How to negotiate fee with contractor after emergency work is done?

Question

We recently had a major sewer line leak that caused some interior water damage to 2 units in a rental we own in AZ. We had a plumber come out first, not knowing what was causing the water leak, and he discovered there was water sitting in our ceiling under the upstairs toilets, so he recommended a dry-out company to come and remove the sitting water and start drying out the walls and ceilings asap. The dry-out company recommended we file an insurance claim based on the extent of the damage (they said their work would be several thousand dollars, but that was just an over-the-phone guess, not in writing, and was based on the assumption it would be covered by insurance). We went ahead and filed a claim. The dry-out company has a sister company that does abatement, so we had that company come out over the next few days and started removing some of the ruined stuff (gyp board, cabinets, etc.).

During this abatement time, we found out our insurance claim was denied (turns out that's an added coverage item, not something that is covered with basic insurance). We came to an agreement on price with the abatement company to do the work, since we'd be paying out of pocket.

We haven't heard anything from the dry-out company since they've done their work (we'd given them our insurance claim number, but they were already gone and done with their work when our claim got denied). We initially thought their work was part of what we paid the abatement company for, but upon reviewing the abatement invoice, we believe we still need to pay the dry-out company. We don't want them to put a lien on our property or think that we're trying to get out of paying them, but we also don't know how to go about negotiating a price for the work they did, at this point. Based on some research we did, it sounds like people typically pay around $1,200 or so for that kind of work. Since we never did anything in writing (normally we ALWAYS do everything in writing, but this was an emergency), how can we come to a reasonable agreement on this? They could conceivably demand thousands from us, and we wouldn't know how to dispute it.

Matthew Paul · Answer

You pay the bill , negotiate AFTER the work was completed ? You are kidding , right ? You dont always do everything in writing , you didnt on this . You had an emergency service performed , that usually comes with a premium price . You should have had a quote from the beginning even if insurance was paying .

Kimberly T. · Answer

Yes, drain back-up is an additional coverage we can add to our policy. However, our insurance company ruled that the lines had deteriorated over time, and the back-up wouldn't have caused the damage it did if that deterioration had not been there already. So, they're saying the underlying cause is the deterioration, not the back-up itself, and they're saying that the deterioration is a "maintenance" issue and is therefore not covered, even if you have sewer back-up coverage. They'd actually considered retroactively giving us sewer back-up coverage, but once they decided the cause of damage was the deterioration, that became moot.

This is why I had the snarky remark that apparently insurance companies think we're supposed to rip out all finished surfaces and check the sewer lines periodically, as if that is standard maintenance.

Steve Babiak · Answer

There is an endorsement that as Eric mentioned would have covered this. Something called drain backup IIRC.

Kimberly T. · Answer

Thanks for the responses everyone. We knew we didn't have much (if any) leverage in this situation, which is why I thought I'd ask for tips here.

My husband called our PM yesterday to see what he knew about the situation with the dry-out company, and he's going to do a little digging into our options. He's a great business guy.

@Eric Belgau I like the idea of using a proxy. We can have our PM call the dry-out company "just to confirm" they knew our claim was denied and to make sure they were taken care of. Our PM also knows another contractor who does this type of work, and plans to ask him what a reasonable price should be for all the work we had done. Also, our insurance company ruled that the cause of the damage was a "maintenance" issue, not a "sudden event," and that's why they denied the claim (the drain lines under the toilet had basically started to rot away, and leaked massively once the main line backed up - and the building is only 43 years old!). Apparently landlords are supposed to rip out all finished surfaces and check their sewer lines periodically to make sure they aren't leaking? Yeah right. So, since insurance never covers damage caused by lack of maintenance (to my knowledge), there's no way to even get an extra policy to cover what happened. We basically got screwed.

@Matthew Paul Yes, in a perfect world, we would have got (multiple) bids in writing, but when you have sewer water sitting in your walls and ceilings in the evening, and your tenants are displaced, you do what you have to do to prevent further damage and try to restore the living spaces as quickly as possible.

Also, I think we all know that contractors will charge an owner less than what they'll bill the insurance company for. Just like if you offer a doctor cash for a check-up visit, they'll charge you less than what they charge your insurance. The abatement company showed me that, at least in AZ, the insurance company has standard charges for each type of work, so all contractors should theoretically charge the same for the same work. They obviously aren't held to those prices if they aren't going through insurance. This is why we want to negotiate to pay a reasonable market rate for the work that was done, not the rate they would have charged our insurance.

