Construction Contractor Billing Models

2 MIN READ

Hiring a contractor usually means signing a contract that is dependent on the size and scope of the project. The main models you see are full project bids, time and materials, and size and unit billing. In this post, we’ll examine 3 different price models highlighting the pros and cons of each. 

A fixed-price contract (full-bid) and change orders are some of the most common types of billing methods used among construction companies. The plan is straight forward and simple to put together for construction projects such as a full house siding replacement, a new roof install, or entire house painting. The contract is an estimate of the amount of work that needs to be done, with a clearly defined scope of work, including timeframes and scope-related risk. However, when it comes to repairs, this method falls short of being accurate and comes with hidden charges that can surprise customers meaning, any additional work the homeowner wants to add to the project has to go on a supplementary agreement, thereby increasing the price of the project.

An example of going from a full-bid to a change order is when dry rot is discovered. The estimator who originally bid the project could not cannot the dry rot damage behind the siding of your home, so they bid what they can see. Or, they know there might be some dry rot and bid the work “high” to cover additional manhours. This provides you with an attractive price with an expensive “gotcha” change order once the siding is removed. Other contractors do not discuss this upfront with you at all. In the Pacific Northwest, most homes have some degree of dry rot, even newer ones. As a homeowner, you should be leary of a siding bid where there is no mention of dry rot.

Paying by the hour, also known as “time and materials” is excellent for home repairs like targeted siding repairs, dry rot repairs, and leak intrusion. As part of the process, you work with your contractor throughout the project and can pause or end construction at any time. This way, you know how much you are spending on a day-to-day, week-to-week basis by regularly paying for completed work. With this model, the homeowner is more involved in the process and has more freedom and responsibility for what gets repaired.

While this contractor billing model may not be the best method for a full siding replacement or a remodel project like the bathroom or kitchen, it still has its benefits, including paying for actual time spent on development. The services for customers include being able to cancel if you feel the contractor is not working hard enough, if the damage is significantly more than expected or if the project is outside of what you can afford.

This method is commonly used in large scale commercial construction, or new home builds where projects are billed due to the size of type of building. The cost is generally per square foot of development and typically only includes rough framing or siding construction.