Remodel contractor bills subcategory high. Problem? Options?
January 29, 2017 10:28 PM   Subscribe

YANML. YANMGC. We're near the end of a major remodel on our house. Our general contractor's bid price includes $10K for Management. In his partial payment invoices, he's had subcategories for Management, and as of the current one, those add up to $12K. How does a conflict-averse homeowner approach this and avoid problems?

(Apologies if I'm describing this unhelpfully. I'm glad to get suggestions for clarifying.) The project is an addition of a second floor to a 1-story house, so we've moved out during construction. Our contract has a bid price for the job (let's say $100k, for easier math) referencing the job proposal for specs and subtotals, and specifies the use of change orders for changes. We've done some change orders (say $10K). The general contractor's approximately monthly invoices are itemized, and we've paid them. I've been tracking those in a spreadsheet, and belatedly updated it after the last invoice. I see that his bid subtotal for Management was $10K, but as of the last payment, the Management parts add up to $12K. None of the change orders include management costs. There's likely at least one more monthly invoice to come, then the final payment. In general, the other categories look enough within their budgets that there *might* end up being $2K of slack among them, but we aren't counting on having a unicorn project that's under budget.

As I understand the contract, our obligation is to pay the bid amount plus change order amounts. I want to make sure we aren't on course for an unpleasant surprise, since we've already paid the $12K. Is there a good way to say, "Hey, we see you've passed the bid subtotal for management. That's because you're shifting costs around within the $100K, right?". Does having paid the "excess" establish any commitment that the overall price has gone up? I expect that the next invoice will have a Management category, too, so I guess if there's an issue here, we should probably get it on the table soon.
posted by NumberSix to Home & Garden (9 answers total)
You can respectfully ask for clarifications so you understand his billing without them thinking of you as a jerk. Approach it as asking for explainations since you are 'aw, shuks, clueless' and maybe you'll not feel intimidated.
posted by mightshould at 4:03 AM on January 30, 2017

So you have been paying invoices that have the management fee itemized as a line item? Is your project based on Management costs being a percentage of the work or a flat rate? Using your example he is making ten percent on the 100k.
I would expect change orders would attract at least that same percentage either laid out in the contract or an explanation for the overage.
If you have been paying Management costs separately it should be an easy conversation to have. An e-mail asking where you are on Management costs may find a clear explanation.
posted by ashtray elvis at 5:21 AM on January 30, 2017

I agree that you should ask for clarification but you don't need to pretend you're clueless as mightshould suggests. This is your money and you want to know what you're paying for and what you're getting for it. That said, there is no reason you can't be nice when you ask about the extra costs.

In the grand scheme of the project, going over by $2000 is not that much for $100,000 addition. I'm not saying you should let it slide just that if it's just this one time, then I wouldn't consider it a deal breaker. But if there are additional billings in every invoice that are unexplained that's another story. I would expect contruction costs to rise year to year but not for an individual project expecially if you have a contract.
posted by eatcake at 5:56 AM on January 30, 2017

A 2k overage on a 100k renovation project that is involved as adding a second story seems like not that big of a deal. Also, I would expect every change order to also increase the management fee, especially since some changes can cause significant project management headaches.
posted by rockindata at 6:46 AM on January 30, 2017 [4 favorites]

Just to note the OP used the $100K figure for easier math purposes, so any judgment on whether or not the overage is acceptable is not based on the actual figures...
posted by bologna on wry at 10:13 AM on January 30, 2017

Having a contingency for 10~15% is normal for construction projects. If you come under that, you're doing really good.

You can ask for clarification, but in the end, an additional cost for management is really just the GC paying themselves for work that they think they're due because of changeorders.

Seconding rockindata that management is huge, and I personally think that money paid towards management is worth 10x, because a mismanaged project can incur large costs, and a well-managed project can save you lots of money in the long run.

