@kudzu9, thanks! I had no idea! I was assuming I needed to find someone who specifically dealt with construction cases, so thanks for that tip!

Both sides would need to agree. Keep talking.

@Jeffrey R. Grenz, General Contractor, thanks, I think he will agree, mainly because he was the first to say, "I want to do what's fair to both sides." It was also written into the contract that we'd use a mediator/arbitrator (are they the same thing?) if need be.

If you are in the Southern California area, I can recommend contacting Judicate West. They have several offices in L.A. and Orange Counties. I have no affiliation with them but used their services for many years mediating civil litigation cases.

Mittens Cat-

I was a little sloppy with my language, so let me clarify. Arbitration is usually a service that is binding, whereas the mediation I referenced is something where the mediator is trying to get two parties to work out a settlement and doesn't adjudicate. Professional arbitrators can specialize in particular areas, are sometimes court-appointed, and can charge significant fees for their services. Mediation is a less formal and more friendly process and, if successful, you end up with a written agreement put together by the two parties in their own language, with some guidance by the mediator. I went back and slightly amended my first post to make it more clear.

Good luck.

Mittens Cat-

You can Google for mediation services in your area, but you have to be selective. There are lots of for-profit mediation services, often those affiliated with law practices. But if you dig around, you should be able to find a quality non-profit serving your community. The one I volunteered at covered a very wide geographic area, so you might be able to find help even if you can't initially locate one that's headquartered in your town/city; I would sometimes travel 50 miles to attend a mediation. Here is the link to the mediation service I used to volunteer at so you can get an idea about what to look for and what the process entails: The Dispute Resolution Center of King County

Post the nitty-gritty please. We'll arbitrate for you. You may not like what you hear.

Thanks all.

I will share basics, but feel weird about posting too many particulars. Please feel free to ask any and all questions, as I might accidentally be leaving stuff out that is important.

We chose our G.C., Pete, based on rave reviews around our neighborhood. Granted, nearly all of these came from neighbor who hired him to remodel kitchens and/or baths, not full remodels, but they all said great things, most importantly: "He's honest, does excellent work AND comes in under budget!"

Most enthusiastic review was from an acquaintance of ours who is a longtime construction manager and attorney for a large municipality in our region. That endorsement was good enough for me. My much more analytical husband, though, was concerned from the start that, while a great guy, Pete didn't seem to have adequate management/organizational skills for a full remodel. Most concerning was the bid sheet. It was on the thin side. Husband sat down with Pete with a competitor's bid sheet to fill in the blanks of items and materials that Pete left off. Together, they drew up a contract, which in retrospect, was not tight enough (lesson learned--more on that later).

Pete's estimate for the project (renovating a 50 year old, single story, 3/2 ranch house and adding 700 SF of new construction) was $270,000. This was to cover the cost of labor (for himself and one assistant, but sometimes several other subs/helpers) plus all materials. Beyond basic building materials, this included new HVAC, windows/doors, all new kitchen, master suite, small office and family room. The original two bathrooms were fully renovated. The project, Pete said, should take 6-8 months.

Every week, he gave us an envelope of materials/supplies receipts and an invoice and we wrote a check. We tried to work in an incentive clause in the contract to get bonus for getting the job done faster (as we were renting a nearby condo that wasn't cheap), but he refused, saying he'd much rather "just take 15% at the end." We presumed this 15% was a "bonus," and since our neighbors had mentioned they gave Pete 20% because he came in under budget, we thought that sounded fine (expecting to tip him 20% like everyone else).

The first month, January, rains came in and washed away all the prep work done for the new foundations. The work had to be done again at least once, maybe twice. So we didn't get off on a great start.

By early Spring, we realized costs were higher than they probably should be, so we started making cuts, eliminating about 20% of new windows, giving up on a metal roof, etc. We generally had a sit-down meeting once a week, and we shared our concerns but he basically gave the "it is what it is" response.

