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.
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?
If you are only providing an estimate (not a single fixed-price bid), what are you signing with your clients in terms of a contract?
@J Scott Once the estimate is okayed it gets converted into a contract and the lower number is whats written up in the contract. Most of the time the change orders that are okayed make up the difference and become closer to the higher number that was on the estimate. That way there is no surprises (they are already aware that they might be paying closer to the higher number on the estimate) when that finial check is collected.
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.
@Manolo D Its hard to compare apples to apples when your apples are not the kind of work I preform. 1,500-2,500sft. flips, kitchen, and bathroom remodels not large contracts with the state or new construction. As a GC I'm interested in becoming a successful flipper (my own flips and not putting money into my current investors pockets). Not that I'm not Thankful for him. I just want to move off on my own. When I decided to become a GC one of the reasons I did that is because I was tired of getting payed a small amount and doing all the work. So far I cant be any happier, my clients have been very good to me as well..
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.
It would be in the contract if you can do an audit. And the right to audit is in most cost plus contracts upon the seller's request.
You should be signing a contract upfront with the price set in stone; then there wouldn't be any surprises.
Hi Everyone,
It seems the thread kind of strayed from the original post a bit. To speak a bit more to that, like most of the others have said, what you can do will really be based on the contract you have with the contractor and whether or not he followed the contract with his extras. There really aren't any laws that would give you rights outside of that, unless the contract you signed wasn't valid for some reason. For instance in CT, a contract has to have very specific things in it in order to valid, like a start date, estimated completion date, fixed price or rates or markup if its time and material based, rights of and process for cancellation, address for notifications, etc. My guess is you may not have much to go on here and even if you do it probably wouldn't be worth pursuing since that process could tie up your property until its settled which would probably end up costing you more than the amount you owe him.
Moving forward I would suggest you create a detailed scope of work with your contractor, along with a fixed price, specific process for discussing and approving changes to the scope, and process for payments, timelines, etc. Good luck!
@Cj Juan I think trying to inform your clients of the potential extra costs is fine, but I think it would probably be better in the long run for you to be more specific with your costs and keep the unconfirmed extras as more of a discussion in the beginning, and then be specific as to the costs of them as they arrive by addressing them as a fixed price change order. I also find it interesting you take a 40% deposit and then balance upon completion. That seems a bit heavy on the front end, especially if the client is paying for or buying the materials, and leaves you pretty exposed on the back end if they decide they're not happy with your work or final price... The types of schedules and contracts that @J Scott and others have mentioned have become industry standards for a reason. They protect both the client and the contractor and set expectations for both in pretty clear terms. As you grow your business you may find it easier to get work by operating in a more familiar way. But its your business. Good luck!
Hi Everyone,
It seems the thread kind of strayed from the original post a bit. To speak a bit more to that, like most of the others have said, what you can do will really be based on the contract you have with the contractor and whether or not he followed the contract with his extras. There really aren't any laws that would give you rights outside of that, unless the contract you signed wasn't valid for some reason. For instance in CT, a contract has to have very specific things in it in order to valid, like a start date, estimated completion date, fixed price or rates or markup if its time and material based, rights of and process for cancellation, address for notifications, etc. My guess is you may not have much to go on here and even if you do it probably wouldn't be worth pursuing since that process could tie up your property until its settled which would probably end up costing you more than the amount you owe him.
Moving forward I would suggest you create a detailed scope of work with your contractor, along with a fixed price, specific process for discussing and approving changes to the scope, and process for payments, timelines, etc. Good luck!
@Cj Juan I think trying to inform your clients of the potential extra costs is fine, but I think it would probably be better in the long run for you to be more specific with your costs and keep the unconfirmed extras as more of a discussion in the beginning, and then be specific as to the costs of them as they arrive by addressing them as a fixed price change order. I also find it interesting you take a 40% deposit and then balance upon completion. That seems a bit heavy on the front end, especially if the client is paying for or buying the materials, and leaves you pretty exposed on the back end if they decide they're not happy with your work or final price... The types of schedules and contracts that @J Scott and others have mentioned have become industry standards for a reason. They protect both the client and the contractor and set expectations for both in pretty clear terms. As you grow your business you may find it easier to get work by operating in a more familiar way. But its your business. Good luck!
@Daniel Raposo Thank you for your thoughts. Just the reason why I signed up for BP (positive feed back)
No laws in Texas requiring what you're asking. Basically you owe what you both signed off on or whatever your contract says. If there were signed change orders by you or your authorized agent (realtor) then you are on the hook for that amount.