s the option of litigating – the failed contractor might have sufficient assets such that the liquidators can extract funds to get you a percentage on your dollar. But the chances are high that you won’t recover anything, and if you do, it may be a very small percentage of your money. Plus you’ll need to be willing to invest the time and money it takes to go to court – and you don’t know what the timeframe may be.
The Top 5 Reasons Why Contractors Fail
1) Significant increase in the size of individual projects 37%
2) Insufficient personnel 36%
3) Contractor retires, dies, sells company, change of focus 29%
4) Accounting issues – problems estimating costs or procuring funds 29%
5) Management issues – key staff leaves the company, no transition plan 29%