Do contractors go to law school?

[ponyfool]

I am not going to go into great detail, but as many of you know, my house caught fire on July 28, 2006. My primary insurance company, The Hartford, has been nothing short of spectacular! Replaced both of my vehicles that were destroyed in the driveway, and have worked with the contractor to repair the house.

The contractor puts in his bid of $180,000 to do the structural repairs. The insurance company hired a contractor to do a bid as a sort of checks and balances and said they could complete the job for less than $100,000. The insurance company quickly recognized that the company they hired was doing the low ball approach and dismissed the validity of their bid. In the end, the insurance company went over my contractor's bid with a fine tooth comb and pared it down to $170,000 due to some redundant entries on the contractor's bid. But in essence, accepted my contractor's bid at face value minus the duplicate efforts.

My contractor looked at the insurance company's proposal and said, and I quote, "We can work with those numbers."

That was in August. The insurance company says that they don't care how the $170,000 is spent, that's how much they agreed to repair, so as long as repairs are made, they'll pay up to that. Insurance adjuster even said, "If you want to leave the burned out hull and build an addition, that's fine with us." The only person we have to "check with" is our mortgage company because they still have a lien on the house and have an interest that repairs are being made.

Now, in the last couple weeks as things are starting to move along, my wife and I have a complete copy of the bid. We are going line by line removing the things we don't want the contractor to do, and using those as "credits" for the other things we are going to have the contractor do. For example, in the garage, I told the contractor not to build any cabinets to replace the ones that were there, instant credit of $6000. No replacing the Pergo flooring, credit of $4800. Install hardwoods instead of Pergo, debit of $6500. So we have these credits, etc that go back and forth.

In the end, we found roughly $28,000 in credits on the bid sheet. But then turned around and committed to $50,000 in upgrades, thus we are on the hook for $22,000 so far. Not a problem, we took out a second mortgage for $30,000, so we'll have $8000 left for unknowns.

Here's where the blood sucking comes to play and we're not sure what to do. We sit down with the "sales guy" from the contractor. We present the credits sheet to him from the insurance company's revised bid. He tells us, "Well, I was hoping to make up some of that $10,000 the insurance company took out through some of those credits you are wanting to take."

So I ask him point blank, "You agreed to the insurance company's numbers, what do you mean 'make up' the $10,000?" He said, "I never agreed to their numbers, I said I could work with them."

So now, he is expecting us to come up with $10,000 to "make up" for the insurance company's cutting of his bid, meaning he is expecting us to come up with $32,000! We only got a loan for $30,000.

We haven't had our final talk yet on the issue, but I don't think it is appropriate for him to agree to the work by saying, "work with the numbers". Any contractors out there? Is this normal?

 

[madmike2]

That's why God made lawyers and the State Contractors License Board.

 

[twowheelnut]

He is 'working' with them, IMO. Contract estimating is, at best, a crap shoot. I don't care what anyone says or how 'developed' their methods. A general rule of thumb that I've come to expect and sell is: Take the bid of the contractor that you want to work with and add 20% to get your final 'true' cost'. That's for projects under 500K. 500K - 1Mil, add 25%. Over 1Mil add 30%. Never fails to work out and my clients always say when the job is done, "How'd you know that?"

Duh.

 

[Windjammer]

I'm not a contractor, just offering an opinion.

The substitutions and additions you've decided to make could be mud in the water, making it easier for them to jack you around. All those changes make for more confusion in the paperwork. It would have been simpler to just repair the house to its original condition. Be that as it may, I would simply point out to Mr. Sales Guy that your insurance company did not alter the pricing on his bid, they just eliminated duplication of pricing for identical items. Ask him if it's standard industry practice for companies like his to bill the customer twice and perform the work once. If he's not seeing it your way, get an attorney or see if your insurance company can apply any legal pressure.

A general rule of thumb that I've come to expect and sell is: Take the bid of the contractor that you want to work with and add 20% to get your final 'true' cost'. That's for projects under 500K. 500K - 1Mil, add 25%. over 1Mil add 30%.

Wow. Thanks for the info. Not too many industries allow 20-30% margin for error in estimating. That's almost like no esimate at all, just a license to bill the customer for whatever amount they feel like. I'll definitely keep this one in mind if I'm ever in the market....

 

[HIGHLANDER]

NO it's BS, as one involved in the industry, the GC is a crook. He's padded the original, probably knowing the adjuster would fine tune it, and expected to make up the difference in " change orders ".

Stick to your guns ( pretty wierd telling a LEO to do that ! ) and refuse to pay the difference. Threaten to get the BBB involved and even an attorney, and contact the State board as MM2 stated, if he does not relent.

Are you dealing with the owner or the sales rep ? Hope it's the rep and you can go over his head.

Also contact you insurance company again to put pressure on the GC, thay may still be holding some of the money, There's usually retention involved, perhaps as much as 10% of the bid held back by the insurance company.

 

[twowheelnut]

NO it's BS, as one involved in the industry, the GC is a crook. He's padded the original, probably knowing the adjuster would fine tune it, and expected to make up the difference in " change orders ".

