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   Is it Legal for General Contractors to additional 20% on top their 20% O & P
P:  7/31/2009 4:23:19 PM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Revised the posting:
 
Is it is LEGAL for a "Preferred Contractor, General Contractor or Sales Marketing Companies" aka " Fire & Water Damge Restoration Contractors" to take 20% from the sub-total line item of a claim on a scope of work and then sub-contract out the work?
 
Please keep in mind this 20% I am asking about is in addition to the Contractors 10% Overhead & 10% Profit that is loaded into the end of every scope of work that they take right off the top.
 
Most of these "Preferred Contractors,General Contractors, Sales Marketing Companies"
ARE NOT RUNNING A CONSTRUCTION COMPANY/BUSINESS with in house carpenters, painters, plumbers, electricians, drywallers, etc., they are pushing paper and sub-contracting out the work. 
 
(naturally I know the Gen Contractors have to make some money, but 40% is a bit much)
 
 when this 20% I'm asking about is honestly the Insured/Claimants money to make repairs to their homes.
 
looking for an honest answer from someone out there in the Legal or Insurance Industry
 
 
 

FirenBlaze

View Revisions : 1   |    Posted:  7/31/2009 4:23:19 PM   |   IP:  Recorded    |    Report this post


 There are 14 replies to this message.  There are 14 replies on this page.

P: 8/4/2009 6:46:31 AM
whiteclaims45576

Member

Total Posts: 2
Last Post: 3/2/2011
Member Since: 10/18/2007

AS AN ADJUSTER FOR 40 YEARS I HAVE NEVER HEARD OF ANYONE GETTING 40%

IF THE INSURED SIGNED AN AGREEMENT WITH SOMEONE FOR THAT IT SOUNDS LIKE A PUBLIC ADJUSTER TAKING A SHARE OF THE LOSS. WE WOULD ONLY ALLOW 10 AND 10 
BWHITE

Revisions : 0   |    Posted:  8/4/2009 6:46:31 AM    |    IP:  Recorded    |    Report this post
P: 8/4/2009 12:36:08 PM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi Whiteclaims45576

Thank you so very much for the reply, this is something that has bothered us for the past 14 years. I wish I had known about this Claimspage along time ago.
 
We have been giving up 40% straight across the board/ right off the top of the scope for 14+ years now.
I have the scopes and paper work/invoices to prove it and we don't specialize in just one area of restoration, we can and do turnkey the entire scope.
 
We know for a fact the Homeowners are not signing anything stating they are willing to give up this additional 20%, in fact the contractors we have done so much work for, don't even want to disclose to the HO that we Own and Operate our own business, they pass us off as Employee's of their companies.
Some of these contractors have gone as far as to print business cards with our personal name on them with their logo for us to hand out to the HO whose jobs we are doing, they don't want our trailer lettered up, don't want our cell phones to disclose the name of our company, don't want us wearing our own company shirts etc.
 
We have signed contracts with several "Preferred Contractors" and none of them mention that the jobs are to billed at 80% of the scope value.
 
I think at this point, it's time to take this a step further and start contacting the Start Insurance Departments
Fraud unit, as it is my understanding Insurance Fraud constitutes "someone making a profit from an insurance transaction in a deceptive manner" and from the sounds of things that is exactly what has been happening.
 
thanks again for your insight
 
 

FirenBlaze

Revisions : 0   |    Posted:  8/4/2009 12:36:08 PM    |    IP:  Recorded    |    Report this post
P: 8/4/2009 9:10:20 PM
dcmarlin

Member

Total Posts: 26
Last Post: 8/22/2011
Member Since: 10/28/2007

It sure isn't illegal.  A contractor can charge whatever he wants; that does not mean you will pay it.
 
I have been an adjuster for 20+ years and, unfortunately, there are a large amount of us that do not really understand 10 & 10.  If you have the "Blue Book", there is a really good article explaining it.  Based on they way most full service restoration companies are set up today, 10 & 10 is kind of outdated.
 
Most insurance restoration contractors have an average overhead of 25-30%.  Thus, if they make a gross profit of 40%, they are only making a net profit of 10-15%.
 
If an adjuster and contractor scope a job and write an Xactimate estimate, with 10 & 10 (O & P) totaling $100,000.00, they contractor will attempt to get the job completed in-house and/or with subs for around $60,000.00, yielding 40% gross profit.  After taking away their overhead, they should have a net profit around 10-15%.
 
The Xactimate line items should have enough mark-up built in so, if 10 & 10 is added, the bottom line numbers end up okay.  Now, if the general contractor does not have a warehouse, trucks, crews, etc. and uses subs exclusively, obviously, their overhead is much lower. 
 
When I worked for a carrier (for a short time), they used another estimating program where the line item amounts were much, much lower than X-mate.  But, if a GC was involved, they added 45% O&P.   
 
