Can My Subcontractor Bill Me For More Than the Estimate?
As a construction company, you often work with subcontractors to get projects finished. This makes sense since there are specialized services that you cannot get from a single person. Working with subcontractors can be a great way to get work finished, but there are risks involved unless you take the proper steps to protect yourself.
If you work with a subcontractor that gives you an estimate for work but eventually charges you way more than the estimate stated, this can impact your bottom line. What you should do in a situation depends on several factors. In this editorial, a Chicago contractor attorney discusses what to do if a subcontractor bills you for more than the estimate that he or she provided.
Related: Approaches to Cost Estimation
Request an Explanation
The first steps that you should take are to try to understand where the price increase comes from. Start by requesting an explanation of the changing costs. A subcontractor should be able to tell you why a project cost significantly more than what they estimated. There are many reasons why there would be a price increase. For example, there could have been unforeseen circumstances like wood rot or another problem that required additional work to finish the project. Whether it will slow down progress or require additional materials and work to repair, unforeseen circumstances can add to the cost of the project.
It’s also not uncommon for there to be problems that change the cost of a project. However, the subcontractor should have notified you of these problems when they were discovered. This would give you a chance to renegotiate the price of the work based on the new information. Failing to do so is not an excuse for increasing the cost of the project if the subcontractor did not have prior approval to do so.
The cost of materials may also have been a concern. Subcontractors have a good idea of what it costs to purchase materials for a project. If a subcontractor changes materials, they should notify you of the price change. Failing to do so is also not an excuse for raising the price without prior authorization. Any time a subcontractor does something that would increase the cost of a project that you need to agree to, you should be notified immediately before further action is taken.
Read Contract Terms Carefully
If you are not given a satisfactory answer when asking about the price increase, review your contract with the subcontractor. Contracts have very specific terms for this exact reason. It makes it difficult to make changes that will change the outcome of the project without approval if a strict contract is used.
Where many construction companies run into problems is accepting estimates as quotes or contracts. An estimate is an educated guess of how much a project will cost. Estimates are not binding contracts in the way that contracts and quotes are. A quote is an offer to do the requested work within an acceptable price range. You can rely on the price estimate of a quote because it is an offer for a binding contract.
Any time you have work done by a subcontractor, there needs to be a formal agreement signed by both parties. This will eliminate any chance of changing the cost of the project without approval since you will have everything you need to dispute the price increase in legal processes if necessary. If you accepted an estimate as your contract without explicitly signing a contract, then this may be the source of your problem. Still, it is not an excuse for the subcontractor to change the price without discussing it with you first. While it may be more difficult to enforce the estimates in court, it is not unheard of.
Related: Types of Construction Cost Estimates
Ask an Attorney for Help
If you find yourself in a situation where you are having a dispute with a subcontractor about the price of a job, contact an attorney for help. A Chicago construction law firm can help you analyze the situation and find the best course of action. This could involve building a dispute case or negotiating with the subcontractor. Whatever the proposed resolution, having legal advice makes it easier to make informed decisions.
Your lawyer may be able to resolve the situation without resorting to extensive legal action. The resolution could be as simple as negotiating a better rate with the subcontractor. Using the evidence that is available, a lawyer can argue that the lack of informed consent makes it the price increase indefensible. You may find that having your lawyer address the problem with the subcontractor could effectively resolve the problem without having to go to court. Subcontractors may be more willing to negotiate when a lawyer is involved.
Approval for Changes
To prevent these types of problems from developing, make sure that all your contracts and agreements stipulate that you must provide written approval for changes. This will apply in situations where the subcontractor changes materials in order to adjust the price of the work. That way, he or she must approach you with the possible changes before completing any of the work so that you have a chance to review it and agree to it. More often than not, this resolves the problem in an acceptable way for both parties.
Some subcontractors change the type of materials during a project as a way of increasing how much they can charge contractors. This is called unjust enrichment and can be a common practice in some areas. Essentially, the subcontractor switches to more expensive materials so that they can inflate the cost of the job. Because this change was not agreed to, you have a defense in court if needed. You can also prevent unjust enrichment by negotiating contracts with specific costs and material requirements.
Resolving conflicts with subcontractors is a tricky subject for contractors because it’s important not to alienate any of the companies that you work with. Take care to make sure that your contracts are well developed to protect yourself from these types of situations. If you have any questions about construction contracts and construction law, contact one of our Chicago construction lawyers from Cotney Attorneys & Consultants.
If you would like to speak with one of our Chicago construction attorneys, please contact us today.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.