Honolulu, HI · Member since 2015 · 10 posts · 0 votes
I have just rehabbed a home in San Antonio, TX. I will be selling this home soon. It is now under contract. I did not use a GC for this rehab. I had my RE agent act as the project manager. The problem I have is that the last invoice that I have received from one of my contractors makes no sense. I sense some financial impropriety.
The question I have for the community is:
Is there a Texas law that allows for me to get an audit of the material and labor costs? I want this from my contractor so I can try and make sense of his invoices and try and detect why his last invoice made no sense and whether there is any scam being played.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
Did you negotiate a price upfront? Did you have a payment schedule?
Assuming the answer to those two questions is yes, there shouldn't be a problem -- pay him based on the agreement.
Assuming the answer to one or both of those questions is no, that's where you made a mistake. You should negotiate a fixed price upfront -- if that includes materials, you either roll the materials into the total cost, you agree to an allowance for those materials or you agree to a reimbursement of direct costs (in which case he should provide receipts). And you should clearly define what the payment schedule is so that both sides know when and how much is owed.
Can you elaborate on how you structured the contract such that this became an issue?
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
I'm not from TX or know any laws there. But even in CA where it is a more stringent in their laws, there is no such law, unless you have a different structure, such as cost plus contract or time and material contract. but you have to specify it on the contract that the contractor will provide all receipts and labor times, we have this on government change orders where we only get 15% of whatever we spent, but we have to give them all receipts and time in/out logs before we see a dime, for residential project contracts the chances are very slim to none.
Honolulu, HI · Member since 2015 · 10 posts · 0 votes
10y
She agrees that it doesn't make sense and she has emailed the contractor and tried to get an answer about the discrepancy. She told me she is not aware of any law that requires contractors to list an itemized audit of material labor costs. It seems to me that it should be an easy thing to obtain. Heck the mechanics at your garage always give that to you when you get your car fixed.
Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
10y
An auto mechanic doesn't tell you how much he paid for the parts he is installing. He gives you a price with his markup on it. Same with labor. If that is something you require, should have been negotiated with the contract. Don't know texas law, but I don't think you can make him show you anything that isn't in the contract. Contract also should have addressed payment schedules and markups on change orders. Hard to say more without details.
Design | Build · Milwaukee, WI · Member since 2014 · 107 posts · 35 votes
10y
Dan,
I don't believe there is a law on the books for this. I can only speak for WI but it depends on the state. These are the questions you ask up front, then you have the contractor break out what he thinks it will cost in his bid. In the future, you should be the PM. I'm a contractor and a real estate developer so I've worn both hats. If you can send me more info I can try to steer you in the right direction, but without me seeing the project there is no way to tell the magnitude of what was changed. Pretty much my in my 15 yrs of being in construction, the projects always take a little longer and cost a little more in the end. I wouldn't try to go by a " square footage cost" to try to reverse engineer how the guy performed his work. I'd ask him for an explanation and go from there. You're asking about laws, which to me means you are thinking about litigation. I can tell you if the amount at issue is less than $5K, just pay it and move on to the next one.
Honolulu, HI · Member since 2015 · 10 posts · 0 votes
10y
Thanks guys. No this is just about 5k. I'm not thinking about litigation. I just want to have all the information about this cost of doing business so that I can be assured that he isn't overcharging me. I have my RE/PM trying to figure this out. If she can't I will have to get an answer directly. Thanks again!
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
Did you negotiate a price upfront? Did you have a payment schedule?
Assuming the answer to those two questions is yes, there shouldn't be a problem -- pay him based on the agreement.
Assuming the answer to one or both of those questions is no, that's where you made a mistake. You should negotiate a fixed price upfront -- if that includes materials, you either roll the materials into the total cost, you agree to an allowance for those materials or you agree to a reimbursement of direct costs (in which case he should provide receipts). And you should clearly define what the payment schedule is so that both sides know when and how much is owed.
Can you elaborate on how you structured the contract such that this became an issue?
Honolulu, HI · Member since 2015 · 10 posts · 0 votes
10y
I did have a couple of bids and had two quotes for the work that was done. As the work was done the contractor submitted "draws" (which I have read as invoices.)The quotes totaled $31,286. That was the agreed upon total quote for the job.
