Real Estate Expansion
Thinking about building or adding on? Let us help you get organized.
Guide To Your Expansion
We've developed a worksheet that will assist in planning your expansion. Our Relationship Managers will be happy to go through this in detail. |
Managing Construction Risk
Contractor RiskEvaluate the strength of your contractor and other service providers. What if your contractor runs into financial trouble during your project? What if your plans and specs fail to outline a noteworthy site hazard or code? It is critical to be prepared to avoid additional costs or losses during construction. Consider these Items:Bonding levelsInsurance companies underwrite the financial strength of a contractor and issue surety bonding accordingly, which guarantees that a job will be completed according to the contract, even if the contractor fails to perform. The more financially sound a contractor is, the higher its bonding limits are. It is good practice to inquire about the size of the contractor's bonding. Even if there is a strong recommendation or credible history with a contractor, these bonding limits can change. Bank underwritingSimilarly, if the contractor has financials available, Relationship Managers will be able to assist in evaluating contractor risk with you and provide insight on the current financial state of a contractor. Hometown Bank Relationship Managers are happy to assist you in identifying red flags that might require some further action or inquiries to get comfortable with the contractor before signing a contract. Letter of credit enhancementThis can provide financial endorsement from the contractor's bank in the form of a hold of available funds to ensure the project is completed as outlined. Subcontractor riskWhile it can be more tedious to assess the strength of subcontractors, a financially sound contractor is taking steps to analyze its subcontractor risk, as this more directly impacts its ability to deliver on a project as the general contractor. However, reviewing subcontractor bids can reveal red flags, such as large variations in pricing and/or scope of work. In the absence of subcontractor bids, allowances for certain types of work like electrical, plumbing, etc., are also a risk, as this work is sometimes not as static or easy to estimate from job to job. Underlying riskThe people working for the contractor know best and their actions will tell you what type of company you are dealing with. Long tenure, loyalty and safety are all measures of a well-run organization. Ask about these measurements and how they stack up against the others. Work comp claims and high turnover can be red flags that require additional scrutiny. |
Ask one of our Relationship Managers to assist you with recognizing and avoiding these legitimate construction risks.