Contractor invoices WAY over estimate....what can I do?

Question

I'm here asking for some advice about a problem I'm having with a "contractor" I hired to rehab a flip. I'll post a follow-up with more detail, but the gist of it is I signed a contract with who I thought was a licensed GC (turns out he is NOT) to manage a reno project. He turned in invoices to me for WAY over what he had quoted without any forewarning of the cost overruns. These are the invoices given to him by the subs that HE hired to do the work, but as it turns out he never even had them quote the jobs before hiring them. When I balked at the invoice he handed to me, he says "I just want for my guys to get paid". I should add that the contract stated the job would be done in 45 days but it took 128 days.

I want everyone to be paid fairly and I certainly don't want a lien placed on my house by some sub I've never met and didn't hire. But I can't afford to pay the invoice he is giving to me.

I'm wondering how to best handle this situation. What, if any, legal options do I have? My goal isn't for him to pay for my rehab, but a gc/project manager shouldn't have free reign to spend the client's money over and above the contract price without forewarning and an explanation. Anybody have a similar experience, and if so how did you handle it?

Charles Thompson · Answer

Yes, the subs should be paid, that is my point. But should they be paid whatever they decide to charge, regardless of what was quoted and what was reflected on the signed contract?

What if instead of $6k, a sub turns in an invoice for $60k? Or $600k? Obviously there is a point where it just is not reasonable. Conversely, if the GC had told them up front the amount he had bid to the client for their job, these subs may have not wanted the work.

So it cuts both ways. The GC is the only point of contact between me as the client and the subs. He didn't communicate pricing with me (other than what was on his estimate) nor did he communicate with the subs. It is only fair that the subs get paid, yet it is not fair to just assume that the client will pay whatever the heck the subs decide they want to charge at the end of the job.

One last thought. Is it possible that a sub would give a lower bid for a job on the front end (when there is no guarantee of getting the work) than they would give an invoice on the back end (having already completed the work and being aware that they were never asked to provide a price)??? Of course it is. In this way the GC was acting in his own best interest (not dealing with getting bids, etc) and contrary to mine.

Account Closed · Answer

If the subs did the work, they should be paid.

You say you didn't realize he was unlicensed until it was "too late" but you also say you realized right away that the permit had been pulled in a different name, which made you suspicious. So even though you knew that early on, you let him continue.

You only seem to care that he is unlicensed now that it's a money issue.

Sorry: no sympathy here.

Charles Thompson · Answer

Thanks for the advice Jerry. I think that is the route I am going to take. And you are exactly right about the complacency....well a combination of complacency and just being too overwhelmed to keep up with what was going on.

Jerry Sexton · Answer

Charles, first off let me tell you that I feel bad for the situation you got yourself into. What you need to do right now is contact an attorney and take EVERYTHING with you and have a candid conversation. This is going to cost you several thousand dollars to fix but you will be better off going this route than to try and negotiate this on your own.

I think what happened on your end is that you got complacent. I too have been guilty of "trusting" that someone is going to do you right. Everyone is correct on this forum that the subs should get paid. I think once you contact the attorney he will negotiate (or help) negotiate the payment terms. At this point the subs will be happy to get anything instead of nothing.

I am thinking that you should put together an estimate using your Xactimate Remodel and be sure to add about 50% markup and you should be in the neighborhood of the true costs. Give that info to your attorney as he will need it. Also, the fact that he committed fraud at the very beginning of the process by not pulling the contract under his name tells me that something bigger is going on here. Most likely he cannot get his license due to a criminal record or something????

GO TO YOUR ATTORNEY NOW BEFORE IT COSTS YOU EVEN MORE AND LET YOUR LOCAL REIA KNOW WHAT IS GOING ON IMMEDIATELY SO THEY DON'T GIVE HIS INFO OUT TO ANYONE ELSE. Once this is over with be glad that it happened to you, it will make you a much better contact reviewer and make you stay on top of things. Good luck and keep us posted to your progress. GO SEE AND ATTORNEY and hire an expensive one not the cheap guy in the mall. Do a search for a super lawyer in your area, it will be the best money you ever spent.

I forgot to mention that I am a licensed remodeling contractor in Columbus, Ohio.