Over the four months it took to complete the project I received a total of four invoices as each part of the house was completed for a total of $36,593. I have only paid the contractor $28,000. The contractor's last invoice made no sense to me and brought the total up greater than $5,307 over the quoted price.
Contractor · Denver, CO · Member since 2009 · 399 posts · 166 votes
10y
Couple things that could be going on here. 1. His quote was an estimate and not a hard bid. 2. Estimate or not, you have no signed contract and he's charging you t and m or 3. He's looking for change orders.
Real simple to sort this out. Ask him, why his final bill doesn't match the quote, estimate, contract, or whatever agreement it is that you have or thought you had?
Do you have a copy of the quote? What are the terms? What does it say? Is it signed by both of you?
Over the four months it took to complete the project I received a total of four invoices as each part of the house was completed for a total of $36,593. I have only paid the contractor $28,000. The contractor's last invoice made no sense to me and brought the total up greater than $5,307 over the quoted price.
This is why a detailed payment/draw schedule is important. The contractor shouldn't just be submitting invoices whenever he feels like it for amounts that haven't been agreed upon.
Did he finish the job? If so, pay him whatever you owe him based on the contract amount -- a little over $3K. If he didn't finish the job, I wouldn't pay him another penny until he does -- you've already paid 90% of the job, and I wouldn't pay the last 10% until the job is completed.
As for the extra $5300, that's up to you if you want to pay it or not, and if you want to risk the contractor not completing the job (if he hasn't already) or potentially putting a lien on the house or taking you to court (both of which you should be able to remedy if you have a reasonable contract for the $31K price).
Long story short, consider this a good learning experience, and be sure to clearly define payment/draw schedules in the future, along with a clear process for change orders.
Contractor · Olympia, WA · Member since 2016 · 89 posts · 18 votes
10y
As a contractor one of the hardest obstacles in gaining my new clients trust is help them understand the costs that go into a large remodel or flip. This might not help in your case but its a little food for thought. You can also use it as a guide to work out your questions.
Some of the things I make sure to do is:
Estimate only bid
Itemize material and show estimated cost
Estimated Labor costs
Show a low cost and a high cost (for material and labor. This way they know what they could be paying in the end)
I want my clients to know that when I give them an estimate change orders are always approved and cost is talked about before work is to be completed.
Walk them thru the entire process ( that way they understand how much work and material is really involved)
Give my client a calendar of the project
Keep the clients involved (this helps them truly understand)
One of the reasons I do all of this is when I get a new client they talk to me about there last contractor. They don't want to be hit with a large bill at the end. That is what there last contractor did to them and what they are most unhappy with...
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
Why an estimate versus an actual fixed price bid? I'm not a professional contractor, but I'm pretty good at getting my rehab estimates to within 5% of actual costs..if I can do that, I would hope that most professional contractors could do the same. I can see doing an allowance for materials, but why wouldn't you give a fixed bid for labor upfront?
Why an estimate versus an actual fixed price bid? I'm not a professional contractor, but I'm pretty good at getting my rehab estimates to within 5% of actual costs..if I can do that, I would hope that most professional contractors could do the same. I can see doing an allowance for materials, but why wouldn't you give a fixed bid for labor upfront?
J Scott, Example: My last bathroom remodel ended up after starting the project had floor rot that you could not see from the surface and a water leak in the wall. That was not visible from behind the cabinet.
When I wrote the initial estimate I explained to my clients that these kinds of things can and might come up. Thats why I like to give a cushion (high and low) in my estimates. Over the years I have found that doing your own rehab/remodel is very different than working for a client. You might find this to be true? When your doing a rehab or a remodel its all about the $$ in the end. When its for a client its come down to what they want an can afford. One of the other reasons I like it this way is to show that 5-1% upfront...
Just as a side note: This is the exact reason why I signed up for BP. I don't have any kind of business schooling. Just had to find out from trial and air what works for me and my clients.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y
That's why you give a firm bid (along with a detailed scope of work) on the things you do know about. Any surprises are change orders that add to the fixed price bid.
