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Things to Know Before Hiring a Contractor

Thu, Feb 08, 2024, 5:57AM • 35:42

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#Contractor #LeadBasedPaint #Contract #Property #PayVendor #Liens #Remediate #Budget #Business #ManagePeople #Inspection #Agreement #Supplier #CertifiedTechnician #MaterialSuggest #BiddingWar #Money

Hey guys, so today I want to talk about how to manage your contractors. You know, if I had never worked for an electrical supplier, I would have never been able to see the absolute dangers of what can happen when you hire a contractor and honestly, I'm grateful because I mean, I worked for a service provider. But before I worked for the service provider, I worked for an electrical contractor. And one of my main roles was to back contractors. Managing vendors effectively is crucial for ensuring smooth operations and achieving business objectives. Here's a guide on how to manage vendors efficiently:

Vendor Selection:

But more importantly, one of my main roles was to release the league when they paid but what happens when the contractor doesn't pay? Let's say you're paying your contractor, but they're not playing paying their suppliers. Guess what happens because we all know that in real estate we're dealing if the material of the fixtures is in the property and installed in the property, it becomes part of that property. And by law, no one can rip it apart. So, what that means is that when your contractors don't pay the supplier, the supplier can go in and claim the lien. Now, in a claim of lien when they go to filing with the clerk of court, they're taking the entire property for the 10 to 15 or $20,000. However much money you have in that property for material so basically, you'll forfeit an entire property. For supplies that contractors don't pay for it. This is important. It's really scary. So, we have to be careful. This is what this show is about today because I want to make sure that we were protecting ourselves in Florida find ourselves in this situation. If you're a homeowner, then you may not have the capability to run a credit check on a contractor you know, if you are a business, you may have the capability of doing so. But partnering with someone who can run a quick Experian business on the contractor and seeing if they have any mechanical liens or any type of links on their credit reporting is significant. And you don't mean to have all of the major setups to make sure that you get this done.

And what I mean by major setups is there are a lot of federal regulations that protect consumer reports, but not so much business reports. You can run business reports without having the extra servers or the business. You know, there are some things that Experian business requires like for example, having a sign out on a fixture that aside, right, that aside that can be a remote fixture on the street, indicating that the business is there. You know so that's one of the requirements by law that experience has to follow you have to have your server but all of these things you don't need if you are running simple business credit. Okay. So, in your vendor selection, that thorough investigation is going to be important if you don't have the capability of running a credit check on your contractors. I suggest that you partner with someone who has the capability of doing so even if you have to pay a small fee, because I'm going to tell you to have to think ahead this is a chessboard you cannot forfeit urine to hide your property that oh my god that is a lot of money. Okay. And if they claimed the lien, guess who has to pay the mortgage that’s Due on Sale okay? Even if it's technically still a sale and you have to pay that. So, you don't want to get it gets very sticky. And so, a thorough investigation of your contractors, I would highly suggest it. Trust me guys. I've seen it time and time again. Not all contractors are shady like this. But for the most part. I've seen some, and we don't want to get in that messy situation because dragging down, right, whoever puts the lien on the property that there's going to be and it's very stressful. So just make sure that you do a thorough investigation. Secondly, in your vendor selection when you do when you do hire a contractor what you want to do is you want to present them with some really attractive proposals. Okay. So, one of the things that I did was I constructed a proposal because before you can get a bid from the contractor, you need to tell them what it is that they have in store, right? So, tell them OKAY, how what is the size of your portfolio? Do you have a large portfolio this is more for business owners and business owners that manage multiple properties or that have multiple properties, tell them the size of your portfolio telling them how many properties you have in this county, this county, this county, how many units are doors. What is it that you have to offer to get them in bed with you to get them to be excited about really? What business you're bringing their way? Right so making it attractive before they're offered. You make an attractive offer and let them know Yeah, this is what you have in store, not what can you give me, and then you can negotiate prices that way. I don't suggest that you do this with one vendor. If you're going to go for a contractor don't go to the first one sent in and done. Now it has to be some type of Google Search rate. And if you think about it when you're shopping on Google, all different stores pop up if you're shopping for a material right for an object. Let's say I look for computers. And I Google, you know computers, I can Google a MacBook and if I'm googling that brand, then different stores will pop up BestBuy will pop up Amazon will pop up I don't know if Amazon and Apple the Apple Store will pop up itself. So, I suggest that you shop for don't shop for one because this is your library, right? Once you get in there and you submit the attractive offer to all of the contractors then you can start a bidding war. Now, bidding wars are not foreign in the real estate industry, right?

