Friday, May 02, 2008

The Contractor-Discussing Increases in Price

I have noticed a trend recently in contractor-homeowner disputes. It is a problem that usually occurs when contractors do not follow my cardinal rule:

ALL CHANGE ORDERS MUST BE IN WRITING AND SIGNED OFF ON BY BOTH THE HOMEOWNER AND THE CONTRACTOR. THE CHANGE ORDER SHOULD SPELL OUT THE INCREASE OR DECREASE IN PRICE AND ALSO STATE WHETHER THE DATE OF SUBSTANTIAL COMPLETION WILL CHANGE AS A RESULT OF THE CHANGE ORDER.

The trend is that as the project progresses, the contractor realizes that he has underbid the job, and starts to ask for or negotiate for more money.; or, at the end of the project, the contractor finally works on his accounting, and discovers that he has to bill for a great deal of additional work.

When this occurs, what do you think happens? The homeowner ends up furious, shocked and blindsided by the additional bill, or it does not dawn on him/her right away that he is shelling out much more money than anticipated.

The reason this occurs is obvious: no one likes to talk about money. The contractor discovers that the project is going to cost more than he anticipated, and is afraid to admit it and give the homeowner options. Or, he does not keep up with his accounting, and is slammed at the end of the job, when he discovers that he has been operating at a loss.

So, the moral of this post is that the contractor has an obligation to both himself and the homeowner to bid responsibly and monitor the project as it progresses. If he does run into a problem, he is better off being honest and working with the homeowner. Trying to build in extra costs surreptitiously, or sneaking in an extra bill at the end only provides fodder for irresolvable disputes and ultimately, lawsuits.

So, talk about the money openly and honestly. It will payoff at the end.

1 Comments:

At 9:19 AM, Anonymous Anonymous said...

Andrea,HELP!we have this situation. High end custom home w/fixed price contract, we managed all allowances to stay in budget and did 6 change orders w/revisions,we paid 95% then contractor 1 mo. after completion
bills us 125,000 in addt costs &says they want to discuss...They send no invoices no C/O's ,proof etc and now say we agreed to do "a time and materials". We NEVER wld have agreed to this. How do we defend ourselves.We did nothing wrong!

 

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