While it makes sense to give an estimate for things that might be found (and aren't included in the initial bid), the client should have an EXACT number (along with payment schedule) for any work that's within the original scope.
In other words, the client should know exactly how much the job will cost assuming there are no surprises and no change orders. Not a range of prices.
That's why you give a firm bid (along with a detailed scope of work) on the things you do know about. Any surprises are change orders that add to the fixed price bid.
While it makes sense to give an estimate for things that might be found (and aren't included in the initial bid), the client should have an EXACT number (along with payment schedule) for any work that's within the original scope.
In other words, the client should know exactly how much the job will cost assuming there are no surprises and no change orders. Not a range of prices.
J Scott,
"I agree and disagree"
Any work that I write an estimate for is detailed under the scope of work. Change orders are what I find they don't like. The number might not be so cut and dry but they do know what it is going to cost in the end. Think about it this way.. Would you want to be hit with two large bills at the end or have already known what it might cost? I guess I just have not come across a client that wanted a hard number.
To talk about the payment schedule. After my client has okayed the estimate and is ready to move forward. We start with a walk thru the hole project again (to be clear of the scope of work) and I collect a 40% payment and signature on a contract. Then the balance along with any change orders or material increases will be collected (balance) after completion of the project.
Very seldom is there a project with no surprises or change orders...
Would you want to be hit with two large bills at the end or have already known what it might cost? I guess I just have not come across a client that wanted a hard number.
When I sign a contract with a contractor, I expect a single firm number for a very specific scope of work. If the contractor wants to discuss estimates for additional work that *might* come up, I'm happy to discuss those estimates. But, I'm not giving my permission for the contractor to do that extra work (or charge me for those extra costs) unless/until the issue comes up. At which time, we do a change order for the specific new work and agree on a specific additional price.
In other words, I expect to sign a contract upfront that says I will pay the contractor $X for him to do A, B and C. We can talk about what it might cost if he has to do D, E or F, but unless we do a change order for D, E or F, I expect that I will never pay more than $X.
Unless it's a time and materials contract, why would I want to be given a range of prices for a specific set of work? What incentive do you have to ever come in at the lower end of the price range?
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Cj Juan I don't get it, your client will sign an estimate contract? That's not a valid contract, an estimate is just that, an estimate. You will and your client will have a hard time proving that in litigation. Nobody can tell me my estimates are wrong or right, there is only a degree of inaccuracy, if my estimate for a 50sf bathroom is 100k with $2/sf tile and $200 bathtub, nobody could really prove me wrong, estimates are personal opinion based. Now if I give a client a contract, or price, that is different. My contracts have an amount, not an estimate, now if you want, and i have had several bids where my client will ask for "Alternate bids", then we give it to them, I have had one bid that has 7 "Alternate bids", these alternate bids in short is like "what if" bids, which I think what you are referring to. A sample is like the Department of Parks in CA wants me to build a 10-bed Infirmary building with two ADA restrooms, then they have alternate 1: Construct concrete pathway from road to building, alternate 2: construct asphalt pathway from road to building, alternate 3: construct patio first floor, alternate 4: construct deck patio second floor. They can pick only base bid, only alternate 1 or alternate 2,3,4 or alternate 1,3,4. Now that's a contract. An "allowance" is different, sometimes an "allowance" is used to fast track the process of proceeding small unforseen changes such as rotten subfloor, but, it is still either entered into a CO or T&M.
Maybe this will help you on how you structure your contracts and follow industry standards, in case you run into trouble, you'll find yourself in solid ground.
Would you want to be hit with two large bills at the end or have already known what it might cost? I guess I just have not come across a client that wanted a hard number.
When I sign a contract with a contractor, I expect a single firm number for a very specific scope of work. If the contractor wants to discuss estimates for additional work that *might* come up, I'm happy to discuss those estimates. But, I'm not giving my permission for the contractor to do that extra work (or charge me for those extra costs) unless/until the issue comes up. At which time, we do a change order for the specific new work and agree on a specific additional price.
In other words, I expect to sign a contract upfront that says I will pay the contractor $X for him to do A, B and C. We can talk about what it might cost if he has to do D, E or F, but unless we do a change order for D, E or F, I expect that I will never pay more than $X.