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The only thing is that bidding wars are more so for buying a house, right? So, if you're buying a house, then the seller gets the chance if it's an attractive offer if this house has everything that you'd ever want, you know, and a couple of people are interested, that's good for the seller, because then the buyers will go into a bidding war. It's a silent war. It's you know, bombs are being dropped anywhere. So, it's just a very silent way of trying to get what you need for that for kind of throwing a little bit more to the mix, right? The more money well. And in a vendor war. What we want to do is alright, well this vendor has given me this and that's how you negotiate contracts. If you have something you have to make you understand your ground with a negotiation because what you're doing is you're making your stance and enabling your company to start the bidding. Right. And what you do is compare and contrast all of all of the bids. Once the bids come in, okay, well they're willing to give me this term they're willing to give me this price for whatever it is that you need. And then you go back to the next round, or maybe like the next vendor, the next contract, or a little bit more. And then you say, Yeah, but so and so's giving me this, are you able to match that? And that's how you negotiate contracts. Okay. So, the next thing about negotiating contracts is I want to make sure you guys are clear on the terms and conditions you want. Okay. If the price is low, you have to negotiate that down. Okay, this vendor has given me, and as far as the negotiation, and as part of the strategies that we want to make sure they go in and say, Yeah, but this vendor has given me this. Are you willing to match that? But I want to tell you the first time that I negotiated a contract, I was really upset with myself because one of the things that I didn't negotiate all the way through was the terms and conditions. And I get down to what I wanted it to look like in terms of how the payments will be made. And from that moment, I kicked myself in the butt so hard that I remember thinking this will never happen to me again. And the next contract I negotiated, Oh, you better believe that the terms and conditions were exactly how I wanted them. And I wasn't. I wasn't going back on that. Because this is important for budgeting. If we're not budgeting in this contract, to best meet our needs, we're mana managing properties. Okay. So, what that means in property management is that taxes are coming around. Taxes are a huge part of this management process. And you want to make sure that if the taxes aren't fixed into the mortgage, you want to make sure that you are budgeting around taxes, right? I can make the payment at that time. Okay. And you put that in the contract you put that in the agreement because once this agreement is made, there's no going back. So you want to make sure that you create the strongest agreement that you possibly can. Okay.

