Since geothermal costs are significant, should a homeowner insist on a bond?   What percent would be added for a bond that covered installation?   How should the bond be worded to protect a homeowner.   Should the bond be only for completing installation?   Should the bond include a guarantee that the energy bill will not exceed a maximum as measured in kilowatt hours for the first two years?

Since the installer is probably more important than the equipment, would requiring a bond eliminate un-qualified or un-caring installers?

There is no reason to flame me.  I am just asking.  I have been specifying geothermal since the 1970's.  Almost all of my clients have been very satisfied with their geothermal.  But asking a homeowner to spend a large sum for a geo system and then not having much recourse is getting more difficult.

Discussion, please.

Good question Alton. I would be interested to hear what others pay for bonds.

We don't do bonds. My biz partner (who is both a building contractor and CPA) tells me bonds are pricey and typically only needed / feasible on big commercial projects.

I think a better solution is a mutually agreeable series of milestone payments.

We bond commercial projects but not residential. In a residential situation, absent a experianced GC, and a spec book and engineering, bonding would be based on wildly subjective parameters.
Eric

Since geothermal costs are significant, should a homeowner insist on a bond?

It's not a bad idea, Alton. If homeowners are willing to fork over the kinds of amounts we have seen here, which can often run $25,000 - $50,000, they should at least be able to get what they are expecting in terms of performance. That's completely aside from whether they are getting soaked to begin with.

The costs of a meter for verification and the bond probably don't run to $1,000 and the gear would provide valuable information to the homeowner in the future.

My biz partner (who is both a building contractor and CPA) tells me bonds are pricey and typically only needed / feasible on big commercial projects.

Commercial projects are bonded by necessity as the funding bank usually requires it. Public projects in excess of $100,000 require bonding BY LAW. What's "pricey" depends on individual interpretation, but bonding usually runs in the range of 1% - 3%, although if you have some undesirable factors in your history, it can go higher.

I think a better solution is a mutually agreeable series of milestone payments.

Sure, that sounds great. As long as the final milestone payment can be held until the homeowner gets one winter/summer under their belt and has time to analyze whether the system is performing as promised. The final payment could represent the contractor's profit or the amount a homeowner might have to pay to get the system working to spec, something like that.

You perception of the costs and failures associated with the lion share of geo projects remains skewed. The bonding of a residential project would only serve to drive the cost of the project ever higher. If you are going to require me to obtain a bond for your project, I am going to require a: GC, full engineering by an engineering firm, conductivity testing, a spec book, and your money to be held and dispensed by the GC.

To get a gaurantee and monies retained for one full year is a unrealistic expectation. Even if a contractor agreed to a bad deal like that, how are you going to control the weather in regard to desing temps, how will you control the lifestyle of the owners to gaurantee that that they do not exceed the design parameters, how will you gaurantee that they do not have ill behaved children who leave doors open, or open windows to smoke and not get caught. Just to many variables to consider for it to ever be feasible.

Will you bond the entire house and all it's subs, or are you going to single out the geo? In life you take controlled risks everyday, you control the amount of risk exposure by limiting or screening the people you give money to. If you need that kind of protection than obviously you do not trust the people building your home, or have no stomach for risk
eric

Posted By ICFHybrid on 25 Aug 2012 10:10 AM


Sure, that sounds great. As long as the final milestone payment can be held until the homeowner gets one winter/summer under their belt and has time to analyze whether the system is performing as promised. The final payment could represent the contractor's profit or the amount a homeowner might have to pay to get the system working to spec, something like that.

I would charge an extra  fee, equal to  the final milestone payment, for the above, fully expecting to never see the money.

Posted By ICFHybrid on 25 Aug 2012 10:10 AM

Since geothermal costs are significant, should a homeowner insist on a bond?

It's not a bad idea, Alton. If homeowners are willing to fork over the kinds of amounts we have seen here, which can often run $25,000 - $50,000, they should at least be able to get what they are expecting in terms of performance. That's completely aside from whether they are getting soaked to begin with.

ICFHybrid, would you post an image of just one of the bonds you required Any of the contractors that you have Ever worked with on Any residential project?

Posted By ICFHybrid on 25 Aug 2012 10:10 AM

I think a better solution is a mutually agreeable series of milestone payments.

