You chose the lowest bidder for your home renovation project. A prudent move, so you thought. Then how come you’ve been billed twice as much as the original cost? If you’re asking yourself this question about your current construction project, you’re not alone, and you may be wondering if you can sue your contractor for overcharging.
How to Know if Your Contractor Overcharged You
It is not uncommon for completed projects to run 5- to 20-percent over the original quote you agreed to in the contract. Sometimes it costs a little more to ensure a construction project’s long-term viability.
However, when you get a final bill that jolts your senses — or worse, the cost of your project doubles before the work’s even done — you might feel stressed, angry, and vulnerable. But does it mean you have a legal case?
You can use the tips in this legal guide to figure out if you’ve been overcharged, and you can talk with one of our bad contractor lawyers about your situation and options going forward.
Consult the Contract
In contractual terms, “charging too much” can be interpreted as charging for items that:
- were never performed,
- were performed but not requested and, therefore, are outside the scope of work; and/or
- were performed but should have fallen within the original scope of work and, therefore, should not merit additional charges.
Some homeowner-contractor agreements allow flexibility in the pricing and work, and some don’t. Here are two of the most common types:
- A Fixed-Price contract is exactly what it says. The parties fix the price of the project before work begins. Contractors, however, must make sure they price all materials and labor accurately and stay within the budget or face the consequences outlined in the contract.
- A Cost-Plus-Percentage contract allows the contractor more flexibility with the project while keeping the owner in control of all costs. The owner reviews and approves all expenses while work is in progress, and the contractor receives a percentage of the associated costs for overseeing the work. These contracts are suited for more elaborate jobs because they allow flexibility, however, they also leave room for overcharging if an owner gets careless about what they’re approving.
Scope of Work & Change Orders
No matter what kind of contract you enter, a Scope of Work clause should specify all work to be done. The owner approves all suggested changes and reviews the costs. These are called change orders.
It is important to inspect and approve every change order. Many homeowners approve the first few changes, at a mild cost increase, then get gouged on subsequent changes once the contractor has gained their trust.
Do not assume after a few reasonable change orders that they all will be so. Never sign a change order or alter the scope of work without carefully going over it.
Other Ways Contractors Can Overcharge You
It’s easy to lose track of where your money is going, especially on more elaborate projects. A reputable contractor will keep you informed how the project is going, and where legitimate cost overruns could occur. However, an unscrupulous contractor will take advantage of a project’s complexities and pad the final bill with hidden costs.
Many contractors add up to 20 percent to the total cost of a project at the outset. They do this to account for minor cost overruns while earning a profit for their services.
For example, the contractor turns in a bill after 20 percent of the work is completed, but the amount is 30 percent of the total cost. This ‘overcharge’ is sometimes the contractor’s way of staying ahead of cash flow, especially when owners are slow to pay.
Dishonest contractors can improperly pad your bill by:
- Overbilling on hourly rate: The final invoice should show the total amount you’re billed and the number of hours you were billed for. Do the math to make sure the hourly costs don’t exceed the hourly rate specified in the contract.
- Marking up subcontractor costs: The contract says the electrician’s fees will be $4,500, but the final invoice shows a payment of $6,000. What gives?
- Padding profit and cost increases: The price of that gleaming new bathtub was 10 percent more than listed at the time you signed the contract. However, closer inspection reveals you were charged 25 percent over the contract price, not 10 percent. Another example: you were charged several hundred dollars for a service you haven’t heard of and wasn’t listed in the contract.
Know Why You’re Being Charged
Is your overcharging contractor charging for materials and labor, or are they sneaking in bogus charges disguised as necessary work? The best way to be certain is to inspect the invoice, ask questions, and do not settle for vague explanations.
If you’re suspicious about being overcharged, talk to a lawyer about getting an expert to review your invoice.
No Billing After Contract is Complete
The contractor should not bill you for additional costs after they have sent the full invoice and received payment in full. At this point, the contract is complete. There is no more room for changes or negotiations.
If the contractor sends you another bill after everything is paid, we recommend talking to a real estate lawyer.
Reasons Why Contractors Overcharge
Knowing why your contractor overcharged you is actually quite important to your case. In fact, the reason for the overcharge can make a considerable difference in the amount of damages you’re awarded in a successful claim or lawsuit, especially in cases of fraud or civil theft.