Contract Negotiation

In contract negotiating, you have to make sure that you take care of the legal risk review, right? You don't want to go into it with any legal risks. What are and this is part of checking around rounds of these contractors and okay because like I said if they go okay? When I worked for the supplier and the contractors weren't paying, I would get calls from homeowners saying hey, what are what's going on? I paid the contractor everything is paid; everything should be paid. Now, you know if they don't have any money in their savings, which is insane, but it happens right? If they don't have any money in their savings and their house raging cash-poor, then how are they going to be offered this, right? Because the lien isn't able to legally be put in until that loan has gone into people for about 120 days and we're talking about mechanical means, okay, we're not able to put those in and file those with the clerk of court unless they show a ledger of how long this account has gone. You know, dealing with and that's significant, right? So, we want to make sure that we're taking care of legal risk management. And for example, I'll give you an example because recently, I had to look at lead-based paint reviews for different contractors. To see how we were going to remediate lead-based paint. Well, if you don't know, lead-based paint has to be removed by an EPA-certified technician. It's not this is a technical thing, because they have to be certified by EPA, the Environmental Protection Agency. And this is just a federal regulation. So we're not able to go in every meeting and ourselves, which is something that we've, you know, we thought of, but it's not something that we can go in and do because it's illegal, right to submit documentation that the lead-based paint has been working to have to submit documentation by a certified technician who was approved by EPA, Environmental Protection Agency. So, there are four ways to remediate lead-based paint. One of them is encapsulating it which entails it's a water-tight bond. Paint it's like a coat and they put it over the lead base paint. But the problem with this one is that it wears over time. When it oxidizes, it wears anytime your Windows you open your doors. The air comes in, it’ll wear off. So yeah, I would suggest staying away from it. If you're going to pay all this money. Stay away from it. Right and pay a little bit more. Don't be so cheap. Okay, because you're going to come across this again, and you don't want to come across it again. One thing about it is that let's say your tenant falls behind on their bill on their rent, and they look for subsidies most of the time some organizations won't come in and test and inspect for these people. But depending on where the money is coming from and the budget is being pumped from if the budget is being pumped from federal money, then they're going to expect lead-based paint. If the budget is apart from local and state money. They're not because they can play by their own rules. However federal regulation is tight on lead-based paint as part of Title 10 law and in the real estate lawyer. I'm sorry, I got into real estate law but in federal law, so we want to make sure that we're not doing like a fly-by-night. Kind of remediation if you're going to go for a remedial option. Then go for one that is not going to wear so easily horrible wear at all. That's not an option. The other one is enclosure, right? So, this option is where you take drywall and enclose the lead-based paint on the walls. I wouldn't suggest this. The reason why is that it's on all surfaces paint is on all surfaces. If they painted previous to 1978 that is why lead-based paint was prominent. It was a thing you know, it was the best thing since sliced bread and people who are painting a lot with lead-based paint so it's not just the laws that were painted, it's paint doorframes if the doors are the window frames right, so you want to make sure that you don't try to enclose anything. So, enclosures, it's just not what we're going for. Now the next option is for removal where they come in with like a sandblaster and I have a vacuum HEPA vacuum is just the grade of the vacuum and it sucks everything away from the ball. Right as your sand is taking everything away from the wall. But here's the thing.

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Remember, I said it has to be by a certified technician, right? So, I also looked into maybe we get in this machine and do it ourselves. No, you cannot. You have to get a certified technician, but this option is the best. I'll tell you why. So, the other option is a replacement, and this is like a big renovation. This is like new drywall, new doorframes, doors, and windows. Nobody Got Time for That. Who's doing a mini renovation? Unless it's your personal property unless this is your home, and you have the money, and you want to go out of control? Go ahead and do it but I suggest anyone to do a mini-renovation requires on a basis of lead-based paint. A strict reason why I'm telling you to do the removal option with the stripping is that all of the encapsulating and the code are just out of the question, but enclosure and replacement enclosure don't take care of the pain. That is remember enclosure is the part is option that just covers the walls. Right so replacement if the renovation Okay, so, if your vendor if your contractor is getting supplies from a supplier and they're creative, because this is something that suppliers that contractors can do. They can create a mother account and create job accounts. So based on the job that they're doing for you, they can create capital just for you. This is the nature it's based on the job they're doing for someone else. They create a job just for them. And usually, the supplier won't go into checking too much into it once the mother account has been created. And then the subsidiary accounts the job accounts start being created. They don't check on the job accounts as much. The mother account is the one that's vetted and that's where they do the credit check. They make sure that they've had at least two trade lines and they want to do some type of credit background check on the contractors but all on their accounts kind of just flow in the wind. And that means that if $5,000 has been loaned out to your property to your address when the supplier doesn't get paid, guess whose house Guess whose property they're putting a lien on yours, not the contractor the contractor doesn't have anything. He doesn't, what does he have? Everything is on your property. And they're not going after the contract. They're going after you and as unfair as it sounds.

