This question was recently posted on our website:
What if you agreed on a price, now job almost done and customer wants all receipts for material?
If you don’t have a clearly written fixed price contract, this is a problem waiting to happen. Part of it is a result of the transparency that some well-meaning but wrong contractors think makes our industry better.
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First thing, when asked for any type of proprietary information (and your cost of doing business is proprietary information), ask why. Why do they need that information? Listen to whatever reason or reasons they might have. Let them explain and give them a chance to talk. There’s always a chance that while talking it out, they might realize it’s not a reasonable request. Would they make the same request of their doctor or dentist, or at the grocery store?
Why does your client want the receipts? If you’re replacing their floor covering, it’s possible they just saw an ad in the paper for a great deal on vinyl at a local shop, and they want to make sure the floor covering just installed is as low price as the one in the ad. Or maybe the big box store came out with a loss-leader sale on duct tape, and they’ll argue they shouldn’t have to pay any more than the price at the big box store. They believe that as a professional, you spend your time shopping the ads. And they want highest quality, lowest price products installed in their home.
Keep in mind that the buying public thinks they know something about this business and they can determine how fair a price is or how fair or honest you are by looking at prices of labor, or invoices on materials or from subcontractors. And keep in mind that they’ve been taught by too many that contractors can’t be trusted. These are issues you need to work on and overcome on your first visit with them, where you establish yourself as the Contractor of Choice (see last week’s article).
The big picture is that they want the receipts to prove that you aren’t overcharging them for the work. Your response should be to remind them of what is written in the contract. And if you have a clearly written, fixed price contract, the price you are charging them was agreed to ahead of time.
Add language to your contract that says something like this:
Owner understands and agrees that any request for itemization of {CONTRACTOR}’s estimated costs to complete this project will be done only with an ADDITIONAL WORK ORDER specifying a minimum of 4 hours of work at ${specify hour per rate} per man hour of {CONTRACTOR}’s time.*
That is the minimum base language you need in your agreements and if you wanted to fluff it up a bit, you might end up with something like this:
Owner understands and agrees that any request for itemization of {CONTRACTOR}’s estimated or itemized costs to complete this project will be done only with an ADDITIONAL WORK ORDER specifying a minimum of 4 hours of work at ${specify hour per rate} per man hour of {CONTRACTOR}’s time, paid in advance. This includes any itemization, requests for receipts, meetings, or any other expenditure of {CONTRACTOR} owner or employee time.*
Now you can probably think of some more things that could be added to this language based on your own experience, but here is the important point. With this in your contract, you’ll get paid for your time. That includes time trying to explain why you didn’t install the cheapest floor covering, or purchase the insulation on sale at the big box store across town.
When a home or building owner, for whatever reason, requests any kind of itemization or invoicing from you for the job you’re doing, they are asking you to do work above and beyond the work on their home or building. When you have to pull all invoices, time cards or material bills for a job, separating them from the invoices, time cards and material bills for all other jobs that might be going on at the same time, it takes time. You’ll also need to organize them and drive them to your customer to review. When you’re asked to do extra work, you should be paid for it. They get paid when they work. You should get paid when you work.
Now, you can ignore this stuff and deal with it each time it comes up or you can include it in every contract so it’s clearly defined upfront. I always found that if I put well thought out language in a contract it virtually guaranteed me that many of the dragons I faced were in the cage before we got started. We wouldn’t have to deal with them as the jobs went along.
Of course, when you are selling your services, establishing yourself as the Contractor of Choice, these issues are also less likely to come up.
*I am not an attorney. You must consult an attorney before using any suggested language or any other information contained on this website to determine if it conforms to your state laws or your particular situation. This language is presented as a sample only.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.