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I heard from a good friend yesterday morning about a scam a local building owner is pulling on his subs. He has several properties and is apparently worth a considerable sum. Anyway, this guy likes to hire contractors and then work them over to see how low they will cut their prices on the jobs he has already contracted for. He does it almost like a hobby or a game.

What he does is get bids on a job, and then hires a contractor to do the job. He waits until after the job starts and then starts asking the contractor questions like “How much is your markup on labor?” “How much is your markup on materials?” “How much is this or that?” He keeps this up for several days until he sees the contractor getting nervous. Then he approaches them and says they have to “renegotiate” their contract, he can’t possibly pay the outrageous fees they are charging. One contractor working for him right now has been negotiated down to a markup under 12% on labor and materials, no markup on the subs.

Where do I start?

First, some jobs aren’t worth having, some people aren’t worth working with. If you find a building owner or general contractor who operates like this, walk away and encourage your friends to do the same.

Second, always make it clear that your quote is the bottom line, it is not negotiable. You tell me what you want done, when, where, how tall, what color, and I tell you what it will cost to have me do it. End of conversation.

Third, your markup is proprietary information. If someone asks, tell them that. If they push it, ask them how much money they make, what did they pay for their house, how much they weigh, how much does their wife weigh, where do they buy their clothes, how much is their car worth? Some things are nobody’s business.

Fourth, make sure you have a signed contract with the price specified before you start any work. Make sure money changes hands early in the contract so you don’t find out after finishing the job that they won’t pay you. In your contract, have a paragraph of language that gives you the right to cancel out of a contract if the owner is non-compliant (as in missing a payment) and if that happens, the owner owes you expenses for all labor, materials, subs and other costs plus a percentage for overhead and profit. Check with your attorney on how to write that paragraph, but get it in your contracts and the sooner the better. Be sure to exercise any and all lien rights.

Don’t fall prey to this kind of nonsense gang. You are in business to provide a service and make a profit doing it. If the customer objects to your fair price, walk away. If they object to your fair price after signing a contract and having you start a job, protect yourself every way possible, walk away as soon as possible, and tell your friends.

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