We received the following note today from our website – this type of situation happens all too often, but not everyone has the courage to face it as our writer has. All identifying information has been removed to protect privacy.
I am a contractor and I have underbid a house by 14000$. I am almost done and just figured that out. I can not afford this loss. What can I do besides bankruptcy? I have copied all the bills and gave them to the homeowner to try to get him to help me out.
My Response:
Sorry, I don’t believe in bankruptcy. That, at least to me, shows the individual refusing to accept responsibility for their own action or lack of action. In my opinion, attorneys promote bankruptcies because their meter is running during the whole process and they get their money regardless of how it all washes out.
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Next I would suggest you get our Fast Track Estimating program and that will eliminate these kind of errors. It would take a bit of work to adjust the database to suit your company, but based on your note it would be time well spent.
As to what you should do now: I would get back with the owner and tell them what bills you can’t pay. Tell them to write a check directly to the supplier or subcontractor as the case may be and this will probably stop liens being filed against their home.
Most owners who are faced with this problem, pay the bills. They yell and scream about contracts and price quotes, but errors in estimating by contractors do happen. The other side of this is if they don’t pay the bills, they will have liens placed against their home immediately by the subs and suppliers. If they come back at you claiming a default on the contract, they may or may not be right depending on how the contract is worded. However, being right and then pursuing it through the court will end up costing them a lot more than if they just paid the bills and were done with the whole thing.
Be real careful here and don’t agree to sign anything or pay anything unless and until you are very clear what is going on and that you are going to get out of this without spending any more of your own money. Check with your attorney on everything……….FIRST.
The Bottom Line:
Bankruptcy isn’t the answer. Go back to the owner, show them the bills you can’t cover; there’s a way to have them help settle those that also keeps liens off their home. Most owners pay — they’ll grumble, but estimating errors happen. Don’t sign or pay anything until you’re sure it won’t cost you more, and talk to your attorney. The article explains how to have the owner pay suppliers directly.
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The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses. He is the author of Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations. More here.
