We all want to reduce our expenses. However, saving money by working with the cheaper service provider can be an expensive way to save money. Thoughtful, intelligent people consider a wide range of “purchase factors” when selecting a service provider. This article provides guidance about saving money in the process. It begins with an important case study.
An Interesting Case Study
Parts of this article are based on the following court case, 2002 California Court of Appeal decision in Fernandez v. Lawson, 119 Cal.Rptr.2d 767.
A home owner received multiple bids while selecting a contractor for a service. Trying to save money and do the right thing, Mr. Home Owner asked Mr. Low Bid for proof of liability and workers compensation insurance prior to beginning work. Mr. Low Bid assured Mr. Home Owner that he had the appropriate insurance coverage. In reality, Mr. Low Bid had allowed insurance coverage to expire in an effort to keep prices lower than his competitors. The first day of work, an employee, Ms. Employee, was seriously injured on the job.
When Ms. Employee found out she was not covered by workers compensation she sued, naming both Mr. Low Bid and Mr. Home Owner in the suit.
In this case the court ruled in favor of the Ms. Employee and against Mr. Property Owner. The court stated that the Mr. Property Owner should have verified Mr. Low Bid’s claims about insurance. Failing to do so, the court ruled that Mr. Property Owner assumed the role of direct employer of Ms. Employee. As such, Mr. Property Owner was financially responsible for the medical expenses of Ms. Employee. The final cost to Mr. Property Owner of saving a few dollars by going with the ‘cheaper’ estimate was over $26,000!
Save Big Money When Hiring Contractors
Hiring a company that exposes you to significant risks and loses is not a smart way to save money. Here are 10 Tips on how you minimize your risk and get the high quality of a professional service provider at a great price.
- Choose an insured and bonded business. Make sure you see copies of insurance certificates before the work begins. The certificate should be mailed directly to you from the insurance underwriter. The certificate should should an expiration date that extends beyond the last day of work at your property. If the contractor hands you a copy of the certificate, call the underwriter to verify the details.
- Negotiate discounts based on volume and scheduling of services. Many service businesses offer discounts during the off season or for repeat, high volume business. Of you negotiate a lower price based on frequency and volume, make sure you keep your end of the deal. It’s the right thing to do.
- Manage cash flow by spreading service payments over 12 months. You can do this by working with contractors that accept credit cards or are willing to be receive payments toward the full invoice over time.
- When presented with an estimate simply ask, “Is that the best
you can do?” Few people realize the power of this question. When
you ask this question, be prepared for a discussion, not an amazing
discount. The goal here is that you and the contractor settle on a price that is acceptable to both. Anything different than that, and one of you will have bad feelings about the arrangement.
- Talk openly about other estimates you are receiving; who they are from and the details. This allows the contractor to help provide you with an apples-for-apples comparison.
- Ask the vendor if you can help them with the job. Taking liability into consideration they may allow you to help in exchange for an adjusted estimate. For example, on a residential tree trimming job, offer to clear the slash after they haul off the log wood.
- Some contracted work occurs repetitively. Examples include home cleaning and lawn mowing. Review outcomes regularly to determine if less frequent services will still provide what you want.
- Take advantage of sales and special offers. The word “SALE” still gets buyers attention. It can also be a great way to save money.
- Consider bartering. Just like you, contractors hire help. Most likely, you have some skill they need. The same goes for material goods. You may have something you can live without that the contractor wants such as tools and equipment, vehicles, use of your lake home for their family reunion, etc.
- Check reference with well prepared questions. This includes asking about the work completed and the price the reference paid. You will quickly ferret out those vendors that are price gouging. You will also discover the jewels in the rough of service contractors that offer value rich services at good market prices.
There are at least three more important points to consider when hiring a contractor.
First, if at all possible work with local contractors when they meet your criteria for hiring. More than elsewhere, the Northwoods economy is supported by local, small businesses. Shopping locally is the best way to support the local economy.
Second, the contractor may not clarify with you if the people doing the work are employees or sub contractors. You need to ask. If they are employees, the contractor’s certificate of insurance should show workers compensation insurance. If they are subs, each sub needs to present you with their own certificate of insurance to run their own business.
Third, consider this statement. “Amateurs are far more expensive than professionals.” Can you afford to invest your money with less than the best? High quality professionals cost more for a reason; they are high quality professionals. When you hire Mr. Low Bid you may save a few dollars up front. However, you are more likely to be disappointed with the results and you may expose yourself to significant financial risk should something go wrong during service delivery.
There is a better way to get the service experience and the price you want, rather than just going with the low bid. Do your homework and learn to negotiate with the contractor that you think will give you the best service experience, not just the lowest price.
Until next time….
Eric Nei the Cleaning Guy