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Managing cost over runs

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Posted by: from Newmarket
10/8/2012 at 8:06:46 PM

I an NOT asking for legal advice or opinion (though if there are any lawyers/paralegals offering free advice . . .)

For everything there is a first time. Here is my "first time." Six weeks ago I began a reno project and quoted X dollars. The Contract was quite detailed as to what aspects I was responsible for (including what materials I would "puchase"). About a week and a half ago, I noticed that my cost over runs for labor was taking up a significant amount of the money already paid I currently, I have not needed to add any kind of "cost over run" clause; but will from now on!!!).

I spoke to the customer and requested a meeting to talk further. We met on Thursday and again on Saturday. In a nutshell: due to unexpected labor costs (the sub-contractor was very slow!) there is no money left. I have tried to explain to the customer why I am now out of money and thus unable to continue (and, to add insult to injury: the subcontractor quit via text last week!). The customer responded with much yelling, swearing and the like.

I guess I am wondering how others manage cost over runs. I know that one contributor to the problem is that I did quote quite low and then under-estimated my labor costs (I even paid myself a lot less to try to make the money go further).

Can people share their advice/experiences?

REPLIES (12)
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Date/Time10/8/2012 at 9:08:18 PM

When I do quotes I do not quote cheap, if I can't get the right money or the customer wants a GOOD CHEAP JOB I pass. At the end of the day all you end up doing is devalueing our trades, once a customer gets a cheap job they expect it all the time, and you can bet they tell their friends and then they in turn think that that is the price. I can't count the number of times I've had a customer tell me that a bathroom renovation should cost no more than $5,000.00 complete.

Sorry for your trouble, but at the end of the day it's a good lesson you've learned. Next time don't quote low. It's always the ones that want it cheap that are the pickest and pick over ever tiny litte detail, I seen that a lot of time years ago when I use to work for a big contracting company.

Bob

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Serge in Woodbridge
Date/Time10/8/2012 at 9:17:25 PM

Hi Brett,

Take it as a lesson for yourself. Be happy that WSIB is not after you for premiums or CRA for HST. I hope your business is incorporated, so you can just leave and let that customer chase his or her own behind. If your business is not incorporated (everything is your personal) then make them kick you off the job........ This way you will get cause of action for breach of contract to counterclaim if they sue you..... It works )))

AND NEXT TIME DO NOT QUOTE CHEAP!!!!!!

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Serge in Woodbridge
Date/Time10/8/2012 at 9:22:51 PM

And make your sub put a lien on their house. In the description field for the lien at Terraview or Land Registry Office write: WHEN ARE YOU PEOPLE WILL STOP BEING CHEAP AND TALKING OTHER PEOPLE INTO CONTRACTS THAT CAN NOT BE COMPLETED ???!!!!

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Mark from CMJ Renovations in Oakville
Date/Time10/8/2012 at 9:35:24 PM

Brett,

In a nut shell you have to price the job for the unexpected and you can never go cheap, in regards to sub contractors they need to quote the job and you need to hold them to that price, if you pay a sub by the hour you need to come to an arrangement as to how long it will take if they tell you 4 hours and they take 5 it isnt going to kill your budget but if your thinkiking 40 hours and he takes 60 you should have had a conversation with him at 30 hours.

You said you gave the customer a very detailed estimate which means you better come to an agreement with the customer and finish or you will end up in court. I am sorry to hear about your trouble but if you have to go work free for a few days then thats what you need to do to get out of this mess. if you are good do not under sell yourself.

Good luck

Mark

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Date/Time10/8/2012 at 9:43:47 PM

I think the other lesson here is that if you use subs, you shouldn't hire them by the hour. It sounds like you did this. You pay them by the job. I learned this the hard way too, but it was on an $800 paint job. It wasn't too painful, but I learned.

Good luck to you.

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Date/Time10/8/2012 at 9:50:30 PM

There should be no such things as a cost overrun clause. What is a cost overrun clause to you? Costs that you don t understand or cost you didn't expect? Sometimes when you open up walls there are surprises or work required because something is not up to code. That is where a detailed contract comes into play and extras are involved. Also, I would never hire a sub-contractor without a quote from him and 2 other trades. I think it was very irresponsible of you to back out of your contract, especially if you are just starting out. References will be 90% of your marketing to get new jobs.

There is a code of ethics in construction. Just like with lawyers, surveyors, and manufactures to do a job with certain standards AND to keep your costs at par with everyone else to not lower the going rate of a product. If you went to school (good school) for a trade or construction management your instructors should have passed that on, as mine did for my CET program.

There is no one to blame but yourself for this catastrophe of a renovation. And there is no one to blame but other contractors alike for the stigma about how horrible contractors can be. I am sorry if this seems harsh to you, but what we do is not easy nor is it inexpensive.

My advice to you is to finish the job you started and pay for it out of pocket. I would assume you are not incorporated and unfortunately if you did not finish your job the owner can come after you, and any of your personal assets. Consider it an expensive semester at school. Also, I would suggest you get more experience and education. For example, getting quotes from subcontractors you hire, and having the due diligence on the owner s behalf to not pay anyone more than the percentage of completion. So if they quit , you still have money available to pay someone else to finish their job.