@Patrick Tutwiler Good point about us being part of a large industry. Our PM always uses the "I have lots of landlords that I work for" card to negotiate better rates from contractors, so he can definitely use that retroactively here, to suggest that he may use the dry-out company again in the future if this happens to one of his landlords again. Great tip that I hadn't thought of, that's exactly the kind of leverage tip I was looking for!

Patrick T. · Answer

@Kimberly T. @Wayne Brooks

"Crazy I know" is no reason to get screwed.

Kimberly, It is all in the way you go about getting what you need. You are an investor. You are part of a very big and influential industry. You know other investors, contractors, pro's of all stripes (hundreds just her on BP).

You're not a little pedestrian who they can roll over. You're more like a big city bus (lots of connections, options, support). That makes you a colleague of theirs. Start there.

Business owners (not the same as managers) gravitate towards other owners and decide in their favor. I had a problem where I had to contact the managers of two separate businesses whose employees had damaged my property in one incident. On my first try the managers of both businesses told me to take a hike. I looked up the owners on the web. I sent them nice e-mails explaining what had happened and that their managers had blown me off. I said that as a business owner I thought they should know what their managers had done before I pursued other options. Each one had their manager drive to my property with a check for their share of the damage.

I didn't sit still for the blow off. I mentioned attorneys and a bunch of things that only existed in my mind, possibilities. They understood, and they acted.

Don't make yourself uncomfortable by calling them personally. You might start with a certified letter, state your desire to take care of reasonable charges, mention that their assumption that they would be billing insurance was incorrect, mention that you have been advised that there is no contract or supporting paperwork from them on file in your office, and that it would benefit everyone to get this taken care of expeditiously. Use your own words, but take control. That's what good investors do.

Good Luck!

Wayne Brooks · Answer

The dry out guys get like $1,200/DAY while their fans and dehumidifiers are there (crazy I know). I'm sure their equipment was there a few days, not for an evening.

James Wise · Answer

dry out company dropped the ball by not getting it in writing what you'd be paying them.

You dropped the ball by not getting it in writing what you'd be paying them.

I don't see how you can pay them 1200 tho. They told you it'd be a "few thousand dollars". Then they did the work. So in my opinion if they bill you 4k you should pay them 4k.

Patrick T. · Answer

@Kimberly T. You're on the right track. Do some research to find out what a reasonable price is and offer to pay that. You're a BP Investor, be tough!

Just a minor point. I'm not sure a contractor can file a lien without a written contract, but I'm no lawyer. And over a certain amount of dollars there may be other disclosures they should have presented to you. I'm not suggesting you be a weasel, just know all the facts as you approach the situation.

Matthew Paul · Answer

First , you PM dropped the ball , when the plumber reported back to them they should have went there right away , The dry out company tells you that it will be a few thousand , so you know it wont be cheap , They recommend filing an insurance claim ( thats part of their job) Claim was denied , thats not the company doing the works problem , it doesnt effect their costs . You agreed on a price with the abatement company and they finish the work , ( thats good you agree on a price prior to work ) BUT the dry out company had completed their work already , they will send you a bill and you pay the bill , probably will be expensive , but the work was done weather or not insurance covers it has no bearing on the amount owed . They cant put a lien on the property if you pay .

You could always ask nicely for a discount , but negotiating after the fact for work performed , I dont see it happening .

Eric Belgau · Answer

Matthew is right. You don't have any real leverage.

Also, your attitude is right: you want to pay a fair (even "premium fair") rate for the service that was performed, and you want to pay it promptly, but you don't want to be gouged after the fact.

Unless you're a really good negotiator, the best way to create leverage when you have none is to use a proxy. Have your PM call the dry-out company first and get all the information to pass on to you. Then you can have the information in front of you and can make a reasonable decision about how to proceed. If the company charges an appropriate rate, you can just call and pay it. If the company decides to price gouge you, then you can look at your options for recourse.

It's probably worth mentioning that the endorsement to cover this is usually pretty cheap, and I always recommend including it in a policy. I'm mentioning it for the benefit of others, not to pour salt on your wounds, and I hope it doesn't come across that way.

How to negotiate fee with contractor after emergency work is done?

How to negotiate fee with contractor after emergency work is done?

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