It was then we realized he was a perfectionist's perfectionist, which sounded great when we heard about his craftsmanship from the neighbors months earlier, but not so much now, watching him and his assistants taking for-ev-er to (perfectly!) tile the master bath. Another small example: Pete loves multiple light switches and was enamored with the idea of having 2-3 switches for several of our recessed lights so we wouldn't have to walk more than 8-10 feet to turn off a light at night. We assured him this was not a priority for us, that we were fine taking a few extra steps, but he insisted and we decided not to fight him on it. (Every time I turn on a light I wonder how much extra $$ in labor that cost us.)

As the weeks ticked by, we were getting more ticked off. Pete said he'd have us in the house by late Aug. Then Oct. 1. Then by Halloween. Then Thanksgiving... at that point we said we're moving in whether it's finished or not and finally moved in mid-December. Feeling wiped out mentally and financially, we put a hold on all final touches (backsplashes, mirrors, closets, etc.). Then the pandemic hit, then husband got furloughed, ouch.

When we added up all the construction costs, it came out to around $200,000 over Pete's bid.

Now Pete is asking for his 15%. We contend a bonus doesn't make sense when the project was 75% over budget (and still isn't finished). We didn't want to be total jerks, so we offered him $5,000. He said he wanted to be "fair to all sides," but still feels we should pay him closer to $35,000. Biggest problem: the contract is not real specific on this issue.

So, are we being clueless rookies and should just pony up? Or should we consider mediation? Arbitration? Or??

Thanks!

I forgot to mention:

Regarding materials, the only thing we really splurged on was tile in the master bath. I think it was $12-13/SF. Otherwise, IKEA vanities in each bathroom (though plussed-up with Semihandmade wood veneer fronts in two of the bathrooms). The kitchen cabs were semi-custom, and kitchen appliances were moderately high end with hefty discounts for cosmetic defects, so not a big splurge there.

To Pete's defense, he said he did not expect the job would require all new electric and plumbing. That, he said, was a surprise. My husband is sure they discussed this from the start, that a 50 year old house with aging pipes and wires would obviously need to be re-plumbed and rewired, but so far we've found no documentation of those discussions.

So this is a cost plus contract? You owe him the 15% over the materials and subs cost. That’s standard for cost plus. And it’s low for the markup. A cost plus is the most open ended of any of the contract types, and it’s up to the homeowner and designer to select things that fit heir budget. Budget responsibility isn’t on the contractor. It rests on the homeowner.

A 500K project is not a 300K project.

I'm embarrassed to say I didn't even know the phrase "cost plus contract" until a few hours ago! OK, thanks for the input! p.s. I believe materials came in fairly close to budget; it was labor that was way over.

His percentage compensation package is not a ”tip”. That’s what he gets paid for the GC work. If he’s worked on the whole project without charging you that as the invoices went along, then he has made no money. His work as a laborer on the job is a separate form of compensation than his work as the job general contractor.

Understand that GC work and the fee for that isn’t job labor, like framing, tiling, etc. etc. He can hire himself for that labor role, but GC work is in the scheduling, supervising, logistics, communicating, problem solving, delivery, utility person, job gofer, quality control, etc. It’s executive level, even though he may also do physical work as well. He’s the job parent. That is what the markup on materials and subcontractors covers. 15% is low for a cost plus arrangement.

@User, oops, I probably should have mentioned we were paying him $4,000/week, through the year. That covered him and his one helper (when others were brought, we paid them separately). I didn't realize the 15% wasn't a tip.

Another thing I should probably mention, my husband and I managed a lot of the project (purchasing, interviewing/hiring subs--painters, etc, ordering windows/doors/HVAC, etc.).

Again, a GC can structure the job where he can hire himself for some of the labor. Which is what your weekly payout sounds like it was for. It depends on the contract. But the markup on his portion should be omitted from the overall compensation terms. The markup should be on the other subcontractors and materials only.

If you were paying him weekly more as a project manager, rather than as a GC, then he had no hiring and firing ability, or any real ability to control the job of others. If you paid the subcontractors yourself, separately, instead of paying disbursements that allowed him to pay them, then you were technically the general contractor who was responsible for all of those job roles listed above.

The written contract rules. Before you do anything, you need a construction lawyer to review it, to clarify roles, and responsibilities.

@User, thanks! I appreciate the education!

I have been emailing a few local construction attorneys. No replies yet, which makes me think I haven't much of a case (?).

