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Old 09-21-2006, 12:43 PM   #1
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How to pay contractor fairly and protect myself


Hi Guys:

I am not sure I am in the right place to post this; if not, I would appreciate some redirection--thx.

That being said, here goes:

I am in the process of remodeling my house and have found a contractor who we like--he has done work for a bunch of our neighbors.

He's a one-man shop (with help as needed) and does only one job at a time. Our project consists of some interior demolition, kitchen renovation and some modifications to the existing upstairs bath and an office to create a hall bath and a master bath.

My question/concern is that the contractor has proposed working on an hourly basis rather than have a set price for the contract. He indicates it will save us some money. I suspect he needs a more regular cash flow as he is doing one job at a time. I have absolutely no problem paying him on a more regular basis than perhaps a contract with payments based on milestones would provide; however, how do I protect myself in the event we reach our budget--of which he is aware--before the job is complete. In which case the contractor may be looking at future work with no paycheck. Other than being a real nice guy who I don't believe would intentionally scr$% us, we all know that things happen and circumstances change.

I thought about paying him weekly on a 1/2 hourly rate basis with the rest being due for completed milestones but am not sure if that would work.

I would appreciate any ideas anyone may have regarding this situation as I would like this contractor to do the job, I would like to be able to provide him with the regular paycheck he apparently needs, but I also need to protect myself and family that the job gets done for our agreed upon price.

Thanks,

NIck

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Old 09-21-2006, 01:29 PM   #2
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How to pay contractor fairly and protect myself


I think paying some money up front to start and keep feeding in as progress materialized is the way to go... I do not think this is necessary equivalent to hourly pay though, for hourly pay, the owner get the benefit of "may be" spending less, but also get the risk of "may be" unable to have a controlled budget of the overall price... on the other hand... hourly pay also has the advantageous of you can fired the contractor anytime you find he is not up to the standard... hourly pay has the disadvantageous that the contractor may not work at his hardest to complete the task as this is not to his advantageous....especially if you are not around....

therefore... this is really a tough decision... if I were you... if you think the guy is trust worthy... give it a try on hourly basics... but state very clearly... on the paper... he might got fired if his job is not done properly or being too slow... and you have to have the heart to fire him if necessary...


Another option for fair play is , divided the whole project into many small projects... and pay hime per small projects basics,... for example, lay tile on the kitchen floor I will pay $xyz labour... doesn't matter how long it takes you... I will pay for all materials...

I personally used all methods before... I like the last method most myself... but it means you are kind of a project manager and able to divide the big project into smaller pieces

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Old 09-21-2006, 02:55 PM   #3
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How to pay contractor fairly and protect myself


Umm in short. Now way. I as a contractor will not work for hourly pay. I am a company doing work for you not an employee of yours. I require 1/3 to start 1/3 a stated mid point and final upon completion. he is not a contractor if he agrees to hourly.

Last edited by RYANINMICHIGAN; 09-21-2006 at 05:51 PM.
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Old 09-21-2006, 06:41 PM   #4
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How to pay contractor fairly and protect myself


I am sorry, but there is NO WAY that you will be saving money by paying hourly. The reason is simple:

When a 'contractor' works by the job (price)...he works alot faster and get's it done quickly.
When they work by the hour, they will take their time and not be quick about something that should not take so much time.
I know, I have my own workers that get paid by the hour, I would send them out and every job took 2 + days more than it should have taken. More time = more $$$$$.
Their pace was so SLOW, that very little got done. Now, I make sure that I am on the job to work with them and keep the pace steady and get the job done in a reasonable amount of time.

By paying an hourly rate, jobs rarely get done in a 'reasonable' amount of time, or the time it should take.
People will work at a very leisurely pace = Human Nature.

Example: I once was working on a job that the homeowners added so many changes to as well as additional work and water damage repairs.
It kept growing and growing.... They told me to just charge them by the hour since things kept changing (Tho, I will never do that again).

In the end ,I ended up just billing them by the jobs there. They got upset at me and wanted to see a break-down. I showed them all the actual hours worked, days, who worked, what was worked on. So, I totaled up everything for them & and guess what?

They saved themselves about $4000.00 + by letting me bill them by the job. Why? Because I billed them based on the time it should have taken my workers to do each phase of the project, not the actual time that they ended up taking to do a phase.
I wanted to be fair, because I knew that there were things that should not have taken as long as it ended up taking them to do.

If you have changes, get a price before the change. I have made mistakes at times on my estimates for a particular phase or part of a job and since I already gave a price, I left it the same because it was MY mistake.

Don't give someone free reign to charge you what ever they want after the fact. That is what paying hourly does.

As a licensed GC - my advice to homeowners is: NEVER to pay anyone by the hour .... to do projects on or in your home.

Last edited by AtlanticWBConst.; 09-21-2006 at 07:38 PM.
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Old 09-21-2006, 08:12 PM   #5
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How to pay contractor fairly and protect myself


As stated above, pay by the job. If this guy you have picked is a good contractor, he will be able to give you an estimate, then you go from there. If it fits in your budget, then you go to contract, with payment as specified. Others require a "down payment" to start a job. I require materials paid before we start, and depending on the length of the project, a payment schedule..typically 3 payments...when we build, 1 when site work and concrete is down, next is halfway to finish, final when complete and signed off.
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Old 09-21-2006, 08:55 PM   #6
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How to pay contractor fairly and protect myself


The truth is, you can't really protect yourself from you running out of money before the work is complete w/o a contract
The contract is there you protect you as well as him

I hate to suggest not using an arrangement that you feel may work out for both of you, but I feel I must

If he "is well aware " of your budget, why not promise to charge only or under that and put it in writing?