It is what it is, right? So, you want to stay away from any type of remediation that is going to allow a contractor to put material in the home. that is expensive, right? You're already paying for labor. Think of the job cost. You're already paying for labor you don't want to pay for material. That's just the bottom line. If you're if you must pay for materials is paid for regular paying is cheap compared to drywall. Right compared to other fixtures compared to an entire door. Right. So, taking care of those legal risks. And if you must, if you absolutely must get material in the home. You need to ask the contractors for their release elites. Ask them for their release. At least this is new material that's why can I get a copy of the Release of the Lien you need to get the copy of the Release of the Lien and get the final copy of the release of partial Release of the Lien when you make payments on the loan. But there's still a balance on the loan, right anything they take out a credit will have a lien on it. Secondly, once they finally pay off all of the material with that supplier, you want to make sure you get a final Release of Lien. That final real sibling will be binding at $10 right if you look at your deed, that name is binding at $10 because this isn't legal jargon to ensure and it's saying okay, this has been completely released to this person. Okay, so the $10 final Release of Lien is going on now. You want to maintain regular communication, performance monitoring all of these kinds of things. And the way that you want to do that is you don't want to micromanage everybody, but you want to go in and say hey, what is your schedule for this? I need to make sure that I'm reporting to the town of Brookhaven. I need to make sure that I remember according to DHCR, right? These are some entities here in New York that give money right the town code came in LIHEAP I need to make sure that I because why whenever they give subsidies they do inspect for lead-based paint and Section Eight inspection remember any entity that gets their funding from federal means, okay, so it keeps it on your calendar. Hey, I mean, we'll have to answer turns away wrath. Okay.

Relationship Management

We have to make sure that we're looking at these biblical principles because when we're in business, we have to make sure that we're using the Bible as our basis to do business. You know because the Bible is a book of the mind. And when the Bible says God opposes the proud it's not talking about some exterior God, some food for like stereo, I don't know. It's talking about each other people are God. And that's, you know, Psalm 82. Six, I have said, you are all Gods because you're the sons of the Most High. So, when you're dealing with people, and when we're dealing with the mind and how to manage people, we have to remember that the Bible is everything that the Bible says God did. This God did that is talking about people. Okay? Now, another scripture says that A soft answer turns away, right? So, when you come in, you're managing these contractors, you don't want to for them to do something to hurt you. So, you have to be nice, right? You have to make sure that you're being cooperative with them, and that you're being respectful to them because God opposes the proud and a soft answer turns away wrath. So, in your vendor manager in your relationship management, ask them what your schedule is. When do you plan on getting this done? Awesome. I just got to I have to make sure that I coordinate this with Section Eight with LIHEAP so that they know when they can come back before the inspection, I have to make sure that it works for them. I have to make sure that our deadline to remediate this isn't going to pass what you're doing. So, I just want to coordinate, and I appreciate your help. I appreciate you communicating with me and showing gratitude. Gratitude is huge, right? Because we are into his gates with thanksgiving and in his court with praise and what we're entering into each other's gates with thanksgiving and into their core with praise Hey, thanks so much for you know, getting back to me. Thank you so much for being punctual. I appreciate that. Right. So, in that, I just complimented the contractor, and I just thanked him. So now in his good graces, we enter into His gates, right and so now we're in a good place in this person, spirit, right?

Financial Management:

