It break our hearts to hear from a homeowner experiencing a renovation nightmare. Usually the general contractor has underperformed and left the homeowner in a pile of rubble. Not cool!
Just last week in fact, we received a distress call from a New York City homeowner asking us to salvage their $800,000 renovation in the West Village which had become toxic because their contractor was underperforming.
If you find yourself in this situation, don't panic, take a deep breath and follow Bolster's 5-step project recovery plan.
If deep breaths aren't calming you down and you feel you need to jump into action, here is a brief summary of what you really need to understand about turning your failed renovation project around:
- Don't rush in - As tempting as it may be to take a quick fix, avoid further disaster and proceed methodically (as you likely did when choosing your first contractor).
- Recovery is a risky business - Appreciate that your new contractor is potentially taking on a huge financial and reputational risk in trying to salvage your project.
- This will cost you - The best contractors out there (the ones you now desperately need) will not salvage your project for free. Expect to pay handsomely for their services.
- Follow your new leader - Do not expect your new contractor to be able to deliver your project on the same terms and for the same price as your previous contractor (lack of adequate financial incentive may have been the root cause of your project's failure in the first place). Give them the latitude to properly and accurately re-estimate your "new" project.
The project recovery process
It's worth pointing out that the goal of this process is for your new general contractor to willingly take full responsibility for delivering your project successfully. A lot of contractors will flatly refuse, or charge an arm and a leg, to assume the enormous risks associated with completing a failed renovation project.
Having your new contractor follow a professional recovery plan will provide the project with the everything it needs to be turned around successfully, including a happy contractor able to mitigate and manage the risks involved.
And with that in mind, the plan...
Phase 1 - Initial Assessment
Assuming you know where to get a renovation recovery professional to help you recover your project, the first step is to help them determine the complexity and cost associated with rescuing your project.
- Provide your contractor with a brief description of the problem.
- Provide the contractor with your existing contractor's bid and architect's drawings.
- Your new contractor will visit your project to inspect the situation first-hand.
- From this exercise your contractor will be able to assess the viability of grandfathering your previous contractor's bid and architect's drawings to continue the project (almost always your new contractor is going to want to re-estimate your project).
- To reach agreement on the extent of the problem and the necessary approach and likely cost to turn your project around.
- A couple of days is usually enough
Phase 2 - Damage Control
Your contractor will now be in a position to present you with a fee proposal. Assuming its acceptable to you, they may get to work in supporting you in taking swift and immediate action to limit the damage already done (although, depending on the core competencies of your new contractor, this may be a phase best carried out exclusively with the support of your attorney).
Have your new general contractor or renovation professional:
- Support you in amicably terminating the project contract with your previous general contractor (in New York City, a homeowner can terminate a project contract with a general contractor for cause or convenience with relative ease).
- If they're still around, support you in instructing the trades and any professionals to temporarily cease activity. While it is often tempting to let the "good" tradespersons continue on with their activities, without leadership and coordination from a good general contractor or architect, they are likely to produce work that needs to be ripped out and redone later.
- Support you in placing a stop on all project-related payments without causing mutiny.
- The aim here is to produce a fresh set of clear initial conditions from which to proceed from confidently.
- It is also important to try and foster harmonious relationships with all the parties previously involved in the project as they may prove to be vital in helping recover the project.
- It is not uncommon for a general contractor to be owed funds when their contract is terminated (whether for cause or convenience). A new contractor taking over a failed renovation project will want to know that the previous contractor isn't going to sue you as this can cause significant financial distress and jeopardize your new contractor's payments. You'll also want to assess the status of your lien wavers with the previous contractor as if they've failed to payout subcontractors or materialmen, you may end up with liens being placed against your home.
- Typically takes up to one week
Fun fact for a not-so-fun subject: there is a fictional construction company in the Marvel Comic universe called Damage Control, Inc that repairs all the buildings destroyed when superheroes and supervillains do battle.
Damage Control was originally owned by Tony Stark (Iron Man) and headquartered in New York's Flatiron Building. Now you know.
