Price Gouging For Change Orders, Please Define?

Ed the Roofer

In the estimating and markup forum of another bulletin board, there was presented the question of a HO believing the poster was charging too much for a potential change order. (See: "Am I charging too much?")

What documentation is required to arrive at whatever figure you felt you needed to charge for any additional work outside of the originally agreed upon scope of work?

What is the definition of "Price Gouging" as it relates to the construction industry, especially when you are working under an existing contract, and basically, the HO is a captive client?

I once read, but have been unable to find the document, that defined this action to be so, if the price being charged were more than 4 times the going rate or industry accepted average for the work in question. That therefor, begs to define how the going rate or industry averages are to be determined, since each entity has its own OH & P requirements.

Ed

PressurePros

Ed, I think as long as a contractor charges U&C rate on labor and material markup he is not gouging at all. Take that to a realm where a contractor doesn't want to do the additional work or knows that the customer could not get someone else to come in and do the work then charges more than the customary rate.. that's unfair.

From a customer's perspective adding anything other than additional material cost is probably considered gouging. They figure you are there so whats the difference if they change their mind on a material.

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George Z

Fixed price based on :

man hours x company rate + materials + 10% commision to crew leader

It is not gouging but easier to sell since there is nobody else bidding.

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mdshunk

There is no such thing as price gouging. The customer is free to hire someone else for the changes/additional work.

Murphy

Change orders are a pain in the azz. If a home owner wants to start changing a project in the middle then stick it to them. Oh by the way while your here can you fix that and this and this.
Every one gets treated fairly but when home owners start effecting the scheduling due to changes in the scope of work. Sorry but you are going to pay for it.

J F

amen MD

J

Doc2626

My first reaction was "you're kidding, right?", but then I re-read your post, and see you weren't!

Bet you get a lot of new customers that way! (and darned few returns!)

mdshunk

Doc, you may be interested to know that I'm busy every day of my waking life. You'll also be interested to know that what I write and what I do are sometimes different. I believe in keeping prices within reason, but I also believe that there is no such thing as price gouging. Nobody's holding a gun to anyone's head and making them do business with anyone in particular. You can't gouge someone who's willing to pay what you say you want.

boman47k

Knew a "painter" once that would bid cheap to get a job, then upcharge for caulking, and anything beyond fixing a few nail holes. I kind of thought that was shady. He and his brother painted the trim o n a guys house. He had priced the painting. Heheh, glazing the windows was not mentioned. Heheh, they has some heated words hejust painted over the old gapped up glazing! How ppl like this keep going beats me.

Doc2626

Don't get your back up, mdshunk! I guess I may have come off a little heavy handed, and for that, I apologize. If I do it again, I'll wait until we know each other better, okay? I wasn't taking shots at you, but I imagine you can see that the flavor of your post kind of seemed like you were saying that gouging doesn't exist.

I think we both know it exists. To me, charging exorbitantly, for something that the customer doesn't understand (which can cover a LOT of territory), or for something they have a desperate need of, is gouging. I don't feel right doing that, and if I catch one of my people doing that, they're gonna be gone!

Now, that said, charging a PREMIUM for something, like accelerated schedule, or the like, is different, in my book.

Unfortunately, many clients will end up saying that they feel they were gouged, and some of them are correct. Fortunately, I think most of them are wrong.

Driftwood

These are My rules of engagment. $70 per hr.carpentry T+m only.
ALL change order work to be paid at end of change order work!
NEVER NEVER at the end of whole project. You have less leverage at that point,usually ,if the Homeowner, wants to dance with You.
My rules have been learned the hard way !

john elliott

What if the change that the HO wants to implement actually means less work/less materials for the contractor? Do they get any money back?

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Doc2626

A fair question, John. I would say, yes, to the extent of labor and materials savings, LESS lost time and re-engineering come into play.

Ed the Roofer

A method to deal with reduced scope change orders, is to deduct the cost of the actuals, such as material costs and actual labor costs, but do not deduct the overhead and profit from the change order. After all, this originally scheduled work was part of the original agreement, and to eliminate the profit and overhead cost, would deprive you of your already agreed upon fair compansation.

Since the work will not be getting done, the OH may wind up being less than originally calculated though.

Additionally, a contractor should be charging for all of the time preparing the C/O and calculating the costs for the change in scope. Unless, you feel you are not worth getting compensated for your time and knowledge.

This brings about another point in the change order process. How many C/O's are too many? What of the HO who requests many what if C/O's and does not proceed with the work.

In this situation, there should be a fee structure on how you handle the C/O process in your initial contract agreement, or at very least in your first change order presented, that there will be a fee just for creating the C/O regardless if the work is accepted or not. The fee is not to be intended as profit driven but rather as a means to end the enless lC/O trequests. This will eliminate the "I want to try on dresses for comparison, just to see how they look" effect.

Ed

gcmiami

This is a serious topic. I think anytime you know when you are doing somethine unscrupulously, intentionally trying to scam other people, that is what price gauging is all about.

StormTech

Like most things change orders should be discussed in your contract prior accepting the work. Some are very minor and have no impact upon your timetable for completing the job. Others can significantly alter your manpower schedule thus occuring additional expenses and time to your current job unrelated to the change order. (E.G. Adding a new wall right in the middle of your drywall people being on site.) The ability to handle such change orders greatly improves your chances of a nice referral. In such a case I bid out the change order with standard O&P as the original bid and add on a project impact fee to cover the additional expenses at which time I sit down and explain it to the customer. lol..course Im a newbie here so take the advice as you will.

boman47k

Interesting.

rino1494

I know a excavator like that in my area. He will give someone a price and when the job is done, he charges for extras. He has lost alot of customers in recent years. In fact, there are a couple that we now do work for

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Ed the Roofer

Welcome stormtech, I like your thinking so far, based on the many posts you have to date, (2).

Ed

Tscarborough

There are enough "depends" in that question to outfit the old contractors retirement home for years. As a rule, if you use CO's as your main profit center, then you are abusing the system. Conversely, if you are not making money on CO's then you are a fool.