Is the 15% written into the contract language? Was the contract value (bid sheet) and schedule attached to the contract as exhibits?
From what your description indicates, the stated 6-8 month $270k project took 11 months, cost $470k, and wasn’t even really completed? Were change orders issued for modifications from original scope & spec?
If that’s accurate, stand your ground...this advice is coming from an ex-GC.
Really (as always) comes back to contract terms however. If the contract is cost plus (with no scope, value, time limits) you may be required to pay, but you will have a good argument that Pete did not abide by agreement to deliver a project on budget/schedule, nor warned you when that was veering significantly off course. Cost plus does not imply open check book, he has responsibility as well to deliver in a professional manner. Doubtful you contract has a damages clause, but your additional cost of lodging is an obvious claim you have against him. These disputes are complicated, but agreed mediation is the best first step.

Good gravy. Keep calling lawyers.

Your situation is complicated enough that anyone here is going to struggle to give you advice. Consult an attorney to help you straighten this mess out. The question isn't really about you having a case, it is about pursuing a case being in your best interest.

It sounds like you have some version of a time and materials contract and from a legal perspective they can be much more complicated than other contracts. Six states essentially ban time and materials contracts and other states have statutes that make them much more nuanced than other contract types.

For all the people talking about what the contract says... It doesn't matter. If the OP's original full estimate was $270K and the contractor is over by $200k in labor... The contract likely isn't worth the paper it is printed on.

I can’t imagine a builder working for a tip!! Can’t imagine any sort of gratuity in your contract.

I'm sorry to hear about your predicament. I'm another clueless homeowner in the midst of a similar project - addition of about 500sqft plus remodeling much of the existing house that was built in 1950 and expanded in the 1980s.

It sounds like one of your problems was the communication along the way. How did Pete devise his bid - did you have construction documents that specified all the necessary work? If the scope of work changed because of the realization that the house needed all new electrical and plumbing, didn't you discuss the costs and implications for timing with your contractor? As we've had unexpected things come up, our contractor & architect talked through the options and costs, and we signed a change order and wrote a check. It wasn't pleasant, but I don't feel like we were sandbagged.

Also, from my very amateur perspective it sounds like the initial estimate was unrealistically low. Did you get other bids for the project? We're in a high cost area, and my understanding of what things cost has evolved considerably over this process, but we're expecting a final tally of $400k, at least, for renovating 2 baths, adding a master suite, all new windows and doors, and some other fixups without really touching the kitchen. I know that number seems crazy to people here where a new build might cost less than that, but several of our bids were even higher.

Thanks all!

@User wrote: "If you were paying him weekly more as a project manager, rather than as a GC, then he had no hiring and firing ability, or any real ability to control the job of others. If you paid the subcontractors yourself, separately, instead of paying disbursements that allowed him to pay them, then you were technically the general contractor who was responsible for all of those job roles listed above."

We definitely hired him to GC the project, but as time went on and it became apparent that the pace was too slow, my husband and I jumped in to help where we could. We shopped/ordered windows/doors, HVAC, kitchen cabinets, bathroom vanities/tile, paint crews, plus did about half the permit work with our notoriously difficult city, and Pete did the rest. Sometimes we paid subs directly; sometimes Pete paid and we reimbursed him. Not sure if that helps or makes things even murkier?

@rlillich wrote: "Is the 15% written into the contract language? Was the contract value (bid sheet) and schedule attached to the contract as exhibits? From what your description indicates, the stated 6-8 month $270k project took 11 months, cost $470k, and wasn’t even really completed? Were change orders issued for modifications from original scope & spec?"
The bid sheet and schedule are attached to contract. The 15% appears on the last page, and doesn't specify exactly what it means but after reading through it again and talking to him, I now understand that he saw it as a percentage on the total project (at least the parts he managed), where we saw it as a bonus/tip. So there's one of the gaps we are trying to bridge.

Re change orders, there weren't any that I can think of. The only thing we changed was eliminating stuff (some windows, metal roof, etc.) to protect our budget.

