When hiring Contractors and Subcontractors for your Rehab Projects, you need to create a strong Contract Agreement, Scope of Work, and Payment Schedules that establish the responsibilities of both parties, the work that needs to be completed and the Payment Terms as to how the Contractor will be paid.
As work is completed on the project, you will need to receive signed Invoices/Lien Waivers stating that the Contractor has been paid for the work performed.
In this Lesson, we will discuss the 8 Documents you need to hire and work with Contractors on your Rehab Projects.
Contractor Pre-Qualification Form
Before you get to the negotiating table and hire your Contractors you need to make sure they are qualified to work on your project. You should treat the Contractor hiring process like an interview process and interview multiple candidates for your project. Have your Contractor fill-out a Contractor Prequalification Form to gather information about the Contractor's Experience, References, Licenses, Insurance and legal Issues to help weed out the good Contractors from the Bad Contractors.
Independent Contractor Agreement
An Independent Contractor Agreement is a critical document that you need if you are going to be hiring Contractors or Subcontractors to work on your Rehab Projects. The Independent Contract Agreement outlines the terms, obligations and responsibilities of both parties to the Contract.
A strong Independent Contract Agreement clearly defines the work that the Contractor needs to perform, when the work needs to be completed, and how much the Contractor will be compensated.
If a dispute arises, the Independent Contractor Agreement can help prevent legal disputes, protect your business interests, shield you from liability issues, and protect your personal assets.
Scope Of Work Document
The Second document you need to include with your Contract is the Scope of Work Document which provides a detailed list of all of the repairs that need to be completed on the project. Your Scope of Work Document should include as much detail as possible including:
- Detailed List of Repairs By Category
- Materials List (designating responsibility)
If you don't tell your Contractor exactly what work needs to be included in their Bid Proposal, it leaves too much room for interpretation which can result in Change Orders, conflicts, and disagreements. To avoid these issues, it's important to have a strong SOW Document to ensure that you and your Contractor are on the same page before you start Construction.
Learn More About the Scope of Work Document
Materials Responsibility List
Conflicts and disputes can arise over who is responsible for purchasing certain materials on a project, so you will want to create a Materials Responsibility List that clarifies who is responsible for which materials to avoid any confusion.
The Fourth Contractual Document you need to include with the Contract is a Payment Schedule, which defines the Payment Terms of how and when the Contractor will be paid on the project.
A Payment Schedule should outline Payment Milestones, Amounts and terms that describe the work that needs to be completed in order for the Contractor to get paid, how much the Contractor gets paid, and when the Contractor gets paid.
A Payment Schedule will help avoid payment disputes and conflicts, help protect your investment, and keep your Contractor motivated to complete the project on time and on-budget.
Learn More About the Payment Schedule
The Form W-9 is an IRS form that is used to formally request the Contractor's name, address & taxpayer identification number.
The Form W-9 is never actually sent to the IRS, but the Contractor's W-9 information should be maintained on file so it can be used to fill out and report Vendor 1099 payments for your Contractors.
As you will learn below, Form 1099 is used to report to the IRS how much money you have paid to an Independent Contractor in the last tax year.
Proof Of Insurance
Before hiring a Contractor you need to make sure that the Contractor is carrying the proper insurance to protect your property, investments & personal assets.
Your contractor should carry both General Liability Insurance to protect your property against damages, and Worker's Compensation insurance to protect you in the even that a worker is badly injured on your jobsite.
Before you start construction ask your Contractor to provide a valid, up-to-date Certificate of Insurance that indicates the coverage that they are carrying for their business.
Even if you have worked with a Contractor in the past, you should have your Contractor send over an updated Certificate before every project to ensure that is insurance is valid.
Signed Receipts/Lien Waivers
Once Construction begins on your rehab project and as the Contractor completes the work you will pay your Contractor as designated by the Payment Schedule.
As you pay your Contractor, it's important to get signed Receipts and partial Lien Waivers from your Contractor stating that the Contractor has been paid for the work performed.
Once the project is Completed you should get a Final Lien waiver signed by your Contractor which waives your Contractor's rights to file a Lien against the property.
Having Partial Lien Waivers and a Final Lien Waiver will provide a strong paper trail that proves your Contractor was paid for the work, which should prevent payment disputes if a Contractor tries to file a Lien against your property.
As discussed above, any Independent Contractor that pays over $600 in a Tax Year, you are required by tax law to file a Form 1099 with the IRS.
If you do not file your Form 1099 for your Contractors on your projects, you can be subjected to substantial fines by the IRS.
Learn the Rules for Filing a Form 1099 for Your Contractors (coming soon)