What to do when a contractor underbids?

[Lee Huffman]

We are doing our first 2 flips simultaneously.  The 1st was pretty much as expected.  The 2nd was the typical nightmare that you hear about so often from other investors.

Our original costs were $26k, which was a signed contract (with line items of work to be performed without dollar figures attached) that he prepared.  Then we agreed to not do $6k worth of upgrades to offset an additional $11k in unexpected costs, like upgrading electrical and replacing the sewage lines.

I have been getting messages from my contractor about how much he has spent and how much he expects to spend in the next week, but these numbers don't jive with what we expected.

Finally, I asked him to break down for me 1) original estimate/contract 2) minus work removed from contract, 3) plus additional unexpected work, 4) to arrive at a total amount.

We started at $26k minus $6k plus $11k to equal $31k.  So far, I have paid him a little of $26k, leaving an expected balance of $5k.

Now, he's talking about the job's expected cost to be $40k.  I had a LONG heart-to-heart with him today after sending him an email questioning his figures yesterday.

Ultimately, he admitted that he underbid the project... and rather than the $26k that he estimated, he now realizes that he should have submitted a bid for approx $35k.  $35k - $6k + $11k = $40k.

My question is... what the heck should I do with this guy?  I told him that it seems like he is asking me to be 100% responsible for his underbidding... and that I'm not sure I should be held responsible for his underbidding the project, especially when another contractor bid approx the same amount.  Playing Devil's Advocate, if the project only cost $20k, rather than the agreed upon $26k, he wouldn't have refunded me the extra $6k profit.

Please help!!!  What would you do in this situation, especially when there's another week's worth of work to be completed.  Thanks for your input!

I would appreciate input from BP readers, especially... 

@David L. @Brandon Turner @Joshua Dorkin @Dawn Brenengen @Mike Ritter @Jacob A. @Jon Arthur @Account Closed