On Pete's side, he contends that he didn't know ahead of time that we'd need to replace all the plumbing and electrical and that is one big reason the project took longer. My husband is sure they discussed this from the start. Part of our motivation to remodel was our terrible 50-year-old plumbing (we had 3-4 expensive plumbing fixes in the 10 years leading up to this).

@bry911, re your comment "The contract likely isn't worth the paper it is printed on." Probably so, though I'm not sure if that would favor us or Pete?

@smalloldhouse_gw, Re your question: "Also, from my very amateur perspective it sounds like the initial estimate was unrealistically low. Did you get other bids for the project?"

Yes, we were surprised at the initial bid. It wasn't super detailed. That's why my husband sat down with Pete and brought out other bids to compare make sure he wasn't missing things. Yes, other bids were higher. But since the talk around the neighborhood was that Pete did great work at considerably less cost than other GCs...we figured it must be legit. (We had an excellent experience in the past with semi-retired local contractors who offered lower prices, so that definitely drew us in.)

Like you, we also live in a "high end" area and so it wasn't a great surprise that higher bids came from out of town GCs who all drove flashy cars/trucks and tossed out bids that seemed artificially inflated. (Pete lives in our town, he's semi retired, his house was paid off years ago, and by his own admission, he keeps working because he loves it---he's a good guy! I want to be fair.)

What state are you located in?

@bry911 California

I’m going to circle these wagons back to the beginning. You have a difference with the contractor on the amount of the final bill. There was a lot of confusion along the way about what the terms of your arrangements were, and you didn’t understand some basic contracting procedures. Now that you’ve provided much more detail, I think you have 3 options.

1. Pay the contractor.

2. Get attorneys involved and spend more than the amount the contractor wants on attorney fees trying to resolve this tangled mess.

3. See if you can cut through all this and end up at a compromise amount by getting the contractor to join in mediation.

Based on my assessment of the time, money, and mental stress involved, I know which one I’d choose....

"The contract likely isn't worth the paper it is printed on." Probably so, though I'm not sure if that would favor us or Pete?

I suspect Pete is screwed... California doesn't allow time and materials contracts. There are ways around that but you have to be pretty knowledgeable and on top of your game to pull it off.

Essentially a contract to remodel a home in California must include a total cost. You can use reasonable allowances and base total cost on that as a Cost plus contract, but you can't charge someone $4,000 per week to work on their house unless you also specify in the original bid the exact number of weeks you will be paid for.

Without reading the contract it would be hard for me to comment on the particulars, I will note that although it is not allowed it still happens pretty regularly. A notable number of contractors have sued their way into debt not realizing that their contract was essentially a time and materials contract and that they were not entitled to any labor beyond what their contract originally specified.

Get attorneys involved and spend more than the amount the contractor wants on attorney fees trying to resolve this tangled mess.

Getting an attorney involved doesn't mean litigation, sometimes attorneys will simply add some muscle to your position. That is the hardest part of dispute settlements, getting people to realize that it is in their best interest to settle.

This contractor should settle. What the OP is describing is specifically what the remodeling contract laws in California were designed to prevent. Essentially, all payments must be somehow tied to work performed and not time spent. In a cost plus contract that would be determined by the amount that was paid to subcontractors and suppliers for work, so a percentage could be used so long a reasonable allowance was provided originally.

Alternatively there are fixed price contracts. These contracts can be effective if they are scope limited to remove any unknowns that always pop up in a remodel which will be handled with a change order or addendum.

Essentially, if you are doing home improvement and your bid says that you get paid $4,000 per week for 8 months, in month 9 you start working for free by the letter of the law. Unless you have an addendum signed for work not in the original contract.

I suspect a letter from an attorney describing Business and Professional Code § 7159(d)(5) along with an explanation that if the contractor fails to reach a reasonable settlement within 60 days then the OP will be seeking all non-material cost overages as damages, will work wonders to encourage a settlement. There is nothing like finding out you owe someone $200,000 to change your perspective.

bry911-

I'll stay tuned to find out how/if this gets resolved easily...

Get a lawyer to advise you.

Given the complexity of the problem and the fact the contract seems light, it is important for you to get accurate advice. This is not something that people here can tell you.

