Thursday, November 10, 2011

When the Homeowner Cuts Corners

I have encountered a new issue in home renovation projects that should put contractors on alert. Perhaps it is even time for a new contract clause.  I assume this is due to the state of the economy and the widely available access to information on the Internet, but homeowners are taking their construction into their own hands.  In one situation, the homeowner insisted on buying her own fixtures at a well-known hardware chain and asked the contractor to back the allowances out of the contract price.  In another, the contractor was told which personnel were acceptable on the job and was presented with a never-ending punch-list.

In both situations, the outcome was the same; contractors were seeing their profit margins dramatically reduced. What to do?  As always, the responsibility for educating the homeowner falls on the contractor.  The homeowner needs to understand that the budget should allow for at least a 10% increase over the contract price as a result of unanticipated change orders.  In addition, I strongly recommend that contractors build in a cushion into their pricing and that they mark up all supplies and labor.

You may think you are doing the homeowner a favor by passing on items at cost, but you are not allowing for overhead and other costs.  The homeowner must understand that the contractor has a relationship with his suppliers and will have more control over quality, timing of delivery and installation of fixtures if he arranges for the purchase of these items.  For that reason, I am considering including a clause in my contracts that states that the homeowner may not start bargain-hunting for supplies.  I already include a disclaimer for owner-supplied materials, but perhaps it is time to insist that homeowners stop micro-managing the process.  Or, alternatively, perhaps the contractor should insist on a mark-up if the homeowner wants to buy his own materials.

Finally, the homeowner needs to be taught what is an appropriate punch-list item and what is not.  I have a lengthy description in my contracts about what constitutes punch-list, latent defect and warranty items.  There should be a time limitation for identifying punch-list items and having them addressed.  Projects need to end.

These situations are remarkably similar to parenting.  Contractors need to set limits with their clients and define the scope of the relationship in addition to the scope of the work.  After all, they need to be able to earn a living!