Whenever we do a home improvement we first find a contractor or company whom is going to do the work and ask them to give us a written estimate as to the total cost of the work to be done. Most contractors will first present the customer with a lump sum price. Do not accept this and do not ask for a discount on a lump sum price!!! Each estimate is comprised of three or four items; the costs of labor, the cost of materials, taxes, and the costs of the overhead and profit of the contractor. When you ask for a discount on a lump sum price one cannot be sure where the discount is coming from. As a home owner you don't want the discount to come from the quality of the materials. Secondly you don't want the contractor to discount the labor by hiring less than perfect craftsmen. You want the discount to come from the contractor's profit margin. A fair profit for the skill and service of a contractor in Texas is 15-20% on each job or project. However, I am seeing many companies making a killing off uneducated consumers on an average of 35-60% with not so wonderful craftsmanship or material.
Your First 5-10% Discount
So the best way to do this is as follows. One, ask the contractor to break the estimate down into its 3 or 4 parts. (Labor, materials, Taxes and OP: Overhead and Profit). Remember some contractors will apply a small profit margin on the material and a larger margin on labor. In a written contract specify that the contractor use only craftsmen that have a minimum of 5 years hands on experience in doing your particular desired task and make sure that if the job is subcontracted out by the company you’re paying that they warranty the work of the subcontractor they are using. For example Home Depot hires out all of its contracted work yet warranties the work itself. You don’t want to come into a situation when someone says, “Oh that’s an improper installation issue, I just sell the materials you will have to go find the installers yourself.”
Get a labor square foot, per unit installation, price if applicable. Locking this in prevents the contractor from charging more later on in a project should you decide you want to do more work. Then ask the contractor to break down the exact materials to be used by name, brand, and specifications for the job and offer to go to the supplier and pay for the materials yourself. All contractors mark up materials. If you pay for the materials and pay the supplier to deliver the materials; you avoid the mark up and you make sure you are getting the right quality materials for the job. (Nothing gets switched out in route to your house). Plus, you maintain control of your money and this avoids the ½ down up front never see you again situation.
It also helps you from being over charged. For example: The contractor says you need 1,000 square feet of wood flooring and you buy 1,000 square feet from the supplier. You have it delivered and you know how many boxes equal 1,000 SF since you have the invoice. When the job is finished and you have too many left over boxes then you were mislead as to the square footage of the project. If you have the labor rate separated in your contract at a per square foot price then you can say, “Hey I have 200 square feet left over of material and you charged me $2.50 a square foot for labor to install it I am subtracting 200 x $2.50 = $500.00 off the final balance of the job. I always write on my contracts exactly how many boxes are going to come to the house. Watch the installers toward the end of the job they will start moving extra material to their trucks to avoid you from seeing this overcharge as well since they get a paid cut for this extra ghost square footage as well. Remember all material is yours if it comes to your home!!! Count all the boxes. If the contractor gives you any problems about not paying once he or she is caught, then just remember this phrase, “Theft of Services”. If you pay a contractor for work that they do not perform then you can file a complaint with the local district attorney’s office for theft of services. Don’t be afraid to use this term if the contractor tries to collect on work they didn’t do or add square footage that never existed.
Note: The best way to find a supplier is to contact a products manufacture. They will then give you a list of certified distributors/ suppliers of their product. All contracts then go to these distributors to get the material they use in your home. Some suppliers will not accept payment from the public but many will. It’s worth a try or at least a phone call to see how much they charge. It is safe to say the contractor will always mark materials up 10-30%. So if you have to use a contractor to procure the materials no matter what get 5% discount here.
Your Next 5-10% Discount
Now that you have specified and control the materials to be used for the job the next discount will come from the labor line item. Most labor is marked up 15-25% in Texas. Wow, I know right? Ask for a 20% discount on this line items total. Settle for 5-10%. Never settle for no discount as the meat of all profit for the contractor or sales rep commission is hidden here.
Your Next 5% Discount
Part three of the estimate should be a tax line item. Taxes should only be calculated on the material costs only. The reason contractors give you a lump sum bid is so they can tax the whole project. It is illegal in Texas to tax a home owner for labor. There is no sales taxes on labor!!!! Contractors and retailers don’t pay taxes on labor in a contract to the state or government and neither should you. By making the contractor or salesman separate taxes you will get a discount. Salesmen and contractors tax the whole project and keep the added tax they charge you on labor as straight profit. Or they give you a discount of say 5% to get you to sign the contract. What they don’t tell you is they over charged you tax in the first place. So you will get an average of 5% discount in taxes if you make the contractor break out the bid and only tax the materials per law. Empire flooring company will not break out their bid since this exposes this trick they use in over charging their customers. Also note: when you pay for the materials you know what the taxes are and you control this number. If you buy the materials taxes are no longer a factor for the contractor to charge you.
Overhead should be 5-10% of the overall total labor price. Not the materials!!! as you went through the trouble of handling the payment and delivery of the materials this is no longer a factor for the contractors profit or overhead factors. Anything higher than 5-10% is a red flag the company is not efficient and you should avoid that company. I don’t even have an O&P line item in my estimates as I bury my O&P in the labor line item. My over head is only 6%. Companies that say they need anything above 10% for overhead will not be in business long which means how are you going to get a warranty a year from now? Tell this to the salesman and see what excuses they make up not to mention the look on their face when they don’t have an answer; as they just got caught over charging you.
Breaking Out The Bid In Its Basic Elements: (I Will Write A Blog On the Elements of a Great Contract At A Later Date.)
Labor/ Installation: $2.50 a Square Foot x 1,000 SF = $ 2,500.00
Materials: 1,000 SF x 5% waste add 50 SF =1,050 x $2.99 A SF= $3,139.50
Tax: Materials: $3,139.50 x .0825%= $259.00
O&P: Usually buried partly in the materials and mainly in the Labor section already so be wary of this line item.
Total Cost of Project: $5,898.50
If the contractor does not want to give you a breakdown as described above walk away!!!! When contractors file their taxes the state and federal government asks for this breakdown and they can't say no so why shouldn't you get this same information it is your home and you're the boss since you are paying.
Second if you get a break down of the actual square footage of a room, as in a flooring bid, the labor price should be x times the exact room square footage amount. Most salesmen in a lump sum bid will add a 5-to 10% waste factor to a bid and thus mark up the labor as well. There is no waste factor in labor for a room size. A room size is what it is. It is a fixed number. The only waste factor is in the materials that are used not labor and if your room is a perfect square the waste factor for the materials should only be room size, times 5%, times the price per square foot of the material.
When you as a customer don't get a bid that is broken out then you set yourself up for overpaying for a job from the start. When you ask for a discount from a bid that's a lump sum price beware the discount may be tax that you shouldn't have paid anyways, a discount from added labor that was above and beyond the actual square footage anyways, or even if you get a discount you may then have the quality of the material or craftsman's switched out on you. This is your project take time to control the different aspects of it. This will also help to avoid cost over runs and weed out any contractors that are rip offs as unprofessional contractors want to only deal with people they can get easy money from. Professional contractors are used to abiding by these terms and conditions and will not shy away from your requests for a break down as they have nothing to hide and plan on staying in business.
Written By,
David Hill Always available to answer questions: 818 274 4029
President/ Owner: Texas Best Flooring Company, Inc.
Builder of Los Angeles Unified Schools and Public Works for 10 years in Southern California.
Builder of Los Angeles Unified Schools and Public Works for 10 years in Southern California.
(One Of The Toughest and Most Regulated Building Environments In The World.)