When the money starts drying up, what will be left undone or poorly done?
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Old 09-22-2006, 12:12 PM   #7
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How to pay contractor fairly and protect myself


Thanks for the replies. I, too, think a contract and pay by the job is the way to go. I just wanted to see if I could make things work for him too with a more frequent paycheck. I like the idea of more milestones--maybe that will get him what he needs.

Thanks,

Nick
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Old 09-22-2006, 12:43 PM   #8
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How to pay contractor fairly and protect myself


Quote:
He's a one-man shop (with help as needed) and does only one job at a time. Our project consists of some interior demolition, kitchen renovation and some modifications to the existing upstairs bath and an office to create a hall bath and a master bath.
Sounds like this guy is going to be living at your house for a long time. Are you sure you want to come home to a construction project every night?? dust ??

I personally would go with a contractor that would get in and get done in a timely manner with late penalties if he doesn't.

I never go into someones house unless I can be out of there in a week. They get too cranky, then i get cranky.

But some people are ok with a longer project. Nice part about a one man show is that they are usually trustworthy. Sometime you can get 20-30 guys in your house in a day and stuff starts disappearing. I'll stop rambling.
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Old 09-22-2006, 07:28 PM   #9
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How to pay contractor fairly and protect myself


There are two things that stand out to me here. One, if he is bidding it this way this might be a project that is bigger than his normal scope of work. He doesn't know how to bid it and is trying to cover his butt. Good for him, bad for you. I'm not saying anything bad about him, but you might want to find a more experienced person that can give you a solid bid. The second is that the hourly situation will really turn into a problem. Every somke break, chit-chat, anything will start to get on your nerves. He may do an outstanding job but, you will probably be upset at all the "wasted" time you might feel he took. Just my 2 cents.
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Old 09-26-2006, 06:06 AM   #10
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How to pay contractor fairly and protect myself


I had a guy doing some flooring for me at a house I just sold. He wanted to work by the hour and said it would take him 6 hours. It ended up taking over 30 as he didn't know what he was doing but at 8 hours I had called halt to let him know I wasn't going any further unless he dropped his hourly charge significantly and we agreed on a max for the job. Luckily it worked out in the end but I still ended up paying 20% more than I expected and a pro could have done that job in a half day instead of nearly 4.

I should have known as I had the same thing happen with some landscapers a few years ago. They quoted by what the whole job should cost and then charged me by the hour. Big fight.

So don't do what I did. Get it all in writing before you start. It will save a lot of trouble if you are both clear with expectations and with a maximum job cost and any other contingensies you can think of laid out (approval prior to purchasing something not originally agreed upon for instance).

The other thing that occurs to me is to make sure your local labour laws don't suddenly make this guy your employee if you pay by the hour. If it does you just bought yourself a world of grief if he gets injured or does any damage as he won't be required to have any insurance, you will. Usually there will be some other criteria like whether you supervise, provide tools, etc. but check just in case.

If he needs a stream of cash, arrange a lot of milestones and pay on completion of those.
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Old 09-29-2006, 04:23 AM   #11
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How to pay contractor fairly and protect myself


The time and material method is not the best choice for an original contract. It's a tactic for an inexperienced contractor who is uncomfortable bidding.

Some jobs we have done are set up for the change orders to be done on a t&m basis, because if we open a wall and find additional damage that needs to be repaired (common in water damage), instead of stopping work, pullin the crew, waiting for the customer to inspect and sign a change order, generally wasting lots of time, (and we all know Time=$$$) we just document it in writing, take some digital video and get on with it.

I will say that if we billed by T&M we'd make less than we do on our contracts because I usually have hours nailed plus a contingency and P&O. With the T&M I don't have the last three hence less money.

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Old 10-01-2006, 05:46 AM   #12
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How to pay contractor fairly and protect myself


When you are on a budget, you need to get the price for a job up front. I could never handle an unknown end price. What if the job takes a lot more hours than originally thought? Paying by the hour could turn your budget into a nightmare. What if you don't have enough money to finish the project? Paying by the hour could make the job go more slowly, too. While heading out for materials, your contractor may stop by the local fast food stop or coffee shop for a drink, go by the post office, whatever. Let him do little extras on his own nickel. Your contractor may be extremely honest and would never do these things. I just happen to know a guy that loves to get paid by the hour.
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Old 10-01-2006, 09:15 PM   #13
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I think you and the contractor probably ahve a different interpretation of "hourly billing". As a small company, we do a few jobs for trusted ,established clients on an hourly billing basis. Understand that this rate is far from the same hourly rate you would expect to pay someone you hired as just a carpenter or other trades person. It is very important that all concerned understand what the rate will be, and that it is not just the cost of the labor wage, but will include overhead and profit margins, on both labor and materials. I believe that such arrangements are fair to both parties in remodeling projects where there are still lots of unmade decisions about the project, or the possibilty of much hidden work, which would have to be priced into a bid, whether the contractor ended up needing to do it all or not. The key to success for both parties is discussion, before either party interprets the other as trying to get over on him. From a contractor view, this arrangement takes lots more paperwork.

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