That could be the case, but in 95% of the things I see, it's the client who ups the bill. Just what I see. EX: "Let's dump the Pergo and go with hardwood." Yeah, it's only 500 bucks, but that **** adds up and it ain't the GC jackin', either.

Question PF: How did you come to get this contractor to offer a bid?

 

[ponyfool]

We have all the money. In fact, we've only paid him $50,000 so far and I'm holding the next $30,000 check until we get this resolved. I don't like doing that because they are probably a good $80,000-$90,000 into it right now.

I appreciate your input, this is what I am looking for. It does seem that he is trying to alter things. On one change order, for the kitchen cabinets, we looked at the bid and found that the bid was $10,200 for cabinets. Well, we redesigned our kitchen and took a wall out, etc. Our new kitchen cabinets cost $12,800. That would be a $2,600 upgrade. The contractor, on his change order sheet to us, has us with only a $7500 credit for cabinets and says the kitchen will cost us $5,300.

We already paid separately for the removal of the wall, and building of the new structures to get ready for the new kitchen.

This is the type stuff that is driving us nuts.

Question PF: How did you come to get this contractor to offer a bid?

One of the fire investigators I know recommended the company. Now, mind you, the company is doing outstanding work. The quality is awesome, and they are quick too. But now that we are getting down to it, I'm getting upset.

What bothers me most is, if they find something that costs more than expected due to unseen issues (like our electrical- which had to be completely re-done), the insurance company has been ponying up and paying the increases.

So, that would sort of eliminate the "added" cost issue you were mentioning it, wouldn't it?

 

[Go Far]

Budgets are difficult to complete accurately. Alot of times, bids are WAGS. :blink: Maybe he's trying to cover himself. Who knows how he's compensated... :glare: Is your Ins. co. cutting you the check outright? Will the mortgage holder have to sign off? If you are in the driver's seat (all the funds flow thru you) then you can call the shots. If you have the patience, you could get another bid(s). But, the feasabillity of that approach depends on your local remodeling/construction market :huh:

 

[twowheelnut]

Wow. Thanks for the info. Not too many industries allow 20-30% margin for error in estimating. That's almost like no esimate at all, just a license to bill the customer for whatever amount they feel like. I'll definitely keep this one in mind if I'm ever in the market....

What, you don't follow government contracting? :lol:

It's NOT a margin of error. It's reality. Stop for a moment and think how much goes into just your kitchen. I spend on average 30 - 60 hours just to work out preliminary kitchen design details on my projects, then another 30 or so getting to the final specification. Then, I get to spend more time changing stuff because of products that have been discontinued, backordered, spec changed or the client saw Mrs. Jones' new Le Cornue and wants the bigger, better model. Most people have no idea what it takes to put together a well designed space. (Those hours are mine and my assistant's combined.) That same thing rolls into the entire job. Most of that difference comes from things like the architect walking through and changing **** from the original. Or pillow pushers insisting on rare antelope suede (unborn) closet liners, or the client trying to one-up the neighbor or under trained inspectors making lame and unjustified calls, yada, yada, yada. Hell, here in Santa Barbara, it takes over a month just to get engineered drawing through permit and 2 - 3 times as long if it has to go ARB! Do you have any idea how much that costs in time alone? All this and more add to the original estimate.

Remember, you are the one with the checkbook and thus are in ultimate control of the situation. I school each and every one of my clients as to the remodeling/building experience - even though I don't contract to do the work - so that there are no surprises. I've run across one 'bad' contractor in 30 years of this and I'd say the bulk of contractors are upstanding guys and gals just trying to make a living - this case not withstanding.

 

[twowheelnut]

One of the fire investigators I know recommended the company. Now, mind you, the company is doing outstanding work. The quality is awesome, and they are quick too. But now that we are getting down to it, I'm getting upset.

OK, good quality is worth the world, IMO. You pay for quality - it does not come free.

What bothers me most is, if they find something that costs more than expected due to unseen issues (like our electrical- which had to be completely re-done), the insurance company has been ponying up and paying the increases.

Yes, the contractor will find things that need to be repaired or added beyond his original bid. That happens every day - there are times when you simply don't know the condition of things until you open things up... But if the IC is paying, why does that bother you?

So, that would sort of eliminate the "added" cost issue you were mentioning it, wouldn't it?

Nope. That adds to the basic estimate and that's what I try and tell people to expect.

The last thing I will advise and then I'll STFU: It's obvious this whole contractor thing is stressing you out. Write down your concerns in a calm, clear manner and have a sit down with your contractor to discuss your concerns. Trust me, he wants a happy client because he wants more business from you in the form of referrals. If your demands or concerns are reasonable or valid, he'll work with you on resolution.

 

[ponyfool]

What bothers me most is, if they find something that costs more than expected due to unseen issues (like our electrical- which had to be completely re-done), the insurance company has been ponying up and paying the increases.

But if the IC is paying, why does that bother you?

