PART 2: Overseeing Contractors

After diligently selecting a contractor, the property manager and the board still need to stay involved in order to keep the contractor on his or her toes. One of the best ways of doing so is to have a proper contract in place.

The American Institute of Architects (AIA) Standard Agreement between Owners and Contractors (A101 and A201) spells out the key terms and conditions essential to any project, including guarantees, insurance, payment schedule, change-orders, supervision and safety, and so on. Nailing down such essential elements in writing helps avoid many of the "we said/you said" misunderstandings and disputes common in a verbal or a poorly defined agreement.

Liquidating to Prevent Liquid Dates

One effective way to keep the contractor's attention on your project is to have a liquidated-damages provision in the contract. Liquidated damages are payments that the contractor makes to the building owner for failing to complete the project on time. For example, on a $300,000 project you might see liquated damages equal to 1 percent of the total cost of construction ($300) for each day the project goes past the stipulated deadline in the contract.

Unsurprisingly, most contractors balk at including this provision. One way to get them to agree to it is to offer some leeway on when such damages kick in. On a 12-week project, for instance, you could agree that liquidated damages won't begin until after 16 weeks. This gives the contractor some breathing room while still protecting you if the project runs into lengthy delays.

Another way to make liquidated damages part of the contract is to throw in a clause that gives the contractor a bonus for finishing the project early, with the same cushion for the board on the other end. It is, after all, much more likely that a project will drag on beyond the deadline than finish early. Remember, however: While offering the bonus in order to obtain a liquidated-damages agreement will help protect you while giving the contractor a vested interest in finishing the project on time, it could also be an incentive to rushing the job. Think carefully before offering this.

Checkpoints, Charlie

Yet while the contract states what the contractor should do, making sure he or she does it is another story. The project engineer or architect should help you establish a set of requirements and checkpoints that the contractor must project to keep things on track and to keep him or her for the quality of work. Such job checkpoints include: timelines, product submissions, site meetings and status reports.

Product manufacturers can help by making sure work is performed to specification, so that warranties (as in a "No Dollar Limit" roof warranty) are not voided. The board should also ask to see samples and mock-ups of materials, such as bricks, paint color, trim and the like before the contractor orders them.

To keep the contractor focused on your project as it winds down, the contract should include a retainer provision: At least 10 percent of the contract amount should be withheld until 30 days after your engineer or architect signs off on the project. After they deem the project substantially completed, you should work closely with them and the contractor and in drawing up a punch-list by walking around the property with them and pointing out unfinished items. Only after all the punch list items are addressed should anyone sign off on the project.

Stephen Varone and Peter Varsalona are principals at Rand Engineering & Architecture.

Adapted from Habitat September 2007. For the complete article and more, join our Archive >>