Pull a Dun and Bradstreet report.

Tried that... not listed with D&B. Any other options?

Credit report?

Individual is protected by the LLC classification. How did everyone else do their due diligence on the financial side of their GCs? Asking them if they pay their subs on time would be pointless because of course they'd say they do it quickly.

You shouldn't. Even if you're a CPA, you a vested interest in this business transaction, so should recuse yourself. It is up to the bank to determine the financial stability of the builder; if you are not using a bank, then you should be using a title company and ask them to. You could check with suppliers, but personally, if one of my suppliers divulged financial information about me to anyone I didn't expressly permit, there'd be trouble. And since this is a business transaction, you should expect the bank/title company to provide the same service about you to the builder.

See if your county has open records online as to court records. Our contractor had sued previous clients and we never thought to look there until he sued us.

We went through the nightmare scenario of using a GC who wasn't financially capable of floating the job.

In addition to D&Bs, court record search, etc, I might look at your projected building schedule and payment schedule. Then ask your GC to prove to you that he can float the job for some combination of the largest amount and largest time between payments.

I've seen and worked on contractor prequalifications for large municipal construction projects. Those typically involve disclosure of financial capability in order to qualify to bid. Realizing that that's a whole different ballgame, I'd still want to make sure before embarking on spending tens of thousands (probably hundreds) of my hard-earned dollars on another construction project.

You can additionally protect yourself by having all disbursement requests and fund go through you. Don't pay until something is actually done. Don't let the builder get ahead of you on disbursements. Don't front load the payments. If he walks, you want to be out as little as possible. If he needs funds to "order supplies", then have him place the order with his supplier and YOU pay them directly.

Ask him for credit references and then check them--bank and major suppliers. The onlyl thing a title company will do for you is to do a judgement and lien search of the GC for you. Also, be sure to get signed lien waivers from subs and suppliers BEFORE you pay the GC for anything (e.g., when you get the foundation in you want signed lien waivers from the foundation sub contractor and the excavation subcontractor and the concrete supplier, etc.).

My bank had to approve our builder.

We had bank approval, and a search that turned up no liens. And we got burned anyway. Turned out that the builder was apparently playing a pyramid game with his jobs, taking money from one job and using it to pay for behind-schedule or over-budget work on another job. We're still trying to straighten out the mess. But everything we and the bank checked on this guy came up clean. I don't know what else we could have done.

Great advice everyone. Bank checks out, and I think with the tips provided, most of the risk can be minimized.

Even if the bank check is OK - pay careful attention to the draw schedule he proposes. Make sure that the draw amounts match the work to be completed for that draw. You should only be paying for work that has been completed. You need to make sure that if contractor goes belly up, you have enough money to finish the job. And do not approve any draws until all of the work for that draw is complete.

Also - do not do automatic transfer of funds on the draw with passive approval (meaning that the builder makes the call for the draw and it is automatically wired to him). Make sure that all draws are approved by you first - then have the money wired into YOUR bank account. Then write the guy a check. It gives you some control of the process. If you builder balks at this - beware.

The other thing you can do is call some of his subs and ask if he pays his bills. I did a search on the net on my builder and some of the subs (like HVAC and drywall) that use him, mentioned the builder on their websites. SOoI called the president or VP of these companies and asked them questions about the builer, if he pays on time. etc.

The other thing you might do is check bordering states to see if there have been any legal actions against this particular builder. We know of one case where a builder went belly up in our state and eveyone was shocked (since the guy did have a very good rep). However, it turned out that he had issues in another state that nobody in our state knew about. He was doing a rob peter to pay paul thing and he ran out of peters.

Best of luck

I agree with all of the above, reputation, bank approval, reasonable draw schedule and sticking to it. When we went to apply for our construction loan, I handed them the plans and before they would even look at the plans we were asked who the builder was. When I called his name, it was comforting when they said "Oh, good, he is one of the best...fill out this app and call us next week". I put down a $30,000 deposit and GC probably had 150K in the job before he asked for his first draw.

breezy

that is a good point - our mortage banker was local and she knew everyone in the buisness. She not only knew who was good - but also knew a lot about their personalities and the way they treat their customers. Talk to bankers (several) who are in your area and who deal with custom building. They should provide you great insight.