I would understand if he said, "That'll cost $2000" but then later finds out there were other issues that make it cost $3000. He needs to make up that extra $1000. I don't have a problem with that. But if my insurance company is paying that extra $1000, why the hell is he changing the bid numbers to make even more money from me?

He bid $x for a kitchen. I have a sub who is going to do the kitchen for $2000 less because I made changes that brought down the cost so I could use the money in other areas. When he presents the change order, he doesn't put $x down, he is now claiming that he bid thousands less than $x even though it is clearly not the case.

That's what bothers me!

 

[Fencer]

We have all the money. In fact, we've only paid him $50,000 so far and I'm holding the next $30,000 check until we get this resolved. I don't like doing that because they are probably a good $80,000-$90,000 into it right now.

That is the best way to handle this.

I set a contract, And Stick to it. If I am delayed, Labor cost EAT ME ALIVE, but that is my fault (IMHO). If I under bid, That is my fault (IMHO). If I feel a need to set contingencies in my contract for unexpected events, I do so before I begin. If I dig through a sewer line, water line, gas line phone line, etc in the back yard (and it has happend more than once) It sets me back, and costs me money, But in MOST cases it is my fault. I can prob count on one hand the number of times I have asked a customer for extra, beyond the original set price. I am the professional an it is up to me to know my cost and what to expect in a job. If I pad a job for a probable headache and it does not occur - windfall for me! :yahoo: If It does occur It is covered(SEE THE UNDER BID ITS MY FAULT PART AGAIN).

If he says material cost went up. Did he bid this 4 months ago? then yes allow for that increase. If he bid it last week and you awarded it to him, He should have pre-bought and stored the material at todays cost.

I just bought $10,000 worth of stuff to carry me through my known jobs at the end of the year. A 7 % increase goes into effect in the morning.

We just did a $7,000 job for a lady, durring this time, SHE backed out of her garage and ran into my machine, parked at the end of her drive, It put a hole in the bumper of her Lexus, She felt this was MY fault. They left to see family over Thanksgiving, We continued to work. My core drill popped a breaker in her house. Her extra fridge was knocked out from this. She came back in town a few days later and found her food had gone bad. She asked for compensation. I knocked some off her bill. This weekend she sent me a check for the amount I knocked off and referred two neighbors (for a total of 3 from her) AND a Letter of referral.

Granted the largest single job I have ever done was $107,000. But not bad for a fence.

I have done a ton of $2-30,000 jobs on a handshake and a smile, only once did I have a real problem, and after the DA got involved, I got my money. I LOVE the south YA'LL.

From the few contractors I have hired, they tend to operate as you describe. I find I am in the minority of work ethics. I also tell my customers if they are looking for the cheapest guy, they are wasting both our times, I am RARELY the low man. If They want Quality at a reasonable price we can talk. My .02

 

[Rogue]

Okay, I'll throw in my 2 cents.

I do industrial electrical so our projects usually have very few change orders and come in at the bid price.

We get quotes on supplies for materials and those quotes are good for 90 days and our quotes are good for 90 days.

I started out doing residential and I thinks TWN's figure is LOW! I tell people "Leave town during the remodel or your going to pay twice as much!", they don't listen. Thats why I don't do residential anymore, homeowners are a PITA, they change everything!

I don't know about your exact situation but if you think your contractor is giving you the shaft tell them "Do it at price X, or just don't do that part and I'll get someone else to do that" then get a quote from someone else.

 

[twowheelnut]

...homeowners are a PITA, they change everything!

Erm, no comment?

 

[NC_Yank]

Different state, but I'm a licensed contractor and home inspector.

My first question to you is this, do you have a written contract with this company? If you do then familiarize yourself with the contract and then ask to have a meeting with him to discuss your concerns.

Most relationships between the contractor and client break down because of simple misunderstandings.

Everything should be spelled out and any changes should be done through a change order. You all may need an addendum in order to bring more preciseness or detail to the contract.

While I understand you are trying to save money in certain areas but are willing to spend it in others.......the contractor may not be making his desired profit margin in doing those so called changes or swaps.

It cost quite a bit of money to run a legit company............as a result they should be compensated fairly for their services.............after all, if you want a professional job done, then expect to pay for same.

I agree with you on his statement of being able to work with those numbers........that should be taken at face value.

New construction is very easy to estimate.......but remodeling, additions, renovations and insurance type work is a different animal. There are so many unknowns / variables that estimating these type of jobs is more of an art then a science.

In the event that you do not have a clear written contract then your next step would be to set down with this company and make one.

Any thing other this will most likely result in more misunderstandings and hardships.

Hope this works out for you......

regards

NC

 

[Sherman]

Yes they go to the school of hard knocks. And it is usually the contractor that gets sucked, at least in the beginning.

If you get a contractor with many good references, then you have done very well.

 

[Bearly Flying]

I manage industrial construction jobs. Rogue is correct, change orders will kill you.

Best bet is let him finish the original scope of work, then do your remodeling, or shutdown construction ,Rebid the job, then NO MORE CHANGES....