I would pay it and ask them that you'd like your changeorders to be broken out by trade in the future, so that when you approve the changeorder, you know what you're getting.
posted by suedehead at 2:50 PM on January 31, 2017

Thanks very much. (Had some other, even more annoying & demanding stuff come up since posting, so I'm just getting back here.)

A few answers. Yes, the $100K is just a round number. Our contract doesn't list Management as a percentage, but as a specified subtotal ($10K) within the overall price. We do have a contingency fund for extra costs. We've been accounting for requested change orders & allowance excesses with that in mind, and figuring (so far correctly) on some "Oh, yeah, [X] is more complicated than the plan called for" costs that we've done change orders for. All the change orders have been for materials, subs' labor, or the GC's own labor, with no management listed in them.

I agree that good management could be worth extra. Unfortunately, we haven't had that. This guy has been uncommunicative, forgetful, and often sloppy. We've had huge headaches due to his mistakes, or his not telling us about mistakes in our requests until it's to late to do anything but a costly change order to fix them.

Bringing this up in a friendly way is my goal. I'm just hoping to go into that with a good idea of the usual lay of this land, so we can avoid confusing conflict at the ultimate money stage.

I guess the main advice I'm looking for is this. If the contract price as bid is $100K, along with change orders of $10K, would common practice be that we simply owe a total of $110K, regardless of how the GC prices the categories on the invoices? Or inversely, if the GC's interim bills assign $12K to management when the proposal had $10K, does that increase our overall obligation to $100K + $2K + $10K?

Here's our price-related contract language, omitting one section about extra payments due to unforeseen work required by zoning/inspection stuff or site conditions, but those don't seem relevant.

Buyer agrees to pay Builder for the Work an amount equal to the contract price of [$100K] (the "Contract Price"). The Contract Price is subject to adjustment in accordance with the terms of this contract.

Changes in the Work may be made only by a written change order executed by Builder and Buyer. Each Change Order shall specify a change, addition, or deletion, and any adjustment in the Contract Price and Contract Time. Any increase in the Contract Price shall be paid to the Builder upon execution of the Change Order.

posted by NumberSix at 9:37 PM on February 13, 2017

I guess the main advice I'm looking for is this. If the contract price as bid is $100K, along with change orders of $10K, would common practice be that we simply owe a total of $110K, regardless of how the GC prices the categories on the invoices? Or inversely, if the GC's interim bills assign $12K to management when the proposal had $10K, does that increase our overall obligation to $100K + $2K + $10K?

Yes, the former. Your total cost should be Contract Price + Changeorders, and nothing else.

If the GC does have management costs (and they often will, including overhead & profits), then they should include it as part of each changeorder, so that each changeorder encapsulates everything to do with the change.

Technically, however, this is separate from the breakdown of trades for interim payments. Sometimes contractors request more payment from one trade over another, because the project may be in a phase where more work was needed over another.

So for example, if the cost allocated to the electrical and plumbing trades was both $30k each, an application for payment (often called a requisition) made by the contractor might have $15k for plumbing and $5k for electrical, perhaps because the project is in a phase where more plumbing work is done than electrical work.

Having said that above, it's a little strange that the GC would be allocating $2k more to management.

So to directly answer your question: I would ask something like:
"Hi XXX, I'm clarifying your bill.
According to the documents, the contract price + changeorders come out to $110K. So far I've paid you $XXK. After I pay this bill by next Tuesday, I will have paid you $(XX + 12)K, which leaves a balance to finish of $YYK, to total to $110K. Do I have that right?

Lastly, if you want to do this right, or next time, the proper way to do this is to ask the Contractor to submit payment requisitions that take the form of this or this. Forms like that track costs and payments per trade so that it's super clear on everyone's end what the costs are.
posted by suedehead at 1:17 PM on February 15, 2017 [1 favorite]

Thanks very much. That's really helpful to know.
posted by NumberSix at 10:02 PM on February 18, 2017

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