Rescue Projects: What to Know Before Accepting Them
If you've been in the residential construction industry for any length of time, you know it's not unheard of for homeowners to decide to part ways with a bad contractor midway through a remodeling project.
The reasons for that split can vary, but it's often a result of a client going into a home remodeling project focused solely on the price tag and then learning the hard lesson that it's never in their best interest to choose a general contractor based only on money.
Whatever the reason, choosing whether or not to take on a "rescue project" is a big decision. Rescue projects can be a win-win scenario for you and the homeowner because you're adding work to your pipeline that you can start very quickly, and your clients get a solution to their very stressful and uncomfortable problem.
But there are several things that you need to consider and research to protect yourself from unnecessary liability.
What are "Rescue Projects" and Why Do They Happen
A rescue project is a situation where homeowners have terminated their relationship with a builder before their renovation or custom home-building project is complete and asked a different contractor to step in and complete the job.
Renovating a home is a huge, expensive undertaking on which homeowners spend an incredible amount of time and money. So if they're choosing to part ways with their chosen general contractor, it's likely because of a significant issue, such as:
Poor workmanship: One of the biggest reasons for firing a bad contractor is poor quality of work. If the contractor consistently delivers substandard craftsmanship and uses inferior materials, it can erode the trust and confidence that the homeowner has placed in their builder, causing them to choose to search for the right contractor.
Often this stems from choosing general contractors who undercut their price and estimated time frame to "get the job" but then have to cut corners to come in on time and budget.
Communication issues: Effective communication is essential for a successful residential construction project. If the contractor fails to communicate clearly, is unresponsive to client inquiries or concerns, or lacks proper project updates, it can lead to delays, frustration, and an overall bad experience for the homeowners. If communication problems persist and the client feels unheard or ignored, they may opt to terminate the contract and choose a different contractor.
Cost overruns: This is a complicated one because we all know that costs change between the time an estimate is written and when construction begins. But, if homeowners feel that the contractor is consistently exceeding the agreed-upon budget, failing to adhere to the agreed-upon payment schedule, or consistently presenting unexpected additional charges without sufficient explanation on their change orders, that could be a big enough red flag to cause them to terminate the signed contract to avoid further financial strain.
Legal and regulatory issues: If a residential contractor fails to comply with local building codes, permits, or other legal and regulatory requirements, it can put the client at risk. Clients may choose to terminate the contract to avoid potential legal liabilities or complications associated with non-compliance. This can also stem from researching the contractor through the better business bureau after hiring them and discovering they are in poor standing or have pending small claims court cases against them.
Unresolved disputes: Conflicts and disputes between contractors and homeowners are not uncommon and are usually solved with effective communication skills. When that communication breaks down and can't be resolved, it can lead to an erosion of trust and a decision to part ways.
In any of these situations, the client has lost trust in the company they've hired and are stuck with a partially-finished home renovation which is incredibly stressful for them. And in this case, the best option might be to cut their losses and find a more reputable contractor.
What to Consider Before Taking on a Rescue Project
Deciding whether to take over a residential construction project another builder started is a complex decision that depends on several factors.
You are stepping into a situation someone else has created, and you'll need to address plenty of unknowns, which is why you'll need to do your due diligence to assess the project to ensure you can do the job effectively and profitably and decide if moving ahead is the best option for you.
Not every job is a good job, so here are four things to consider:
1. Project Documentation
Gather all relevant project documentation, including the original scope of work, architectural plans, engineering drawings, permits, inspection reports, and any other relevant documents. Review these documents to understand the project's scope, progress, and any potential issues that may have arisen.
2. Financial Risks
Review the project's financials to understand the budget they are working from, what has been spent to date, and the unpaid bills/commitments to current contractors. Ensure you understand the project's financial health and potential risks, and see if you can find financial alignment with the clients to complete the project. Because we know that receiving your full and final payment is one of the largest risk elements as a general contractor, so ensuring you mitigate this upfront is critical.
3. Client Expectations
Engage in open discussions with the client to understand their expectations, concerns, and any changes they may want to incorporate.
Ensure that you can meet their requirements and align your approach with their vision for the project, or discuss how their vision might need to be modified to accommodate budget constraints or other issues.
4. Resources and Capacity
Assess your resources, including the availability of skilled labor, materials, and trade partners, to ensure that you aren't shortchanging other jobs currently in progress by taking on this project.
Taking over a residential construction project from another builder requires an in-depth assessment of all aspects of the project to ensure that it's a good fit for both you and the client and helps you determine if this is a project you want to get involved in.
Seven Steps to Taking on Rescue Projects
In my 21+ years as a residential contractor, I've taken over my fair share of rescue renovation projects. While each one is a unique situation, there are some common steps that I took in evaluating each one to ensure I was protecting myself and my company while still providing an accurate and fair assessment to the client.
1. Complete your pre-construction process
Before you provide the clients with the cost to completion, you will need to complete your pre-construction process, but it will look a little different. Think of it as being more detective versus builder here.