Below are a few common scenarios that can lead to you being significantly overbilled by your contractor.
The Contractor is Incompetent
Sometimes an overcharging contractor means well, but didn’t have enough experience with, or information about, your particular project to factor in all possible costs. As a result, the contractor ends up charging you considerably more to cover their own costs. However, incompetence is no defense against a breach of contract lawsuit for overcharging.
The Contractor is Playing Catch Up
Contractors may overbill to cover debts from a previous project. The contractor hopes to make the money back by overcharging you to recoup losses that have nothing to do with your project. This is a potential violation of the Colorado Construction Trust Fund Statute and could lead to you receiving triple the original damages.
The Contractor is Dishonest
Some contractors don’t mean well. They tempt homeowners with deceptively low bids, then steadily increase prices once the contract has been signed. Some go even further. They’ll not only overcharge you, but then use high-pressure tactics when it’s time to collect.
Bid Low, Charge High
The contractor intentionally leaves essential work out of the contract to present an attractively low bid. However, they intend to make their profit by overcharging for “extras” that will be necessary to complete the job. Such extras could include a stain on your new wooden deck, a coat of primer to support a brand new paint job, basic landscaping, utility connections, and so forth.
Nickel and Dime
In this scenario, the contractor comes to you with one surprise after another, each designed to make you dig a little deeper into your pockets. For example, a coat of paint isn’t drying properly, so maybe try this more expensive brand that takes longer to apply. Or the wood you want for a key section is too porous, so perhaps go with a more premium kind instead? It’s one thing after another until you’ve practically doubled the cost of your project.
Turn Up the Pressure
Unscrupulous contractors anticipate conflicts because of the way they do business. Therefore, they are not above intimidating homeowners into paying them. For example, they could stop work in the middle of the project and walk away, claiming that you are breaching the contract by not paying. They leave vulnerable materials and unfinished rooms exposed to the elements until work resumes.
They may even threaten to file a mechanic’s lien against your property, which would give them the power to foreclose on your house in order to collect payment.
Damages You Can Recover from Being Overcharged
Generally, a lawsuit against a contractor for overcharging is brought under a claim of breach of contract or Bad Faith. If you win a judgment, the damages you could be awarded depend on whether you already paid the disputed overcharges. If you did, and you’re looking to recover costs that were …
- outside the scope of work, or
- egregiously marked up,
… the contractor could be ordered to reimburse you that money plus any legal costs or attorney fees allowed in the contract.
For example: Let’s say the contractor bid $10,000 to get you to sign the contract. At the end of the day, the actual cost of the project was $20,000. Your losses are $10,000. The court would order the contractor to pay you the $10,000 difference.
Project Delays Due to Overcharging Dispute
In cases where work is delayed because of a billing dispute, and the property owner hasn’t paid yet, it may be easier for the contractor to finish the job for the contracted amount and seek no additional payment. You may even be able to bring legal action for the contractor unreasonably delaying the work.
Construction Trust Fund Statute Violations
If a contractor took funds designated for your project and diverted them elsewhere, or stashed the money away for themselves, they could be on the hook for treble damages and even possible theft charges.
One of the red flags that this has happened is when a contractor tries to restore the diverted funds by egregiously overcharging on your project.
For this, you could be awarded treble damages, which is actual damages times three.
Example: You enter a contract for $30,000 up front to add extra kitchen space and a fully-enclosed back deck to your house. Once the project is completed, your bill comes to $43,000 — a $13,000 mark-up. As you investigate further, you learn that bogus charges were added to your invoice so the contractor could make up cost overruns from a previous job.
Because this is a trust fund violation, you would be entitled to $39,000 — that’s three times your actual damages — plus attorney fees and legal costs if they are provided in your contract.
Talk to an Attorney About Your Bad Contractor
If you’ve been overcharged by an incompetent or unscrupulous contractor, especially one who has walked off the job over the dispute, don’t take it lying down. The real estate litigation attorneys at Robinson & Henry are ready to look into the specifics of your case and help you get to a solution. From overcharging to poor workmanship and unreasonable delays to unlicensed work or breach of contract, we can help. Call 303-688-0944 for your case assessment.