General contractors (GCs) serve a crucial role in real estate development, effectively overseeing the day-to-day activities of a new construction project. These key industry players supervise builders, manage the project timeline, and make sure your project is compliant with all building codes and other regulations.
Whether you are a real estate developer creating much-needed housing inventory or a private owner looking to build your dream home, choosing a well-qualified GC to manage your project can set you up for success. On the other hand, hiring an unqualified GC can lead to project delays, blown budgets, and regulatory infractions that can lead to costly fines or even legal trouble.
To help you choose a good GC, the experienced team at Gatsby Investment has created this checklist for hiring a general contractor. Covering everything from licensing to contract terms, this guide will teach you how to qualify a general contractor with confidence!
1. Licensing
Before considering a GC, make sure they hold a valid state contractor’s license. Licensure proves that the contractor has met the state’s standards for professionalism and industry knowledge. Working with a licensed contractor also increases accountability; if the contractor fails to perform professionally, you can file a complaint with the licensing board.
In California, contractors are licensed by the California State License Board (CSLB). You can look up a license and check for any professional violations using CSLB’s online portal.
Checklist items for confirming licensing:
- Has a valid state license.
- Does not have any violations recorded against their license.
2. Insurance
Legitimate GCs should carry liability insurance and workers’ compensation (workers’ comp) coverage. Liability insurance protects you, the project’s owner, from any property damage caused by the contractor. Workers’ compensation coverage ensures you won’t be held financially responsible for any accidents on the worksite. Request proof of insurance and confirm its validity with the insurance provider.
Checklist items for confirming insurance:
- Has proof of liability insurance.
- Has proof of workers’ comp insurance.
- Validity of active insurance policies confirmed by contacting the insurance provider.
3. Experience and Expertise
Your ideal GC should have several years of experience at the local level. Local experience is necessary for teaching GCs about local building codes, as well as which materials and building methods work well in the local environment. Local experience also allows GCs to build networks of professionals in the community who can help them complete the project, such as electricians, plumbers, and structural engineers.
Before choosing a GC, make sure they have experience in the type of project you’ll be developing. For example, if you’re rebuilding a fire-damaged property, hire a contractor with wildfire recovery experience. Their knowledge of fire-resistant materials and regulations can save you time and money.
But don’t just take the GC’s word for it; confirm their experience by checking online reviews, requesting references, and researching any complaints. See what previous clients have to say about working with this GC, paying careful attention to any red flags, such as unresolved disputes, frequent company name changes, or a lack of reviews. One bad review could be a fluke, but multiple bad reviews warrant further research.
Checklist items for confirming experience:
- Has been established for at least five years in your market.
- Has experience supervising projects like yours.
- Has multiple five-star reviews online.
- Any negative online reviews have been addressed.
- Does not have unresolved complaints on platforms like the Better Business Bureau or TrustPilot.
4. Oversight of In-House Crew or Subcontractors
Some GCs rely on in-house construction crews, some mainly outsource the work to subcontractors, and many use a mix for efficiency. In-house workers may provide consistency, while subcontractors may add more specialized expertise.
Ask your GC candidates which positions are performed by in-house employees and which are completed by subcontractors. Confirm that both groups are covered by the GC’s workers’ comp policy.
You should also find out how involved the GC is in overseeing the work. Will they supervise the project in person? Or do they employ a project manager to handle things on site? How much time does the GC plan to spend on-site each week?
Checklist items for confirming project oversight:
- Workers’ comp insurance covers in-house workers and subcontractors.
- The GC will oversee work personally or has a trusted project manager who will be on site.
- You’re satisfied with the mix of in-house workers and subcontractors.
5. City Approvals, Certificate of Occupancy (CoFO), and Progress Reports
Your general contractor should be responsible for obtaining the necessary city permits, meeting local building code requirements, and securing the formal approvals needed from city officials at each phase of the new build. Once construction is complete, the GC should obtain the Certificate of Occupancy (CoFO), which verifies that the finished property complies with all safety regulations and building codes and is legally habitable.
An important part of this process is communicating progress with you as the property owner. The GC should keep you in the loop regarding the permits/approvals needed and notify you when permits/approvals are secured. Any delays in the permitting and approval process should also be brought to your attention immediately. Some contractors will message you directly, while others provide apps or online portals to keep you posted on the progress.
Checklist items for confirming formal approvals and progress reporting:
- The GC will be responsible for permitting, clearances, and formal approvals through CoFO.
- You’re satisfied with the planned method of communication around reporting progress.
6. Payment Schedules
GCs are not paid in full upfront. Instead, they typically charge a small upfront fee followed by multiple payments tied to project milestones. For example, a GC might request a $1,000 fee upfront, followed by a first milestone payment scheduled for completion of the foundation, a second scheduled for when the framing is finished, etc.
Many states limit upfront fees to contractors. In California, contractors cannot ask for more than 10% of the project’s cost or $1,000 upfront (whichever is less). This protects homeowners from assuming too much financial risk if the GC fails to deliver.
The final payment for the project should be withheld until the project is completed satisfactorily.
Checklist items for confirming payment schedules:
- The upfront payment is reasonable and within legal limits.
- The payment schedule is tied to acceptable project milestones.
- The final payment is not due until the project is complete.
7. The Contract
The contract between you and your GC should be detailed and clear. It should include:
- An itemized breakdown of costs for materials, labor, and fees.
- A timeline, complete with milestones and corresponding payment schedules.
- Clauses about change orders and markups, which will determine how unexpected changes will be handled and at what cost.
- Clauses relating to workers’ comp insurance requirements for in-house workers and subcontractors.
- Clauses relating to the GC’s obligation to secure city clearance, permits, approvals, and the CoFO.
- Clauses relating to the GC’s responsibility for providing on-site project management.
- A warranty (California law, for example, requires GCs to provide a 10-year warranty)
- A completion guarantee.
Checklist items for confirming the quality of the contract:
- All items listed above are included in the contract.
- The terms are clearly written.
- The contract is signed by your GC.
When in Doubt, Work with the Experts
Qualifying a general contractor is a complex process. You have to know what to look for and what red flags to watch out for. This high-stakes decision can set your new development up for success…or failure.
That’s why Gatsby Investment only works with the best. With deep roots in the Los Angeles community, we have relationships with the best general contractors in town. These are the partners we rely on when developing new properties.
Whether you’re a local homeowner looking to rebuild from the devastating wildfires or an investor looking to help ease LA’s housing crises while earning strong returns for your real estate portfolio, Gatsby Investment is here to serve you. You can leverage our professional network to get the best GCs in Los Angeles working on your project!