Phase 3 - Diligence
Your new general contractor will want to assess the existing conditions on and off-site and quantify the project’s remaining scope of work. The duration of this phase is always dependent upon the availability of other parties including your trades, your architect and of course, you!
- Your general contractor will conduct a thorough assessment of the existing building conditions to establish the true extent and quality of the work completed under the previous contract. It is essential for your new contractor to understand their potential liability prior to embarking upon the actual delivery of your project.
- They'll want to evaluate the value of the work completed compared to the amount of money you paid to the previous general contractor & trades.
- Your new contractor should meet with the existing trades to establish their capabilities with a view to maintaining their involvement in the project. Same for your architect, your new contractor will want to be debriefed on the project, discuss their drawings and help establish their ongoing involvement.
- If your new contractor really has their due diligence hat on they'll want to talk to the previous general contractor to understand their perspective on things. That may sound strange but the better they understand what went wrong (from as many points of view as possible) the better for you and your project.
- Using the existing drawings, scope of work and input from those currently involved in the project, your new contractor should now be able re-estimate your project from the ground up (this step avoids the enormous risks to all parties of relying upon your previous contractor’s bid).
- A clear understanding of the project’s current condition, team capabilities and recommendations for you on who should remain engaged on the project.
- A new, fully detailed and accurately priced scope of work (direct job costs only) to complete your project.
- Typically takes anywhere between one and two weeks
Why do this?
Taking on the mission to recover your failed project without conducting full due diligence and producing a new bid is akin to trying to salvage a failed business without understanding what went wrong and following the same business plan as before - both will lead to more pain and should be avoided at all cost.
Phase 4 - Project Contract
Now that your new contractor has a clear understanding of your project and has provided you with a bid to complete the work (and assuming you have accepted their bid), you can move on to signing a new contract together. Now is also a good time for you to transfer ownership of permits to your new contractor (if your previous contractor went out of business you'll want to do this as their worker's compensation policy may lapse rendering your permits invalid).
Your contractor will typically offer you two types of contract to deliver your project: cost-plus and fixed-price.
- In this scenario, your general contractor will bill you for their direct costs for labor, materials, and subs, plus a percentage (or fixed-fee) to cover their overhead and profit.
- This contract type is the more dangerous of the two as it exposes you to the impact of any cost overruns (which are avoidable through our fixed-price contract).
Fixed-Price Contract (Bolster’s recommended contract type)
- In this scenario, the payment amount does not depend on resources used or time expended and is a guaranteed fixed price for the completion of your project as described in the scope of work.
- This is Bolster’s recommended contract because it shifts the risk of cost overruns on to your contractor (who is best equipped to prevent them).
- Typically takes a couple of days
Phase 5 - Mobilization
Your general contractor can now mobilize and marshal the necessary resources to commence delivering your project under a fixed-price contract. When Bolster does this, our team at HQ handle all contracts, payment and other project administration functions through our technology platform and help ensure you have a beautiful renovation experience.
- Typically takes around one week
How much should this process cost?
While it depends on the complexity, specific circumstances of your project and the availability of the people involved in the project to provide your new team with all the information they need, for a high-end renovation project in New York City between $100K and $1MM, expect to pay between $10K and $50K for a professional contractor to rescue your project.
And to complete my project?
Right, the process and cost to salvage and restart a failed renovation project is separate from the construction cost to deliver the project. Don't be surprised to find your new contractor's bid higher than your previous contractor's for the work remaining. It's not uncommon for contractors to charge an a premium of up to 20% to deliver your project.
Now, it may be that your previous contractor's bid was relatively low. Maybe they underbid your project unwittingly (due to inexperience or desperation) or deliberately (and was hoping to make up for it with change orders). It may be that you chose the lowest bid to save some money. Either way, your new contractor will invariably charge more. That said, if they've been successful at their diligence, they should have a good enough handle on their exposure to limit the amount of contingency they build into your new bid.
A final caution
Leaping from a frying pan into a fire is not a desirable transition so be very careful only to hire a replacement general contractor with experience in successfully recovering renovation projects like yours.
Also make sure they are equipped with a professional project recovery plan like the one described above.