Meet with a lawyer, hire him/her to read the contract and study what has already happened and advise you on what path to follow. I think bry911's advice is good. As for people who tell you to pay the contractor with so little information, they are worth ignoring. It may be the solution you will eventually follow, but at least get somebody to review your documents before.

Thanks all! I appreciate every word and insight.

Yes, we absolutely are going to get advice from an attorney who deals in our state's construction laws.

One other question, though: at one point in the contract, under a subheading "Time of Performance," it discusses the 6-8 month time frame, then specifies work "shall be completed on or about 32 weeks after start date... exclusive of inspections, change orders or extreme weather." Directly after this, Pete wrote "And Unforseeables." Quite a vague term/loophole. I'm wondering if, to him, "unforseeables" could cover basically anything, i.e. he did not forsee that the work would take so long?

There are two different questions here, the first being how much he can charge, and the second being how much time he can take.

Suppose your contract stated that he would get paid $100,000 in labor charges and take 25 weeks. Given Covid and the complications that 25 weeks is probably out the window. It is doubtful that you could hold him to that without a time is of the essence clause, and maybe not even then. At what point that delay becomes unreasonable is something that I really don't know. However, just because he takes longer doesn't mean he gets paid more.

In California if he says it will take 32 weeks at $4,000 per week that comes out to $128,000 in labor. He can probably take longer given Covid, but unless the work has changed he can still only charge $128,000.

Certainly I would argue that the delay is beyond reasonable and a breach, but the easier argument is your contract is illegal and unenforceable by him.

There is a lot of nuance in this, but you are not trying to win in court. You are trying to get your home finished and not pay him anymore money.

@bry911 thanks!

Re Covid issue, the job started January 2019 and we moved back in Dec 2019, despite the house not being finished. Work stopped initially not because CV-19 but because both sides needed a (lengthy) break and we also needed to reassess our finances. Then Covid hit.

At this point, my husband is saying let's just find a good handyman to finish the rest (mirrors, closets, backsplash tile and such).

@bry911 and all, this part really sticks with me:

Essentially a contract to remodel a home in California must include a total cost. You can use reasonable allowances and base total cost on that as a Cost plus contract, but you can't charge someone $4,000 per week to work on their house unless you also specify in the original bid the exact number of weeks you will be paid for.

This surprises me because the common assumption seems to be that ALL remodels go over budget (an assumption that caused me to resist remodeling for many, many years!).

Well, mittens my goodness. Hopefully you can secure an attorney who can work on your behalf and stop this crazy money spigot that you've managed to get turned on full blast.

Curious - were the other bids for around $450-470k? I am trying to wrap my head around how you went 200k over and you are just "oh well hes a nice guy." If the other bids were in the neighborhood maybe you expected it to be 200k over in the end.

"This surprises me because the common assumption seems to be that ALL remodels go over budget"

They probably do. There are still ways to be over budget legally.

The first is a cost plus contract. If the contract states a markup percentage on cost, and uses reasonable allowances, you can still go over. For example, suppose the contract has an allowance of $10,000 for flooring and a 30% markup for a contracted price of $13,000... if you spend $15,000 on flooring then the markup can move up also and you will pay $19,500. That is allowed because you made the decision to spend extra on flooring.

He could also define the scope of work in the contract so any additional work that is done is not covered by that contract and has to be negotiated separately. Even then though, that additional work has to be a change order or addendum.

Then there is simply higher material cost, while the contractor's fees are set, materials can still go up.

Or, and this is the big one, people just don't know. The construction industry is massively undercapitalized and they are just not hiring attorneys to help them develop contracts. If they aren't going to court they may never know.

@JJ, Ha ha! Trust me I've had my share of "#%@&*!!!" freakouts over this issue! But trying to look at the big picture and be thankful for what we have, especially in light of the pandemic and economic hardships.

Yes, other bids were in the $400K range. As I mentioned many comments ago, we went with semi-retired Pete because word around town was he did excellent work at a much lower rate than anyone else around, partly because he had low overhead, no kids, his mortgage was paid off, etc. (We'd had one awesome experience with another semi-retired contractor like that years ago, so it stuck in my mind that there are definitely exceptions to the "you get what you pay for" mantra.)

