Contractor Contract and Purchasing Materials

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By searching the forum, I found J Scotts contractor SOW and Contract. I think it's pretty good and covers the basics. 

It also has a clause in there separating finishing materials purchases from contractor supplies, where the investor is purchasing all finishing materials and contractor providing needed supplies. Now according to the Long Distance Real Estate Investing book, he recommends you purchase ALL the materials. I agree with this because, unless you can trust the contractor with your credit card to not pick up that Mountain Dew at the checkout line, you can't. 

My experience is with a company off Angie's list who arranged that way in their contract - buy all materials and charge a 20% fee as a way to make profit, "but don't worry we get contractor discounts in about that much so you're paying the same" (bs, they bought straight from Home Depot with no discounts, and btw what is that $100 saw on there and other equipment?). They stopped providing me receipts and I asked they not return do to unkept promises to resolve blatant issues, sloppy work, and massive overruns. They left with my significant materials deposit and the dispute was never resolved. This is not acceptable for a flip where costs must be in control of the investor. 

So I am apt to start an account with HD and Lowe's so that the contractor can go and purchase any necessary supplies for the flip there against my account. I assume they have a way for me to real time approve purchases prior, or maybe I need to have the contractor send me a photo of the stuff or something. Now I can see contractors having a problem with this, but at the same time, my experience dictates I'd rather not work with someone I can't trust and demands to profit off every dollar I spend on materials. 

In fact, I spoke with a large scale contractor who apparently performed services for houses on the Property Bro's TV show. Out of curiosity, I asked him if buying materials was reasonable and he said absolutely, you just have to find a small solo guy and they should be willing to do it.  

How do you arrange materials purchases?

When I purchase a home I have a spreadsheet that I do a walk through with.  It counts up all materials needed with Lowes item numbers.  Also builds SOW's for contractors.  I take my materials list to the Pro desk and they get a me a quote, usually with significant discounts.  I sign basically J Scotts contract with my contractors.  The SOW includes exactly the materials I am buying.  Everything else needs to be included in their quote and that's what the contract says.  Materials are delivered to the job site when the contractor request and we rarely have an issue.  A lot of contractors are nervous doing it like this to start as they think they will have to wait on materials.  Once they do a couple houses with me then they usually like it as it saves them time and makes the whole project more efficient. 

I don't purchase shingles or some other specialty items like that. 

Some things like paint I actually get a better discount than my paint contractors.

Nails, mud, tape, etc I do not provide and the contractor must allow for those things in his quote.  He will not be reimbursed for them either.

If I was hiring a contractor I would be hiring him for a total project price (or a total price for his SOW). This price should include all materials and be agreed upon by him and I. once you have agreed to this, why would it matter what he is paying for materials? I understand the "feeling" that he may be ripping you off, but if you get his quote with labor and materials seperate, you can verify and trust his numbers.

If you find a contractor who is willing to let you buy every screw, tube of caulk and stud, that way he can't take advantage, I see issues coming up when more materials are needed on the fly and you are not available to get them. Who pays if you underpurchase screws and he needs to go 10 miles to and from the store to get more, wait for your approval, and then go back?

Having been on both sides I have used different tactics for different subs and different jobs. I prefer getting soup to nuts bids and if the contractor makes a little off the material, he most likely will be willing and able to do my next job without concerns.

Customers that I have worked with often times want to purchase their own materials because of the overhead and profit the contractor makes and that is totally understandable.  I would like to preface this by saying that Yes A LOT of  contractors have given the GC a bad stigma with them upcharging and not being moral.   However, with that being said, there is a reason contractors are paid to do what they do and they do have to make money on the work they complete.  They are aware of all the correct building materials (screws, nuts, bolts) and all the necessary steps to get the job done correctly.  I may be biased because I do work for a GC however, I have witnessed countless times customers buying their own material and then it being incorrect which ultimately ends up costing more in the long run with schedule and material.  

I agree with you that you should select all the appropriate finishes that you would like in detail prior to work starting and purchasing those yourself (the big ticket items).  As for the building supply material and work needed for installation of your finishes I am not sure that would be beneficial unless you are very prepared for the material adds that will be needed on the fly throughout the construction process.