Cristal writes: If the Contractor Bid $300,000 to build my house and then it ends up costing less to build the house do I still pay the $300,000 that I signed the contract for?
Steve Bliss, of BuildingAdvisor.com responds: The simple answer is yes — you’ll pay the full contract amount assuming this was a standard fixed-price competitive bid.
There are some situations where you may pay less — for example, a change in the plans that lowers costs as the result of a “deductive change order,” but in the real world, these are pretty rare. Also, in a standard contract, you don’t get to see the contractor’s real costs or his overhead and markup, so you won’t know whether the job cost him more or less than he expected.
In some cost-plus (also called time-and-materials) or negotiated bids, you can work out an arrangement that if a job comes in under bid then you get to keep either all or some of the shortfall. In these types of contracts, the contractor’s costs are more visible to you.
But, again, in the real world, jobs rarely come in under bid. In most cases, owners end up spending more than they planned due to a variety of reasons. Common causes of cost overruns include: changes in the plans after work begins, inadequate allowances, hidden conditions (in remodeling), unclear plans and specifications, and omissions in the bid. Omissions are things intentionally or unintentionally left out of a bid that you later discover that you have to pay for to complete the job. These may include soft costs like permits and impact fees or hard costs like landscaping, appliances, window treatments, and on and on.
The moral of the story is get you ducks in a row before signing a contract to make sure it covers everything that you need to complete the project to your satisfaction.