Instead of selecting design finishes at this stage, you're more likely to be inspecting previously installed components and those that have been ordered and delivered to the building site.
Get these costs into your contract up front, including the investigatory work detailed below and a clear payment schedule. These are costs of work, and you need to bill for them, so don't let the "good human principle" get in the way here.
2. Document everything
This is a crucial step for two reasons.
First, the homeowners may pursue legal action against the original builder and need photographic evidence. Secondly, you need to document exactly where you're starting from in case issues arise downstream in the build.
The best course of action is to hire a media company to document the full exterior and interior site conditions so you have third-party photographic and video evidence of all work done to date. Then make that media accessible for the homeowners so they can use what they need.
3. Meet all stakeholders
Is there a designer involved in the project? Meet them.
Is there an architect doing CA on the project? Meet them too.
Get a list of all the trade partners hired, and meet them as well.
And most importantly, meet the city inspector and determine exactly what has and has not been passed to date to ensure you aren't finishing uninspected work.
You want to evaluate all the existing relationships before proceeding with the construction contract.
4. Do the detective work
This includes deciding upfront which existing trade partners you want to maintain or if you want to replace the entire team. You'll likely choose to work with your trade partners with whom you have good relationships.
However, if you keep any existing trade partners, minimize your liability by ensuring they are fully licensed. Whichever route you choose, you'll need to do a "trade day" and likely some destructive work to review what has been done to date on the project.
If the home has already been drywalled, you'll also need to coach your clients through why you need to dismantle parts of it. While they likely won't be keen on the idea of moving backward, help them understand that your team can't be confident in the work already done, and in taking over the project, the ultimate responsibility will fall to you.
5. Evaluate construction performance
Summarize your detective work by determining what you will and won't keep with the existing build and price it into the work. Clients need to understand that we can't simply continue from where the last builder left off but that we will evaluate the entire project and cost it accordingly.
Don't let a client's anxiety and stress push you into an uncomfortable situation. Remember, there are always three sides to every story, and often clients have had a part in the bad experience they've endured, so don't be blinded by a seemingly "good job" to add to your pipeline while ignoring the red flag(s). For all you know, the previous guy is a good contractor stuck with a nightmare client.
6. Create the schedule
Provide the clients with a clear schedule that includes plenty of padding based on the time frame needed to execute the job properly, not the "urgency" or state of panic your clients may be in.
Call out important dates, like design selection deadlines, by annotating the calendar so the client knows when they need to make decisions.
7. Define warranty items
Clearly and thoroughly identify everything that you will - and won't cover under warranty in writing into your contract, and have it signed by the clients. If you don't, you'll regret it.
What Not to Do When Taking Over a Rescue Project
Switching contractors mid-project is a particularly stressful time for clients, and when dealing with them, you definitely want to be sympathetic to their struggle and build trust. Still, it's important to remain neutral and not get involved in criticizing the previous builder's work, or get caught up in any entanglements from that relationship.
These are four key things you shouldn't do when accepting a rescue project:
Rush Into It
One of the most important things about rescue projects is not to jump into on-site construction work without first doing due diligence. It's never a good idea to rush into large projects because you feel the need to "keep the guys busy" with available work that is ready to go. You need to protect yourself, your business, and your team members' future jobs by methodically evaluating the project before on-site activities resume.
Undercut Your Pricing
Chances are you will feel empathetic for the client and their bad experience, which can be detrimental to your mindset when pricing the work. You can be empathetic without being apologetic, and ensure that empathy doesn't influence your opinions on how cheaply or quickly you can perform the work. If you do, it can quickly turn from a good thing to a horror story.
Get Involved in Legal Disputes
That means not getting involved in any legal proceedings the client may take against the former builder. This is particularly important when documenting the current job site before you begin any work.
Yes, you are supplying that information to the client for any action they may wish to take, but you don't need to be dragged into a courtroom or legal battle that will take up your time and resources. Instead, call on qualified consultants to provide third-party feedback directly to the clients for any small claims court or other legal proceedings.
Badmouth the Previous Builder
It doesn't do your reputation any good to share horror stories about bad contractors' shoddy work - particularly if you're subcontracting work to trade partners. Chances are, the residential contracting community in your area is small and tight-knit, which means that everybody knows one another - or knows someone who knows one another. And that's the easiest way for gossip to spread.
The Bottom Line On Rescue Projects
Stepping into a project mid-way can present multiple challenges, and it's perfectly acceptable not to want to get involved in cleaning up someone else's mess.
But there can be many upsides to taking on home remodel rescue projects, such as added revenue and work in your pipeline, additions to your portfolio, and grateful clients who will be strong brand ambassadors leading to future work.
Just remember that a rescue project has to be beneficial and profitable to you and should include all costs - including the time spent doing investigatory work. This will set the right alignments with potential clients from the very beginning.
I created the BUILD AND PROFIT SYSTEM to help residential contractors understand how to use systems to ensure they sell and price all their work correctly and profitably.
Click the button below to learn how the BUILD AND PROFIT SYSTEM can help you sell and price rescue projects effectively.
