Are Contractors and sub-contractors required to show expenses?
The short answer is no. most of the time. A Homeowner cannot usually ask for receipts or proof of expenses on a project. Legally the receipts belong to the contractor, and their Expense reports are always private property. However, there are always exceptions, and there are ways of protecting your investment by making sure your contractor is paying his bills.
Fixed Price Quote
Fixed Priced Quotes, called proposals in most cases, are exactly what they sound like. It's a written proposal for a fixed sum of money. When a contractor sends you a turn-key proposal, he has done all the footwork of calculating the job expenses, including materials and labor. They will also mark up those expenses by around 15% for their profit. This will be your turn-key or Fixed price quote. This number can change slightly up or down until a contract is signed but usually stays within a parameter. Once accepted, this will be your price, barring change orders. What does this mean?
It means you will have no authority over his expenses. For example, if he figured so much a bag for mortar mix and it went on sale for some reason, you will not get that discount on your final price. I will say, especially since 2019, this never happens. Usually, the material goes up and not down.
The point is when you get a fixed price quote, you are not privy to any receipts, whether it be materials or subcontract labor prices. A few homeowners have tried to harass and intimidate contractors into giving them information for their advantage, thinking they can "shave off" some of the prices, and unfortunately, this has worked at times. Doing this only intensifies distrust in both the contractor and the homeowner.
So, is there an appropriate time that you can ask for receipts and expense reports?
Time and Materials
Some contractors use a time and materials contract, commonly called Cost Plus. This is where you pay the contractor for the materials and his profit percentage without a fixed price. They may offer a quote, but the contract will state cost plus. In this situation, they can be required to show their expense and justify the cost. So using the same example of mortar mix. On his estimate, he said mortar mix was a certain price plus his markup. When he buys it, it is on sale, so the discount will be passed on to you. The new price will be the actual cost of the mortar plus his markup.
I do not use time and materials contract much. These types of contracts are mostly used by the handyman types of contractors or on smaller jobs. Some GCs will use it as well since more changes can happen when you are dealing with sub-contractors, and it is much easier to keep up with those changes with a cost-plus contract. While I do not use cost-plus contracts often, there are appropriate times when they are the preferred choice, even for me. One of those times is when I do restoration and repair work. There are many hidden expenses when you start messing with older buildings or those that were built or maintained improperly. A simple project can become a money pit when you start tearing things out and finding more problems.
The next question, then, is how do I Protect my investment and get the best price for my build?
Be in the Know
There are several ways to make sure you are getting the best out of your home build, both in quality and price. The first is finding a trustworthy contractor. Vet them thoroughly. Make sure that they are known and have a good reputation. Here is a link to vetting your contractor:
Review several of them and then arrange a meet-up with two or three you like. Do not overwhelm yourself by meeting more than that; at this point, you can interview a couple of more contractors if the first ones don't fit. DO NOT ask to meet them all at once or even on the same day. This is rude. Each contractor should get your full attention for the amount of time that is required. Seeing another contractor quoting a job when you pull up is not the best impression. Yes, we know we are not the only contractor you are looking at, but it makes us feel rushed and often feels like we are wasting our time.
Ask them which contract they prefer and why. It's great to get input from different ones as to why they prefer one over the other. Once you pick a few you like, you can ask for a quote or proposal. Proposals are used for Turnkey projects, and quotes and estimates are less formal and usually used for cost plus.
Remember, the cheapest price is often not your best bet. Make sure they are not missing something and compare what materials they are using as well as methods. This is especially true when someone is well under the average for the same quote.
With turn-key and fixed quote pricing, since you are not going to see receipts, you need to make sure all of the suppliers and subs are getting paid. To do this, every time your contractor makes a draw, you should get a conditional waiver of payment signed stating that at this draw, all suppliers and subs were paid to date. This takes all of the burden off of you and onto them. At the end of the job, upon signing the last check to your contractor, you get a final waiver and release of lien the This protects you if the contractor does not pay his bills. Find printable lien waivers here:
Conditional waiver-
Unconditional Waiver-
Have more questions? Leave a comment or email me! Let's work together!
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