General contractor overcharging by 70% - help!

3 Replies

Hi everyone, I'm sure my story is a common one, but I just received my general contractor's latest invoice and am starting to seriously panic. 

We are nearing the end of a remodeling project of a house my husband and I plan to live in (i.e. we won't sell, which means we won't recoup any of our investment). We signed a contract, based on an estimate (not quote) of $99K. The contract specifies twice that any changes (with the price increase specified) should be agreed to in writing.

We have made a few changes in work scope along the way, post-contract signing. At first, the general contractor warned us of the expected price increase that would come with each change. But after the first two or three minor changes, he stopped warning us. I know it sounds insane, but I assumed that since he'd started out telling us of the expected price increase for changes, he would continue to tell us for subsequent changes. We trusted him to flag any major cost increases for any changes.

He didn't. The first three invoices charged what we expected (and the estimate of where we stood in the overall estimate) was expected. But the fourth invoice - BAM! - suddenly raises the cost of the total remodeling project by 30%, and with the next three invoices, the total project rose to 40%, 50% and now 70% above the estimate. 

At no point did he warn us that the price would rise by this much, and we never signed anything in writing. Had we known that each change would raise the cost by such a magnitude, we would not have made the changes.

We've consulted a lawyer briefly, who advised waiting until the work is done before starting a negotiation. Technically, the general contractor is in breach of contract. He has provided some invoices to justify the higher costs, but honestly, he should have warned us that some of the changes we verbally agreed to would DOUBLE the cost of that part of the project. We had no idea.

I am almost out of money and feel like I've been taken hostage. We still have another invoice pending.

Has anyone else been in this situation? What did you do? I'd really appreciate any advice. Thank you.

If it is in the contract that you must agree to price increases in writing that might save you.  However one should never agree to a repair or upgrade without knowing the cost or at least approximate cost beforehand.

Did the contract specify how any changes would be handled? The typical process is through the use of a change order which documents the additional scope of work and cost. It should be approved and signed prior to the additional work beginning. It should also explain how payments will be made for the additional work. Typically all, or at least a portion of the cost is due upon signing and it's not uncommon for a change order fee to be applied with each change order.

It's possible that the contract states that if you give verbal approval prior to signing, you shall be deemed to have consented to the change and any increase in the cost. This is often the case if it's a change that impacts the schedule and taking the time to draft a change order would create a scheduling issue. However, they should've then prepared the document for you to sign soon after. At minimum, a verbal understanding of the additional charges should've been established.

The other possibility is that they are working on a T&M basis for any changes, but the hourly rate should be mentioned in the contract.

@Sophie Lee you are probably out of luck and it sounds like you have made more than "a few" changes to the SOW. Anything above 3 is really typically a red flag. Minor is subjective. You could have asked for some things that were profoundly difficult.  

Should your contractor have explained each and every cost change? Probably. But it's also true that you should have finalized and understood the SOW prior to commencing work. 

As a rule a change order is 30-50% more expensive then a planned item. The contractor usually has to undo the agreed upon work (Time and Materials) and then figure out how to accommodate the new request which takes much longer and is inevitably much harder. As an example: One of my trim guys was building out a sweet set of stairs for another client. Toward the end of the project the owner asked for a "minor change" to replace the specified wood tread with tile. That was a 100K change order. The product thicknesses were different and the entire stair system needed to be retrofitted to accommodate the change. 

I'm not a lawyer but I am a contractor and chances are your legal options are pretty thin. You are both in breach of contract. You both agreed to only make changes in writing. The first time you paid for changes that were not in writing you violated the terms of the contract. Yes subsequent changes should have been in writing. But you helped establish a working relationship that deviated from the contract. Contractors do not change things randomly and we get stiffed/sued all the time and most judges/jury's understand that. There is a reason that a contractor can put a lien on your house. 

Your best bet is to talk to your contractor and develop a game plan to finish the project for what you can afford. 

Final note. Your contractor can very easily walk and still put a lien on your house. Getting another contractor to take over is going to be EXTREMELY difficult and unbelievably expensive.

I'm sorry this is a tough situation but to get to a reasonable outcome you are going to need to see this from your contractor's point of view and work with her to resolve the problem. 

If you would like someone to talk to or just a shoulder to cry on feel free to DM me and we can set up a call to go thorough the specifics and generate some win win scenarios together.