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Construction Programs & Results Inc

We Like to See The Good Guys Win!

Gouging?

by Michael Stone

An earlier post of ours is getting a few homeowners riled up. The post is titled "Is My Contractor Overcharging Me?" and discusses homeowners who have contacted us, unhappy about the prices their contractor is charging.

A homeowner (named MC) posted this comment last week -

"all this goes out the window if you are gouging your cutomers and they can’t afford to pay. Most people don’t make 15 or $20 an hour so they don’t feel thay should be paying it to someone else. You must all work for rich people. I just had a remodeling company take 36 hrs with 2 guys to patch 2 holes and skim a wall that had some glue stains (not even the glue, just stains) to prepare to paint. (the room size is 8x 10 and they only had to do one side!! ) oh yes and they scraped the ceiling as it had some old texture on it. It should have taken 1 guy maybe 4 to 6 hrs. they sent me a bill for over $900 dollars. I am sending it back telling them it’s outrageous! probably worth only half what they are charging if that. In this economy you should be grateful for what you can get not trying to gouge customers. is my contractor overcharging me ?? Judging from the posts on this forum -YES!!!"

The second homeowner posted earlier today -

"I have to agree with mc on this. Contractor are out to rip off the unexpecting consumer. In the end, the one’s that question the work are the one’s who get a fair price. Has anyone here taken an accounting course. People want a break down of their prices. Of course you don’t want your customers finding out they are paying $50 for a $10 because they will go somewhere else. Get real, contractors are a gip and should be enforce to have fair accounting practices which include breaking down labor, material, parts, and drive time. Granted you shouldn’t have to advise your markup, but you are give misleading information with only a total.

I had 1 gallon of water pumped from my crawl space and a boot flashing replaced on my roof which in total took 1 hour of labor. I received labor of $67 hour and the flashing $20 for material. I later received a bill for $350. When asked for a breakdown and explaination of charges, the company was still vague and kept changing billing items. In the end, I took it to the Better Business Bureau and that corrected the problem quickly. The sad part, this company was even accredited by the BBB.

Contractors should be castrated in the sense they should no longer long to run an unfair business to even worsen the economy."

One of our blog policies is to not allow flaming comments, and calling for castration is uncomfortably close. But we're letting it stay because if you are in a construction-related business, you know it's said, and it's better to face this stuff straight on (there are a lot of ways to spell "stuff").

If you haven't heard me talk about the downsides of cost-plus, or time and material contracts, read it now. Both comments are "poster-children" for why cost plus or T&M jobs are a fight waiting to happen. Both homeowners would have been better served with a fixed-price contract knowing what they would pay ahead of time, and both contractors wouldn't be fighting to be paid for their work.

I enjoyed the comment from the second post - "Has anyone here taken an accounting course. . . . (contractors) should be enforce to have fair accounting practices which include breaking down labor, material, parts, and drive time. Granted you shouldn’t have to advise your markup . . . "  Let's discuss that accounting course. If I take the sales price and deduct labor, material, parts, and drive time, what is left? Markup is proprietary company information.

I'm not sure what the price you quote a customer has to do with fair accounting practices - if your business doesn't follow fair accounting practices, you'll have to take it up with the IRS, not your clients. But tell me, does your doctor provide a labor and material cost breakdown when you visit? Have you ever asked how much of an office charge is labor and how much is overhead and profit? I imagine your CPA and lawyer work by the hour - do they tell you how much of that hourly rate is for them and how much is overhead and profit? Do you even ask, or assume it's none of your business?

The contractors I know are out to provide a service and make a fair living doing it. Many of them are part of the small business entrepreneurial culture in this country, improving everyone's life while they support their families, their employees, and their business. I don't have a clue how contractors are making the economy worse - as far as I know, they have no impact on the cost of oil, don't fund questionable mortgages, and are not big players in the stock market. If a contractor doesn't charge enough for his work to pay all job costs, cover his overhead and make a fair profit, he won't stay in business. And every business that fails is bad for the economy.

I need to add one caveat - I know there are dishonest contractors, and I know there are well-meaning contractors who aren't great businesspeople. One of our posts earlier this year discussed that. I don't know if the experience of either of these homeowners was with a dishonest contractor (a "D" contractor) or not, but my first impression is they worked with well-meaning contractors who are making serious mistakes in the way they run their business. If I'm wrong, and the contractors were dishonest, I apologize for their behavior. They are not representative of a majority of the construction-related businesses.

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NOTE: We've moved older comments here - www.markupandprofit.com/blog/gouging-comments

 

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