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Question DetailsAsked on 6/18/2014

What if bid for work hours comes in far below the signed contract?Am I obligated to pay the higher amount of bid?

for example: plumber estimates $1195 for my job. his base rate is $90 per hour.By his proposal, that would take him approx.13 hours to replace my fixtures.huh?

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I presume you mean "what if cost for work hours comes in far below signed contract" ?

BTW - $1195 estimate probably includes some materials too, so probably not 13 hour estimate. And I hope you live in Beverly Hills in a 10,000 SF mansion - because $1195 to change fixtures (presume you mean faucets and such) is an AWFUL lot if it does not include labor PLUS either basically a whole household of fixtures or pretty nice ones, unless you are including basins or toilets or such as "fixtures". If labor only, did you get multiple bids ?

If he gave an "estimate" - meaning a ballpark of what it might cost, but is charging by a standard hourly rate (plus materials), then you pay actual number of hours worked plus materials (including his standard markup). If he gave a firm bid or firm quote, saying it WOULD cost that much, then that is what you pay regardless, unless he can justify MORE money because of an unexpected change of conditioons tht he could not see at time of doing the bid.

I had one client REALLY upset once (cost the manager his job) - estimate for a significant remote site project was well over $3 million for a certain solution, leaving the "how to" achieve the emergency repair up to my company. Found a really cheap way to piggyback on another contractor's job that we knew was being done nearby and also using materials he had left over that his project's owner had already paid for but were not used because of a change order (reduction in scope) and had ordered them to discard or haul away (though new) because return shipping was so expensive. So the contractor just moved over to the new job as a sub to us when he finished his current job and did the work in less than two weeks with minimal new materials and only a couple of specialists being flown in, versus the substantial manpower and equipment and several months initially estimated. Presto - because the owner had not liked the possibility of job overruns (200-500% increases being fairly common on remote sites jobs due to overconfidence or underestimating shipping problems and lost time) he had demanded a firm price. Actual cost ended up being well under $1 million versus the $3 million plus he was charged. His choice, his loss - and no we did not give him any break because he had outright accused us of planning on overruns from the estimated price to gouge him, so we never would do another job for that customer anyway. When other clients asked about his complaining of overpaying, after explanation of what happened they all just laughed at his folly.

I have run into your situation a number of times before - when a client asked if the actual cost could turn out higher than the estimate and was told yes - depends on conditions, so they demanded a firm price. As Don and Todd Shell have said in prior comments, and as all contractors do, if you want a firm price it will cost more in most cases than going with an estimate, because the contractor has to protect himself against unforseen problems - with parts, mateials, labor, site conditions, etc. I have seen firm price repair jobs in houses (particularly with electrical and HVAC repairs) where hundreds of dollars firm price ended up being under $100 actual cost once the actual cause of the problem was located, like a $5000+ basement waterproofing and drain job I got from an architect once turning out to be solvable by just rerouting the neighbor's french drain discharge which turned out to be the source. And yes, I give a fair adjustment in that easy a case, both because it would just be unfair and of course would make for bad PR.

Basically speaking, if you go with an estimate you have both low and high side possibilities - might cost more, might cost less. If firm price your risk shifts to the contractor, so he has to include contingency amounts for the "what-ifs" - which generallyk are not less than 10-20%, but for unusual or large jobs with tight schedule can get very high. I have seen (and used) contingencies of over 300% on some very tight time schedule or emergency jobs - one I worked on the bidding for had 500% contingency for a job in a polar region that the client demanded firm pricing on, but risked massive transportation cost increases if lots of equipment and personnel had to be transported by air instead of ship because the open ice shipping season was missed. One mine job I worked on lost an entire year shipping window soon after the mine opened - ALL production for a whole year sitting idle till the next year - because the ice did not melt out so the freighters could not come in to get the ore concentrate out. MAJOR investment capital interest cost, and of course total loss of revenue for that year.

Look at the last few years and what happened to Royal Dutch Shell - they are out about $8 billion (yes, Billion) according to news reports, on three missed seasons of arctic offshore drilling in Alaska because they failed to get permits done right and failed to test equipment and a new drill platform properly before moving it to Alaska - got only a couple of weeks starter holes (NO useful exploratory wells) in 3 years and $8 billion, and now looking at abandoning the $2 billion in oil leases. Plus looking at substantial federal fines for the drill platform running aground while being towed. Original estimate for the leases and work was less than $3 billion versus the $8 billion spent so far. Want to bet their contingency did not cover that ? Plus accomplished none of the planned exploratory wells so the lease payment was basically wasted too.

Answered 6 years ago by LCD

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