"If suppliers aren't getting paid, a big builder can pull them under," e-mails one remodeler who has started keeping a vigilant eye on subcontractors and supply houses. "Now is the time they can't show up on the job because they can't make payroll."
Business bankruptcies rose 41% in the first three quarters of 2007, according to the American Bankruptcy Institute. Bankruptcy professionals forecast a busy 2008 as well.
The remodeler, who agreed to be quoted on the condition of anonymity, recently stopped working with an electrician who had a $465,000 lien placed on him by the IRS. "I'm afraid to use him," the remodeler writes. "I don't want my jobs liened by his suppliers because he's not paying them."
To avoid being harmed by trade partners' financial woes, this remodeler is going online to check the local recorder's office for liens, inquiring about specific suppliers based on confirmed knowledge as well as industry gossip. "We ask our banker to let us know what's happening in his world," the remodeler says, and then work backward.
If a contractor is in trouble, the remodeler finds out who are that company's subs, where it buys materials, and how much it owes them. Then, the remodeler says, "I look to see if suppliers are on the hook for a bunch of money, too. I stay away from all of them if I can."
If it seems harsh, given the long-standing relationships between many remodelers and their trade partners, consider the alternative. "I'd be horrified if one of my remodels got liened by one of my subs because they couldn't pay their bills," the remodeler writes. Protecting homeowner clients is "completely my responsibility as a business owner."