How to Negotiate with Contractors Before and During Projects
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How to Negotiate with Contractors Before and During Projects

Tips and techniques to negotiate contractors for home improvements or large purchases.

In light of the current recession, consumers are finding it necessary to keep costs down for renovation projects and large purchases. Contractors are also feeling the pinch as the real estate crash has created a plethora of new competitors that were forced to leave construction sites and head for scarce remodeling work.

While many contractors are trying to look out for your best interest, they are also trying to make a living. As a consumer, you need to be aware of tactics some contractors use to drive up the final cost of renovations, unit replacements, and additions.

Terms of a Contract

The best way to keep costs in check is to know exactly what you want and make sure the contractor gives you only what you ask for. These initial terms are the most important part of any work, whether it be a simple air conditioning unit installation, or a large addition. Having everything written down prior to the work beginning is a must; the days of a firm handshake are over.

How to Negotiate

The most common negotiating tactic for a homeowner is to ask a contractor to match a competitor's lower bid. The typical response by the contractor is to ask if the bids are comparable, or apples to apples. Even though two different contractors may bid on identical work, they may use different grades of materials or appliances, such as the difference between premium and builder’s grade. Some contractors may also receive steep discounts from favored suppliers, or swap the agreed upon unit for a comparable unit. They may say that the unit that was bid on will take too long to get, or has warranty issues and try to get you to change it for their selection. This is a common trick contractors use, so make sure that you get the unit you want and if they can’t supply it in a timely fashion, they are responsible for an cost overruns due to their delays.

Costs overruns may be due to equipment rentals, rescheduling other subcontractors, inspections fees, and even interest payments on home equity loans. Make sure you communicate any specific deadlines you need to hold to. This may increase the bid from the contractors, but it will save you a lot of sleep later on.

A better approach is to ask your contractor to help you understand why their bid is higher than a competitor's. The cheaper contractor may have left out an important component, and when it is found out, he may try to charge you extra for a “change.”

Make sure that they are aware of any unusual building components that they may have to work around or remove and relocate.

Although the rule of thumb is to always get three bids from comparable contractors, I think 4 or 5 may be a better option, and here’s why. The first time you have a contractor come to your home and you go over your project, he may ask a few questions. You will use this information from Contractor A and transfer that knowledge to Contractor B. Contractor be may then ask different questions leading to a more complete understanding of what is required in the project. You will then transfer this new knowledge to Contractor C. This can go on for a long time, but Contractor A is unaware of the current situation and therefore his bid may not be in line with the other two. It may be lower and you may forget what was said to each contractor and you take his bid even though he doesn’t have all of the new information. You also gain experience during the bidding process and at the very least, you should revisit the first two bids and meet with the contractors again. The pattern would be A-B-C-A-B, again to be fair you may want to meet with C again. This is basically like going through 6 bids for the project.

Once you have a better understanding of why the bids differ, there are a few ways to ask for a discount:

• Explain that you like the particular model of equipment they're offering, but that it is outside of your budget. Ask them if they can work with you to stay within your budget.

• Explain that you expect to be a customer for a long time, and that as long as you're happy with their work, you expect to pass their name on to friends and colleagues. But, price is important to you, and would they be willing to reduce their price by a certain percentage.

• Ask if they can reduce their price if you're willing to be flexible on when they perform the work or install the equipment. You can also offer better payment terms, such as payment in cash upon successful completion of the job, rather than waiting to be billed and receive payment in 30 days.

There are some items other than price that you can negotiate, especially for plumbing and mechanical installations. Another option with a hidden upside for the contractor is offering an extended parts and labor warranty to close the deal. Two contractors reported that manufacturers often reimburse their dealers for extended warranties on higher-end systems. Contractors simply pass these savings on to the homeowner. They can also offer maintenance contracts at a reduced rate than if you were to get a service contract separately. You can also ask for options or accessories, such as high-efficiency filters, programmable thermostats, and the like.

Whatever you do, don’t make the negotiation process adversarial. You can’t ask the contractor cut his price to the point he doesn’t make any money.

Communication

Sometimes the person you deal with during the bidding process is not the person who shows up to you home to perform the work. When you ask for a price and agree on the terms, make sure you know who will be there and ask to meet them before you sign a contract,. Especially if they are going to be inside your home. Many contractors will state that they conduct background checks on all of their workers, but ask for a copy of it if you feel uncomfortable.

It is a common practice today to have contractors hire workers from other countries who may have some difficulty with speaking English. Many immigrant from Mexico, Russia, or Portugal enter the construction trades. This is perfectly fine as they usually have a better work ethic and are doing everything they can to make a living and support their families. This can pose a problem for the homeowner if a problem arises during the project and you need to discuss options. In most cases there is a foreman who can speak English well enough, but may not be able to handle every situation. During negotiations, make sure that if they use a separate work crew that you have a phone number of someone who will be able to answer your questions, especially in an emergency. You may also want to ask that they be there in the morning when they start the job, and stop out again at some point in the day that is convenient for the both of you to discuss the day’s progress.

Tips

Here are some additional tips to ensure that you get the best deal and amount of work for your money when you negotiate with contractors.

1. Don’t let the contractor rush you into making a decision. If they offer a large discount for starting the work tomorrow, stay away from them.

2. Choose all of your project’s details such as the type of tile, fixtures, hardware, etc. You can greatly control the costs and cut out the contractor’s increases if you purchase or at least dictate exactly which features you want used on your job. If they don’t want you to buy the material yourself, they are probably getting a discount from a supplier that they aren’t passing along to you.

3. Be clear about your scope of work. Never leave things open for interpretation by the contractor. And, also be clear about your expected start and finish dates.

4. You may be able to save a lot of money by paying your contractor’s subcontractors directly instead of through the general contractor. Doing so will help you avoid mark ups by the general contractor. However, you may be on the hook for any lapses in payment, so make sure you are capable of doing this for your project.

5. Demand itemized bids from your contractors. Ask who will work on your project. Will the individuals be employees or subcontractors? Obtain a list of all subcontractors and suppliers who intend to work on or deliver materials to your property. Demand itemized bills from the contractor at each payment period too. Compare these bills with the amount of work performed and the itemized bid you received at the beginning of the job.

6. Don’t pay up front for work that has not happened yet. Deposits should only be made for special order non-returnable items that a contractor may have to purchase for your job, or when your state law requires it.

7. Being flexible about the timing of your projects can help save you money as well. Work on the exterior of your home is usually cheaper in the fall, and interior renovations are sometimes cheaper between January and March when those types of jobs are slow.

8. Ask your general contractor to ask his subcontractors to lower their rates instead of asking the general contractor to lower his. No matter where the money comes from, most people are more inclined to help if they can keep the appearance of helping you work with others instead of just attacking the general contractor. Treat your general contractor as an ally or a partner, and you will both come away with a positive experience and savings in your pocket.

9. Don’t forget that your greatest power is that of walking away. The contractor needs your business much more than need the work done. You can also go elsewhere with little loss, while he has put in quite a bit of time to come up with pricing.

10. No matter what, do not issue final payment to a contractor until you are satisfied with the work. An amount of 10% for a retainer is common practice.

The last thing to remember is that although the contractor may have given you great references, the employees who did the work may no longer be with the company. Make sure that the references are fairly current, within the last 6 months to a year at most. When you call the reference, ask them who did the work and who they spoke with during the bidding process. This may not mean much for a sole proprietor, but it can make a big difference if there has been a lot of turnover in the company. National companies and franchises are especially susceptible to this problem.

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Comments (1)

Excellent article, I use many of these tips myself but its a good reminder for the ones I don't use regularly enough.

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