Chiriquí Chatter

So you have decided to move to Panama and build your dream house. You have built houses in other countries so you are not concerned. You think you can just find a reputable contractor and provide him your specs and all will go well. Well before you jump in with both feet, listen to others that have been through the process.

You can find the best contractor in Panama, one that has continually gotten rave reviews from his clients and you can set yourself up to be the first unsatisfied customer. I saw a post on one of the Yahoo Groups and asked the author (Susan Guberman-Garcia) for permission to post it.

If you frequent any of the Panama Yahoo groups, I am sure you are familiar with Susan. When it comes to posting something of this nature, no one is better than Susan. I think if you follow her advice, you are much less likely to have a problem that will jeopardize your paradise dream.

If you are buying from a developer on a turnkey project, you may want to review the same advice and consider if the contract you are going to sign with the developer is going to cover you or him. You may want to alter his standard contract somewhat.

The following was Susan’s post.

ON HIRING CONTRACTORS:

1. Do not hire anyone to act as your general contractor unless he is a licensed general contractor. That has two parts: he needs actually BE a general contractor (not merely an “engineer,” those are two very different professions) and be licensed.

2. Do not hire ANYONE to do anything for your relating to your construction without a written contract, translated into English (for your benefit) and into Spanish (because if its not in Spanish its not a legal contract).

3. Before you hire a general, ask to see his work, and do speak to the owners of those houses. Ask them to show you around and ask them to tell you if they are happy with the quality of the work and the billing practices of their contractor. Most people will be happy to help you in this manner. We do it whenever we are asked. If the contractor doesn’t want to show you what he has built or doesn’t want to put you in touch with his clients, walk away.

4. Ask the contractor if he is involved in any litigation. And it wouldn’t hurt to ask your lawyer to do a little due diligence on the contractor. How many clients, subcontractors, employees are suing him? What are the facts?

5. Don’t hire a Panama City contractor for a project in Bocas. He will never be here and he probably doesn’t know jack about how to build on a tropical island anyway.

6. Don’t listen to the opinion of one contractor about another contractor. They seem to like to bad mouth each other a lot. If you want to know about a contractor, talk to his clients. And post a message to this group asking for feedback on the contractor (you can ask people to send you private messages, as most people don’t want to post anything negative about someone publicly). Another good source of information is local real estate agents. They hear a lot about contractor performance from their clients. (But be careful; some of them have “relationships” with certain contractors, meaning they get a kickback.)

ABOUT CONSTRUCTION CONTRACTS

1. NEVER ever ever agree to a “cost plus” contract. A “cost plus” contract is where you agree that the contractor will charge you whatever it “costs” him for labor and materials and transportation, plus a percentage. This kind of contract is a license to steal…even the Pentagon isn’t allowed to use them any more! A “cost plus” contract gives the contractor an ever bigger incentive to pad the work than he already has. It also gives him a good reason to buy the most expensive products, order too much of everything and “sell” you work you don’t need. The more it costs, you the more it costs you! With a flat fee contract, your contractor must justify every cost overrun he wants to give you. But if it’s a cost plus contract, you can throw any “estimate” out the window. (And your schedule too…after all, the longer it takes to do the job, the more employees he has on payroll whose salaries YOU will be paying.) A cost plus contract is basically nothing more than a BLANK CHECK from you to your contractor. He fills in the amount…and fills…and fills….and fills…. Your contract should be flat fee and should specify that there shall be no cost overruns unless agreed to IN ADVANCE IN WRITING. (and stick to that. Contractors will try to turn THEIR MISTAKES into change orders and ask for a cost overrun. A change order is when YOU CHANGE THE ORDER, not when your contractor discovers that he didn’t estimate properly, or makes a mistake that requires rework). Even the best ones will try to sneak “cost plus” into the contracts. Don’t let them get away with it.

2. Your contract should be in phases. You can insert the financials for each phase into the contract or create a separate budget and make that an attachment to the contract (that’s what we do, to keep the contracts short).

3. Each phase of the budget should be broken down into materials, labor, transportation, contractors fee, miscellaneous, etc.

4. You should not pay for any phase in full until that phase is completed. Your contractor will want part of the payment in advance so that he can order materials, pay labor as he goes, etc. but don’t pay the entire balance for the phase until the phase is complete and to your satisfaction. (This should be written into the contract.)

5. Your contract should specify that the contractor is responsible for all duties towards his employees and subcontractors and you are indemnified.

6. Each phase should have labor broken down into number of employees, skill level of each employee and gross pay of each employee. Don’t let him just put “labor” and an amount. Even though it will be a fixed fee and not a “cost plus” contract, you want to know this kind of information.

7. Your contract should allow you to hire independent contractors for services as desired. For example, we always hire our own electrician, directly.

8. Your contract should allow you the option of performing any given phase yourself if you want to reserve that right. Many people do their own finishing.

9. Speaking of “finishing,” make your contractor specify in detail what that entails, each task. Sanding, staining of wood, painting, etc. Don’t let him lump it all together, “finishing” is where a lot of contractors will go to town on you.

10. Make your drawings an attachment to the contract and the contract must state that the construction will be according to that drawing. (In other words, if he does something wrong, HE has to make it right, on his time. Remember that fixing a mistake that the contractor made is not a “change order.” You didn’t change it, he did..)

11. Make sure the contract specifies that you will receive COPIES OF ALL MATERIAL AND TRANSPORTATION INVOICES.

12. The contract should give you veto power over the foreman or site superintendent. Ask for references on projects where that person performed that responsibility.

13. The contract should require that there be a set of drawings on site at all times (you wouldn’t think you would have to do that but you do, trust me…)

14. The contract should require that there be a timesheet for all workers and you have the right to inspect it on demand.

15. Make sure ALL WORK IS SPECIFIED. For example, if you have to fill low land before construction make sure that is part of the contract. If it turns out that there is something you want done that is not part of the original contract, get a quote for it, negotiate the price and write an addendum to the contract. Do not EVER let your contractor start working on something “extra” that is not part of an addendum.

Good luck!

Tags: Reflecting