Finally, I would advise you not get into another renovation project again, thinking you have it all figured out, just from asking for a couple of tips from strangers on the internet.

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Serge in Woodbridge
Date/Time10/8/2012 at 10:09:30 PM

LOOKS LIKE SOMEONE IS GETTING A NEGATIVE RATING ..... )))

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Robert from Electrilight Ltd. in Oakville
Date/Time10/8/2012 at 10:29:50 PM

Brett,

Seems you got yourself into a predicament and a good learning lesson for all who think pricing jobs is a breeze and contractors can be anyone...

I have met very few people in this trade who EVER hire anyone by the hour anymore unless you have a great working relationship with that contractor who trusts you.

Would you take your car to a garage and just say "fix what needs fixing"? no, most will find problems all day long.

I hate to say the construction estimating process is the toughest part of the contract unless you have years of great experience and know every step of every trade and what your job entails.

A few good comments have been made, even though they are direct, but are very truthful. You need to take this to experience and even though you will lose money, do not lose your name with it... fix what you can fix, talk the job over with the client and learn from it. If you pay lazy subs by the hour, expect to lose...big time.

I am sure no one gave you the other bid prices (which is against the law for open tenders by the way) so you would never know how much lower you were, but next time you put a price on a job, add another 15-20% for those things you are not 100% sure at covering and get signed contracts with your subs... even if you mess up, atleast your subs wont cash out. This would help cover your loss (generally there are missed items on every job or "oh can you just change this-that-these-those") or in my case, dead cartons of light bulbs.... (Mark you know what job I mean...BTW, I have your replacements...)

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Date/Time10/8/2012 at 10:34:31 PM

I do not know about other provinces, but in Alberta for any contract above $500 there should be a written contract signed. If you are registered contractor, but do not have prepaid contractor's license-you cannot even ask for any advances for materials or labor. 100% agree with the above statement-we hire only professional trades, who take pride in their jobs and would never quit in the middle of the project. Never hire for hourly pay, only piece work with written estimate-separate materials from labor.

Every contract should include contingency -in case if you open the walls or the floors and there is something unexpected... especially when we are working on the insurance contracts-it is a must. Every change order for extra work MUST be approved and signed by the customer before the job will begin.

Do not save money on liability insurance, bond, WCB and licensing and always ask the same from sub contractors. Sub contractors who do not have bond, insurance or WCB or do not provide written quote-we do not hire them.

Of course your customer is upset-he is not guilty that your sub is too slow... your sub probably did not know what he was doing or knew that you are new in renovation and he can simply play with you... He got his money and left. But you cannot quit-you have responsibility and the project has to be finished. Sorry for my blunt English, but it is easy to give cheap quotes if you do not have proper licensing, insurance, WCB, bond, etc.

We had a lot of customers who were left with unfinished work, paid a lot of money and had to pay more just to finish the project. It is not fair to the customer and not good for the contractor who came to fix the problem: customer is already upset, it makes it very difficult to work on such projects...

Put yourself into your customer's shoes-would you pay more just because the sub was slow???? I would never. It did not happen overnight, he was slow from the beginning probably... General contractor has to supervise his trades to catch on the the problem. I assume that you were planning to charge the customer for supervision.

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Date/Time10/8/2012 at 10:38:11 PM

We have all been here once before. These experiences are what teach us the proper ways to conduct business as contractors. The key is to learn from this experience.

If you are bidding on work where you cannot determine the labour costs give the client a rough budget of what you think it will cost and then add a contingency to allow for over budget costs. This way you are protected if you go over and the homeowner is guaranteed to have funds to pay if you do. Clients will appreciate your honesty.

Good luck!

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Date/Time10/9/2012 at 12:37:45 AM

Thanks everyone for the feedback (even the blunt and harsh ones!). At this point, I am just glad that none of you are close enough to give me that well-deserved slap upside the head!

I am not sure how this will work out as the customer is so angry he will not speak to me without yelling, swearing and interrupting. Hopefully, after a few days he will calm down and we can really find a solution to this problem. I really want to complete the whole project (or at least a because not only am I a man of my word, but I also do good work. Sadly, my "faith" in another contractor (who, apparently, has moved on to start his own company) was misplaced and I am certainly learning a hard but valuable lesson.

This is my first "whole house" project. I have been quite successful with the bathrooms, kitchens, painting, decks, etc. so perhaps the other lesson learned here is: stick with what you are good at and what works (until you have someone to mentor you on the hows of bigger projects).

Thanks again everyone.

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Date/Time10/9/2012 at 8:45:00 AM

Some people have been pretty straight forward about the "how come". I think to answer the question how others manage cost over-runs, the answer is, plan not to have any.

I don't necessarily agree that you should not hire subs by the hour; but I agree that you have to have a good relationship with them.

Until you get more practiced at estimating, perhaps you need to start estimating in smaller blocks of the job. As an example, price out for tear-out / demo, then price out for a removal of debris, framing, etc. That will tell you where you need work on becoming more accurate.

Nobody should be just randomly adding XX% to a job for "what ifs"... that is poor business planning.

All of us plan on making money on a job, sometimes we don't make money. In the end you still have to finish the job and keep the customer happy. If nothing else, the only thing that you can control is your word.

Cheers

John

John Kuehnl-Cadwell

Master Electrician

Datawise Solutions Inc

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