Unless it's a time and materials contract, why would I want to be given a range of prices for a specific set of work? What incentive do you have to ever come in at the lower end of the price range?
@J scott
I only and will continue to charge ONLY for the work that was completed. I do most appreciate your side of it and will take it into consideration..
Cj Juan I don't get it, your client will sign an estimate contract? That's not a valid contract, an estimate is just that, an estimate. You will and your client will have a hard time proving that in litigation. Nobody can tell me my estimates are wrong or right, there is only a degree of inaccuracy, if my estimate for a 50sf bathroom is 100k with $2/sf tile and $200 bathtub, nobody could really prove me wrong, estimates are personal opinion based. Now if I give a client a contract, or price, that is different. My contracts have an amount, not an estimate, now if you want, and i have had several bids where my client will ask for "Alternate bids", then we give it to them, I have had one bid that has 7 "Alternate bids", these alternate bids in short is like "what if" bids, which I think what you are referring to. A sample is like the Department of Parks in CA wants me to build a 10-bed Infirmary building with two ADA restrooms, then they have alternate 1: Construct concrete pathway from road to building, alternate 2: construct asphalt pathway from road to building, alternate 3: construct patio first floor, alternate 4: construct deck patio second floor. They can pick only base bid, only alternate 1 or alternate 2,3,4 or alternate 1,3,4. Now that's a contract. An "allowance" is different, sometimes an "allowance" is used to fast track the process of proceeding small unforseen changes such as rotten subfloor, but, it is still either entered into a CO or T&M.
Maybe this will help you on how you structure your contracts and follow industry standards, in case you run into trouble, you'll find yourself in solid ground.
@Manolo D
My clients do not sign a estimate.. I understand that an estimate does not hold up as a contract. Thank you for the info. I like the idea of writing a base bid and then writing alternate bids..
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Cj Juan Alternates are for them to see how much they could afford, say if they have a 100k budget, they would structure it like 60k base, alternates 6-15k, then 'allowance' at 10k. then when bids come in, they pick and choose which alternates they could pursue, sometimes there are 5 alternates on a bid that could total 80k but we know they will only pick 3 or so to total 30k in this example.
Cj Juan Alternates are for them to see how much they could afford, say if they have a 100k budget, they would structure it like 60k base, alternates 6-15k, then 'allowance' at 10k. then when bids come in, they pick and choose which alternates they could pursue, sometimes there are 5 alternates on a bid that could total 80k but we know they will only pick 3 or so to total 30k in this example.
@Manolo D "Alternates are for them to see how much they could afford" Your quote is just the reason why I like to have all the numbers up front and not hit them with a large bill at the end. J Scott opinion also helps with the hard number conversation.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
10y
Cj Juan You can't hit anyone with a large bill until they approve it, half of my COs aren't fixed price, they are T&M based at 15-25% markup, receipts and timesheets need to be approved on that day we do the CO, labor rates are pre-determined. Fair for everyone. Like J Scott , I too don't understand the need for you to write down all those unforeseen events. If I were the client and I don't like your CO price, I would simply hire someone to do that part and when it is done, I'll call you back to come in. Of course, most home owners and some investors don't know or have only bare minimum knowledge of contracting, so any kind of presentation, would probably get a better chance of signing that dotted line.
I only and will continue to charge ONLY for the work that was completed. I do most appreciate your side of it and will take it into consideration..
If you're charging based on the amount of time/work that was completed, that's a Time & Materials contract. Which is fine, as long as you define the rates of your contractors (and yourself) and keep a detailed accounting of time.
It sounds to me like you're doing a hybrid fixed-price/T&M, but since you're not providing hourly rates or timesheets, there is no way to audit your accounting. That means you're requiring your clients to just trust you without the ability to verify, which may be fine for those clients you have a long-standing relationship with, but won't be very good for any new clients who you want to build a new relationship with.
Obviously, it's your business and you can do whatever you want...I'm only giving you this feedback because I've worked with hundreds of investors over the years, and I don't know many who would work with you based on how you do your bids/estimates.