Wayne Brooks · Answer

A lien waiver signed by a gc (if it is even enforceable) has no bearing on the ability of subs to file a lien.

Charles Thompson · Answer

Here's my follow up with additional detail:

I'm a reasonably experienced flipper although when I tell this story I can't believe some of the mistakes I made on this project. A while back I went to a local REIA meeting where the head of the club got on the stage and introduced a contractor who told the group about how he has been doing rehabs for a hedge fund and works 10 crews; in 2015 they completed about 300 rehabs. He went on to say that he pays all his crews by the job rather than hourly, so he is assured that they have incentive to finish the job quickly. He charges the client exactly the costs charged to him by his subs, and tacks on a flat fee for him. He wants to branch out to other local investors because he sees that the hedge fund won't sustain their rate of buying forever.

I called this guy and we met at a house I had under contract and walked through. I did my best to give a detailed scope of work, but I admit that I didn't have the rehab plan fully nailed down yet. For instance, I wasn't yet sure if I wanted to paint the brick exterior. But, I obviously knew and clearly conveyed from the beginning that I wanted a new kitchen, new bathrooms, a shower in the master bathroom, full interior paint, refinish the hardwoods, etc. Then I took him to another recently completed project of mine that was a couple blocks away so that he could see exactly the level of rehab that I had in mind.

He got me an estimate of $61,513.93. It was in spreadsheet form and broke down each item into labor and materials. We met to discuss and I explained that there were a few items where I felt his prices were higher than what my subs would charge and he said he was fine with me handling those portions of the rehab. He also said that if I elected not to do a task listed in his quote then we would just deduct that amount from the total. We signed a contract which stated "client retains freedom to purchase any item or labor that he sees necessary to save cost. These items will be credited from initial quote. Contractor to have project complete 45 days from contract date, unless there is a change of scope or delays caused by client." The total figure of $61,513.93 was written in and we each signed and dated.

In my day job I am a property damage insurance adjuster so my living is basically estimating construction projects. When I started out I would manage my own flips so I know investor pricing well too. I had figured this job would be about 10k more than what he quoted me and to be honest was prepared for cost overruns up to that amount, but was hopeful that his volume allowed him to get better pricing which is how he could get the job done for less.

Pretty quickly there were signs that this project wasn't going to be as advertised. My first clue was when I saw the name of the company on the building permit didn't match the name of the company with whom I had signed the contract. Work progressed much too slowly for the project to be done in the allotted time (which frankly when I hear a contractor 6 weeks I just assume it will really take 10). There were also some quality issues. But mainly it was the pricing. I would receive invoices from the plumber or electrician or painter for 2-3x as much as had been on the quote.

There was very little communication from the contractor unless I first reached out to him. There was never a conversation that said "well the painter wants $5500 labor but I only quoted $2000, what do you want to do?". Instead I just got an invoice of $5500. It was almost impossible to keep up with which invoice went to which line item (under labor there are line items for "plumber" but also for "faucets" and "toilets", as an example).

I did make some minor additions and changes to the scope and there were some unforeseen expenses (although most of those should not have been surprises to an experienced contractor). I am totally fine paying for those expenses.

The house is now complete and I have received invoices from the contractor for approximately $33k more than what was quoted/estimated without any forewarning by the "contractor". I put that in quotes because I found out too late that he is not a licensed homebuilder/contractor thus him doing any job over $10k is illegal. Furthermore, I asked several of the subs directly if they had ever quoted the job. Each one said that they had never been asked for a quote, they had just been told to go get the job done. Finally, the job that was supposed to take 45 days took 128 days. So I have incurred substantial additional holding costs as well a whole other project that I didn't get to do because my money was still tied up in this one.

He says all he wants is "for my guys to get paid". I want that too. I have NEVER not paid someone that I owed money too. At the same time I don't have unlimited funds and had he communicated with me that the prices were going to be that much higher BEFORE the expenses were incurred then I would absolutely have gone in another direction. I can't really fault the subs if they never were even asked for a quote. Essentially the "contractor" just hired them and didn't seem to care at all about the expense because he could just pass it along to me. But I can't afford to pay this much additional expense. I also can't afford for some sub who I've never met and I didn't hire to put a lien on the house because he didn't get paid.

Contractor invoices WAY over estimate....what can I do?

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