We didn't consider the higher bids because, having heard all the nightmare remodel stories, we presumed $400K might end up at $450K or even $500K. At that point, we decided we'd have to cut waaaaay back on our remodel plans, eliminating any additions and just do a general spruce up instead. But Pete was confident he could get the remodel done as planned for under $300K. And since our friends who'd hired him several times before (for kitchen/baths) *assured* us Pete was capable, we signed on. Lesson learned!

What was the difference between the the highest estimate that you got, and what all of this ended up costing?

If the high bid was more than all the extras and disputed amount ended up being, really think about that. Seeking fairness is the goal of any arbitration. You sound like you’re trying to be reasonable about this, but just had no idea of how things should have worked. But presumably, you want to be fair.

And presumably, he wants to be fair. If you’ve spent more than the highest estimate that you received, then that’s info that Pete needs. As in, get your documents together. All of the prior estimates, and all of your Pete paperwork. He needs to understand that you’re spending more and getting less.

@User wrote:

If the high bid was more than all the extras and disputed amount ended up being, really think about that.

Definitely had this in mind all along, but as mentioned a few comments ago, we would never had gone ahead with the full remodel plan had we thought it would get into that higher price range. We would have cut back considerably and not added on extra square footage. That's basically where we were when Pete stepped in and said, "I can do it!"

BTW, this brings up another point that might help future newbies: even if you tell your architect over and over and over not to design something that will crush your stated budget, know that some (many?) architects will design things however they want, your budget be damned. :(

This won't be a popular answer but time and materials contracts are very common in CA for remodel as most request for bids are severely incomplete. CA contract law does require start and end dates but those are also subject to all sorts of modifications in a remodel. Rain, for example. COvid would be another level of massive delay we are still evaluating. New plumbing & electrical systems throughout for example. "Cost plus" contracts are common in high end homes, but most lenders (if there is one) want fixed pricing.

Rewiring and replumbing a 50 year old (1970) home would be unusual as most were originally built with ABS/Copper plumbing and copper romex wire. Each could have added a month over all. The electrical redux would require current code, which means adding sub panels to hold a large number of breakers to meet.

IMHO the contractor favors arbitration/mediation to get his 15% fee, which was defined.

For those of you looking at multiple bids with a single outlier significantly low, that is usually due to omissions and/or lack of complete communication of the job scope, which is very common in residential multiple bid situations and or a newbie contractor in this level of scope. I throw out low bids often for my fixed price projects due to lack of capability. A license is a very low bar.

There is no magic in this industry that gets a significantly lower price.

@Jeffrey R. Grenz, General Contractor thanks for all that valuable input (popular or not)!

Correction on my plumbing comment. We had new copper pipes put in 20 years ago when we bought the house, so those were not replaced last year. It was the outgoing pipes that Pete replaced. They were not plastic and parts were very, very bad—crumbling and clogged with roots and...ugh!

Here's a photo of a piece of Pete excavated. We all had a good (astonished) laugh at this!

IMHO the contractor favors arbitration/mediation to get his 15% fee, which was defined.

Mediation will favor compromise on both sides. A mediator is not going to decide in favor of either party. That is just not what they do. A mediator will try to find compromise for either side.

Arbitration will favor the stronger legal position presented. However, the contractor is unlikely to voluntarily agree to arbitration and so it is really a moot point.

Just Google, "is a time and materials contract legal in California," and you will see information from the CSLB. If you are paying an attorney he will walk you through this information and how to present it as evidence in mediation or arbitration. In mediation, it's purpose will be to encourage compromise. The evidence will pretty much end arbitration.

An interesting question becomes why are time and materials contracts so popular if they are not allowed? I don't really have an answer to that, I suspect it is because the homeowner must assert the contract is illegal for that issue to be considered. If you walk into arbitration or court and note that the issue is that the contractor took too long that is going to be the issue considered. If you walk in and say that the contract end date specified 32 weeks and the contractor was overpaid according to the contract by almost $200,000 that is going to be the issue considered.

As I said earlier, get a local attorney involved. I suspect you can find some more reasonable settlement than 15%. If not... you are out a couple of hundred bucks for an expert opinion, just think how much better your life would be if you paid that couple of hundred bucks at the beginning.