So now, next, financial management. This is what I was talking about what the budget, right? This is why you want to go in, and you want to negotiate this contract agreement as firmly as possible because what you don't want is you don't want the terms and conditions to burn you. You don't want that I had that, and it did not feel good. It didn't feel good. And I wanted to make sure that I never made that mistake. Again. Because the terms and conditions are going to leave you in a good spot, right? Because you have to budget when you're managing a business. Budgeting for at least a year is really important but get this you don't the government doesn't manage their budgets for a year and larger corporations. Like you know, like schools. They don't manage their budget for the year. They manage their budget for the next fiscal year. Governments manage their budget terms, right? And what they do is they set laws in place so that they can put taxes in place to be able to manage their budgets and all of their programs or apps. And that is why the government is still standing. That's why they're still doing good people are free. You know, I heard this guy yesterday talking about how he thought that New York was going broke. Get out of here, okay, because everybody was moving out and he was complicit. The government is standing strong in New York State. It doesn't matter if NYC is people are moving out of NYC it does not matter if New York is standing strong, it will still have state taxes. Okay. The government is resourceful if a government resource if you don't understand real estate, you'll never understand that that's a possibility. Okay, so anything is possible, but it's least possible with the government because they control. They control them. They're the ones who are natural but anyway, budget tracking. Marking is really important and putting that into your bids puts that into your agreements. You want to do that and then you want to schedule these things around taxes. Tax is the number one goal in your business. You have to make sure that you don't get a tax lien on your property. You get that tax lien on your property. You either pay or the government is coming in and taking your property. Right. So, we got to get out. We schedule things around that, and we want to make sure that we stay in business. So doing that for in your negotiation. And I have to tell you that if you're having a big issue with these things, and you have to get our remedial services out to your property, you want to make sure that you do this. You want to make sure that you get this done because we don't want is for the costs to go through the roof to get into remedial services for lead-based paint that costs on average anywhere from eight to $15 per square foot. So, consider that. Once you have all of your units that need to be remediated, then you go in with a special juicy offer, okay?

Performance Evaluation:

I would say that the next really important thing is performance evaluation. In your area, you want to make sure that you put somewhere in there some pull-out clause, some buyer, you don't want to stay in a contract with someone who isn't doing what they're supposed to be doing. So, putting in the agreement, an early termination clause, and letting them know if for whatever reason you have certified that this has been remediated and we don't pass the RE inspection, we can terminate this agreement. Period. There are no ifs and buts about it because remediation is extremely expensive. So, we don't have time. You get it done. If you say you can get it done, get it done. If for whatever reason we fail, this inspection. You're out of here, right? Hey, but in professional terms, per my last email, if you say something in the contract, you can simply say an early termination clause. If we fail inspection, then we are entitled to the services to be redone. Free of course. We will find another contractor to do it, and we'll bill you for it. Do you understand what I'm saying? I've seen contracts like that. You know the big boys do contracts and governments do contracts like that. So, if you want to be on top and you want to make sure that your business is on time, put a contract in place.

Compliance and Ethics:

And this goes in for compliance This is a compliance oversight because we don't have the opportunity as property owners and as property managers to not comply. So, you have to make sure your vendors comply. Okay. As you continue to manage vendors and you continue to manage bids, you continue to manage properties. Rinse and repeat. As simple as that, and then you do the process over and over and over again. This is a thing contract billing is a thing and before I let you go; I have to say contract billing is a thing. Okay. That is part of the terms and conditions of your agreement. Contract billing is a thing. So, this is what you would do when you receive the invoice from the vendor. You don't pay that one to compare it, this has to be reconciled to the contract. Once it's reconciled to the contract, then we pay invoices, but until it's done, we don't pay the invoice until it is re-inspected. This is important to put in the contract in the agreement. If we fail reinspection, you're not getting paid, because we paid you to pass inspection. Right. And until we pass inspection, you will not be able to receive payment now in a professional way. You can say this in your agreement. But this is just me and you telling you know, we're talking here. So, in this situation, you want to make sure that you're you have the upper hand, it's all about you.

And it's all about your property and it's all about your company. Otherwise, this vendor is not benefiting you; it's not a convenience to you. And you need to get out of that relationship is a bad relationship.

Continuous Improvement

Now, all you have to do is rinse and repeat!

Conclusion: Effective Vendor Management Effective vendor management requires a strategic approach encompassing vendor selection, contract negotiation, relationship management, financial oversight, risk management, performance evaluation, compliance, and continuous improvement. By adopting best practices and investing in collaborative partnerships with vendors, organizations can optimize vendor relationships, drive operational excellence, and achieve sustainable business success.

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Things To Know When Hiring A Contractor