Sure, that sounds great. As long as the final milestone payment can be held until the homeowner gets one winter/summer under their belt and has time to analyze whether the system is performing as promised. The final payment could represent the contractor's profit or the amount a homeowner might have to pay to get the system working to spec, something like that.

Likewise, would you post an image of just one of the agreements where you required final payment to be held for one year after job completion with Any contractor that you have Ever worked with on Any residential project?

Feel free to cover up confidential information.

Alton I get the question, but there are some tools in place already. The builder that called me to consult on a 1/2 done 2 million dollar (so far home) confessed to me he hadn't checked on opportunities with the construction lien fund which is supposed to intervene when the person is licensed and ultimately pay for remedies if original contractor can't complete project.
I know they have paid something as I have paid my "1 time fee" 3 times now.

A customer can ask for anything they want and if it doesn't exceed my comfort zone I will provide it for whatever additional expense I incur as well as a fee for the time it costs me.
Most folks work for an hourly wage or salary they earn for providing services within certain parameters. Employers who wish to color out side of those lines presumably expect to pay additional wages.

The only time I was required to furnish a bond was because I didn't care to furnish a Profit/Loss statement with a GC over an $8,000 project. As a small shop and with no secratarial staff this would have cost me uncompensed time. They however paid for the bond........

It is also true that as contractors we have to trust homeowners to pay us when we are done. We have the leverage of liening the property in MI but that only reimburses us upon the sale or refi of a property.

Without trust in both directions I will likely walk away. If that costs me a customer I'll find another.

Out of curiousity, how many of our contributors here have to offer a performance warranty to their employer? Most of us simply risk unemployment if we don't deliver. If I do not preserve my reputation I am un employed as well. Does that help the one homeowner that gets cheated a contractor? No but locks do not keep out thieves either, just the honest.

No but locks do not keep out thieves either, just the honest.

Locks help keep the erstwhile honest from becoming thieves.

I would charge an extra fee, equal to the final milestone payment, for the above, fully expecting to never see the money.

Maybe you don't understand. If the project performed as promised, you'd get the final payment. If you don't expect to see the final payment, wouldn't that indicate that your projects don't perform as promised?

Of course, the alternative to the milestone payments would be bonding, in which you get paid, but the customer could access the bond after the performance evaluation if they didn't get what was promised.

We've been around this bend often enough.
As I said all homeowners are free to ask for a bond and all contractors are free to oblige or move along.
Homeowners that make demands that are not common in their market will pay a premium for the privelage.
Homeowners who approach me with an air of distrust are not good canidates to partner with on a project.

Make no mistake about it, as folks ask for extra things (seperate meters and bonds) it is they that will pay for it not the contractor. Folks already complain about the high cost of geo, others simultaneously wish to pile on cost.

Thieves are thieves.

Posted By ICFHybrid on 25 Aug 2012 08:05 PM

I would charge an extra fee, equal to the final milestone payment, for the above, fully expecting to never see the money.

Maybe you don't understand. If the project performed as promised, you'd get the final payment. If you don't expect to see the final payment, wouldn't that indicate that your projects don't perform as promised?

It is obvious that you  are not a contractor and don't understand.   If a customer had some money of mine and they knew that all they had to do in order to keep that money was to say that the system didn't perform as promised, I am pretty sure that some would find some problem with the performance of the system.  Sure there would be some who would pay.  But based on my 35 years experience as a contractor, some would try and find a way to keep the money.


BTW the reason I am still in business after 35 years is because I am reputable and have happy customers.  I find it quite offensive for you to infer otherwise.

Agree with Dewayne on this one - too many people would be too tempted to wiggle out of the final payment. That payment might well represent the job's profit margin, and I really don't like working for free.

all they had to do in order to keep that money was to say that the system didn't perform as promised

You can't wiggle out of a final payment on a whim. Both the homeowner and the contractor have a case and an arbitrator may have to weigh the data.

I am pretty sure that some would find some problem with the performance of the system

Bond performance standards are set out in advance and they are quite precise.

We have been asked to bond on small projects and respectfully decline the work. If you do not trust us to do the job contracted for, I do not trust you to hold up your end/ the money. Better to stop that chain of events prior to ever starting.

