Negotiate your down payment

 
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Todd said it best.

An itemized list / cost breakdown, more often than not is used against the contractor when it is shared with other builders who will then beat it.

Good contractors use good people, and good people cost more.  Just the cost of having the appropriate insurance / bond can be the difference between winning a job or losing it ot a 'lower bid'.

It is the rule of three; there is Good, Cheap and Fast.  You can have any two:  Good and Cheap, won't be Fast; Good and Fast, won't be Cheap;  Cheap and Fast, won't be Good!

When comparing bids, it isn't the cheapest or the 'nicest' person you should select.   You should understand why there is a large price difference (it shows there are gaps in your design program or what you have asked for specifically, which means there may be arguments later).  If most of the bids are in line, and one is way high or way low,  you want to know why before dismissing or selecting them.

A price-only decision almost always costs more in the long run. 

Good luck!
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No.  Heck no.  Here's a good example.  We very recently needed to find someone to install about 500 square feet of exotic wood flooring (we already have the materials).  We contacted about 12-15 top-rated Angieslist contractors.  Out of the few who did get back to us, we got 5 quotes, 2 of them were literally just over the phone.  They "didn't feel it would be necessary to even see the space". 

 

Here were the bids: 

$4000 (sight unseen), $2800 (sight unseen), $2500, $1500, $1450

 

We didn't "share our budget for this".  Why would we?  We asked them to bid the job.  That's it.  All of them should be well-qualified and they are all highly rated.  We were interested in how THEY value their time/resources - for an apples/apples job. 

 

Do you still think that you should tell them about your budget?  Your choice.  From my standpoint it isn't their business.  I'm asking them to bid on a project.  Invariably I'll get some very high bids, medium bids and a few more reasonable ones - ALL from "highly rated contractors". 

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The answer depends on your contract.  If you do not have a written contract, you need to begin documenting everything.  Begin by using a calendar and marking the days the contractor started, worked, you had to speak to him/her about the work, etc.

Next photograph the work you feel is sub-par.  If work has been corrected, photograph it now to have a record of its condition.  If you have any "original" or "before work began" pictures get those together, too.

If you do have written contract, see what it says about warranties, complaints, failure to finish / comply, etc.  Holding the money may end up with the contractor taking YOU to court for the funds - you cannot just hold the money.  You need to document in writing what is wrong, what you expect to happen (be specific) and when it should happen by.  A good contract will explain if and how money can be held, how the arbitration or complaint is filed, etc.

You should also invite another contractor to come in and bid the work to finish the job.  They can confirm the quality of the work and give you a price to fix / finish the job.  This gives you justification for holding the funds and an option to finish the job.

If the contractor is not willing to fix the work or listen to direction, do not allow them back in the house.  A judge will ask you why you let them continue to do work if you found it unacceptable.  Take back the key or access to the building - you can also attempt holding any materials or tools as collateral if the cost of repair is higher than the amount owed.  Again, document what you are holding, its estimated value (google or ebay search), etc.

Finally, in writing you should fire the contractor and state the exact reason(s).  Document everything; if it is done in person after they leave make notes of what was said, agreed upon and disputed.  If you are satisfied that what you have paid is fair compensation for the work done, make sure this is noted in the letter firing the contractor.  If you feel money is owed, you will need to file a small claim in your local court.  Include the documentation you made, notes, letters, etc. when you file your claim so the judge will have a copy of everything.  Don't forget to contact the BBB.

Do not wait for the court date; go ahead and hire the other contractor and have the work completed.  Bring this invoice to court with you (file it before the court date if you can).  Bring photos of the finished work (again, file it with the court before the date if possible).  You must show what good quality work looks like vs the poor quality work.

Otherwise it will be a your word against the contractor and you will most likely lose, (the contract is a promise to pay for work) or even if you "win" you will most likely split the difference between the argued amount of money.  Also be prepared for the contractor to file a small court claim against you.  Same process as above, except now you will respond to the summons with a copy of your stuff to defend your reason for holding funds instead of asking for money back.

Good luck!
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Herlonginc's answer stated that it is not the contractor's job to pay for materials and labor to do the job. I say baloney - a reputable, established contractor has the funds (or a business operations line of credit) to "carry" the job between interim or partial payments, each of which should be keyed to completion of distinct easily measured mileposts in the job, and for a homeowner I would say should be in not more than 20% increments for jobs exceeding a week or so. For shorter jobs, then an initial payment, 50% completion, and completion would be normal. His cost of carry funds is part of his cost of doing business, and is figured as part of his overhead.Bear in mind when he is buying materials and paying labor, his materials he typically pays for on a 10-30 day invoice, and his labor typically a week or two after they work, so he is not really "fronting" that much money if you are giving him weekly or biweekly interim payments, on a typical residential job.

If he does not have the funds to buy materials (excepting possibly deposit on special-order or luxury items, which still typically are 10-30 day invoiceable to him) and hire personnel then he is a fly-by-night operation, and he should not be bidding that size job. You should never (other than MAYBE an earnest deposit of not more than the LESSER of 10% or $5000) let the payments get ahead of the approved/inspected work progress - typically payment should be 10-20% BEHIND the progress, with at least 10% retained at the effective end of work until final inspections and completion of the final "punchlist".

That promotes rapid continuation of the work, discourages the all-too common nightmare of contractors taking on more work than they can handle so they leave your job for weeks or months to go work on someone else's job (frequently to start that someone else's new job so he can get the job), and does not leave you out a tremendous amount of cash if he does not finish and you have to hire another contractor to finish the job. Remember, if you have to hire a new contractor to finish the job, he will charge you a lot more than the original bid to finish someone else's unfinished mess.

This may seem cynical, but having started in the construction business about 50 years ago and seeing the shenanigans that a lot of contractors pull you cannot be too safe. You have to remember contractors are like any other people - I would say maybe 10% are outright crooks, another 25% or so will pull a fast one or overcharge if the opportunity presents itself, maybe 30% will do the work but not any better than they are forced to, about 25% are good conscientious reputable workmen, and the last 10% or so are really spectacular - conscientious, fair, and efficient craftsmen. This top 35% are the only ones you should have bidding in the first place. Therefore, only get bids from long-term reputable firms (so you shake out the marginal short-timers with less experience and also generally less ability to finish the job on budget and schedule), only those that have good RECENT references, and preferably with excellent word-of-mouth recommendation from people you know and trust. That way, you are starting right off with the cream of the crop, so hopefully whichever one bids low should be a good choice.

NEVER start with bids, then check the references of the low bidder - why even consider a vendor or contractor who you do not have faith in from the start ? Get references and short-list you possibles BEFORE you ask for bids.

Low bids - that is another matter - commonly the low bidder is NOT who you want, especially if he is significantly lower than several others, which might mean he is desperate for work, made a math error, or did not correctly figure the entire scope of work. You want a reasonable bid with someone you connect with and trust - that is worth a lot more in the success of the job than the absolute lowest bid.