Bonds are typically for projects with lots of zero's where the owner is an entity, not a person, well insulated from the project by layers of GC's, engineers, contractors, ect. They are for protecting the entity.
Eric

If you do not trust us to do the job contracted for, I do not trust you to hold up your end/ the money.

Homeowners who approach me with an air of distrust are not good canidates

It's not about trust. Things can and do happen that prevent performance. Why would anyone do business with someone they didn't trust?

You're in business for 20 years; you've had some tight times, but you have built up a respectable little operation and then, the office manager disappears with all the money and you find that checks are beginning to bounce. What do you tell the clients? Gosh, we're sorry? Not our fault but we're sorry you won't get the unit you paid for? A bond is a whole lot better answer from the customer's point of view than "We're sorry". It's simply one of the tools of doing business.

Bonds are typically for projects with lots of zero's where the owner is an entity, not a person, well insulated from the project by layers of GC's, engineers, contractors, ect. They are for protecting the entity.
Eric

I already told you that bonds are required on public projects at $100,000 or more and in this state, for example, for contractors doing ANY work.

ICF,
If bonds are required in your state then perhaps that's their answer to our construction lien fund. If people already have recourse, why pay extra for a second insurance policy?
Holding the final payment for a year is essentially 12 months same as cash on the balance. If it is 10,000 at about 12% for an unsecured dealer finance program........your advice only adds $1,200 to a job. Nice.

ICF we know you are suspicious of contractors, but since you don't know laws from state to state and whether people already have recourse why not educate yourself to such before recommending folks spend 100s or thousands of dollars on bonds and interest.
I certainly had to learn that my geo absolutes here in MI were not true elsewhere, maybe you will learn the same about contractors and building law some day.

why not educate yourself to such before recommending folks spend 100s or thousands of dollars on bonds and interest.

This is a discussion on the topic of bonding geothermal projects. I have not offered legal advice on any specific project nor to any person. Keep your personal attacks to yourself. They are not wanted here.

Your notion on the cost of money is misleading. 12% is not exactly a preferred lending rate. There would be little or no justifiable basis for accessing dealer finance for the profit portion of a contract. You would be much better off having a banking relationship, which is one of the things customers like to see. That was the only thing discussed that might go out to a year or more. I don't see anywhere here where it was proposed that the value of the equipment be withheld once delivered. If you can't keep up with the discussion, I'd recommend not commenting at all.

If bonds are required in your state then perhaps that's their answer to our construction lien fund

Performance bonds are required on public projects in ALL states. Wake up.

Things vary state to state and as I said I'm reminded of this all the time. That means that good advice in MI is not necessarily good advice in Tennessee.......I didn't suggest you offered legal advice, I suggested you may have offered advice that costs people money.
I suggested folks may have recourse that doesn't cost them money and proposed you consider these things before offering blaniet suggestions.
You mentioned bonds required for resi jobs in your state. Are you now saying that's not true that it's only public projects? Or are you changing directions again. The thrust of this conversation has been resi. save people mentioning bonds are generally for 6 figure jobs.

Contractors are not banks. We do not lend money. If a customer wishes not to pay immediately then they must borrow the money. If they wish not to make payments for 12 months the interest rate is higher. So if you wish to wait 12 months payment free to satisfy 10,000 then yeah you will pay about 12%. When a firm offers you 12 months same as cash, they are paying that money out of their profit. If you demand to with hold money for 12 months no one is going to pay the juice for you.

Not sure what you are so spiteful about today but your last attack had more venom than usual. Everything OK?

This entire discussion regarding the withholding of payments until performance is proven was an offshoot of a suggestion. It is a discussion on bonding geothermal projects which is exactly the sort of thing this forum facilitates. It is NOT about YOU, or who you trust or who trusts you, or someone else's sensitivities over their 35 years in business.

The whole point of the required Federal bonding is to protect the subcontractors and suppliers. The same thing happens in the private sector where subs are given some recourse other than a lien. In the state of Washington, all contractors are required to have bonds to protect the subs they hire. Protecting the subs helps guard against the kinds of situation we see in a thread running concurrently in which a homeowner had to pay subs directly in order to get her geothermal system functioning.