In most situations, if you have sub-contractor bids and the insurance general contractor adds only 20% O&P, they are not making money.  Again, this depends mostly on the amount of overhead involved with both the job and contractor.
 
Dave "Blue" Marlin

View Revisions : 5   |    Posted:  8/4/2009 9:10:20 PM    |    IP:  Recorded    |    Report this post
P: 8/4/2009 11:15:45 PM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi DCMARLIN-

thank you for your insight, we appreciate all views. Our largest concern is with the fact this 20% they are taking is and should be used to make repairs to the customers/clients residence.  The other Contractor 10% & 10% is theirs cut & dry, does not even come into play when sub-contracting out these jobs.
 
The other concern is the fact they are only processing paper work, they are not on the job daily running the day to day operations to get the job done, they do not calculate the materials, get the materials to the jobsites, physically do the jobs, all these items are the sub-contractors responsibility, so you would certainly think the 10% & 10% would be sufficient.
 
Now if they were actually doing the work and completing the job and they end up not only making the
10% & 10% but also another 25%-30, then so be it, I would chalk that up to having darn good crew of carpenters, painters, electricians, plumbers, drywallers, etc. because otherwise it just won't be happening.
Most of them run NO IN HOUSE CREWS
 
My other concern is why do they would want to cheat the HO out of 20% of the money allotted by the Insurance Company to make the scoped repairs to their homes. (Hasn't the HO suffered enough w/the loss)
It also comes down to cheating the Insurance Companies as well, because do they realize these contractors are pulling this extra 20%?? All while subcontracting out this work.
 
If they (the Ins Co's) do know it ,then why not just show the O&P line item as 40-45%% and be done with it.
 
Again thanks the more insight and views the better
 .
 

FirenBlaze

Revisions : 0   |    Posted:  8/4/2009 11:15:45 PM    |    IP:  Recorded    |    Report this post
P: 8/5/2009 5:41:46 PM
Willstorm

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Total Posts: 4
Last Post: 12/2/2009
Member Since: 10/18/2007

Seems to me that a few points are being missed.

1.    If the general contractor were to agree with you and give up that extra money, it would not be right to use that extra 20% for repairs other than from the insurance claim.  Instead of giving it to the homeowner so he can hire you to do more work for him, the most proper use would be to return it to the insurance company.
 
2.    That 10 & 10 O&P is not enough for the contractor to make a profit for the job it is paid on.  A GC who is operating his business as it should be run, keeping licenses, insurance, operating systems, and everything else in place will find that he needs a 28% margin just to break even.  Don't forget that he has expenses for compiling estimates on all those jobs he does not get.  Maintaining an office is a major expense.  If he is on a program managed by someone like Crawford Contractor Connection, he is going to pay them a percentage of his gross.  Xactimate is not cheap to maintain with yearly fees, monthly fees, and training expenses.  Ask him how much his yearly premium is for General Liability, Workers Comp, and Contractor's Polution Liability.  I will bet you have no idea.
 
3.    Here in America, we still have the right to negotiate for what we want.  If you don't like the terms, don't sign the contract!  If you and everyone else in your position do that, the GC will have to pay some of those extra dollars to you... and that is what you really want, isn't it?
 
4.    In that same tone, here in America we can strive to improve our position.  Why don't you become a competing GC, get on the direct repair programs, sell those jobs, and hire subs like yourself to run them.  Betcha won't complain about that extra 20% then!
 
By the way, that job you were going to start for us on Monday.....  We gave it to someone else today.

Thought I had been there and done that but I saw a new one today!

Revisions : 0   |    Posted:  8/5/2009 5:41:46 PM    |    IP:  Recorded    |    Report this post
P: 8/6/2009 12:32:12 AM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi there Willstorm-
 
Thank you for your insight, I appreciate all feedback. I would like to clarify just a few things.
 
Calm down you seem mad. I am only looking for some honest answers. We work real hard for the money we earn.
 
But I was in noway about to start a job for you on Monday so we aren't sure your talking to whom you may think. At our choice we decided to no longer complete anymore work for these GC's for sometime now but we would love nothing more than to become a part of the " Direct Repair Program", please give me some insight on just how you go about doing that.  
 
The 20% I'm speaking of is the Money that should be there for the HO to have the repairs made to their homes.
the GC has no business taking that from the claim money to make a profit on. With the volume of work that most of these GC's do, the 10% & 10% should be more than plenty. Their expenses are predictable for the most part. 
Unless of course they are actually physically completing the scope of work/repairs and not sub-contracting it out.
 
We are well aware of what it cost to run an office, carry insurance, licensing, computers, phones etc.
We have to carry it all in order to get the jobs.  Most of the GC's we have dealt with are not running a construction businesses (being day to day operations on these jobs) where the WC or Gen Liab. premiums run much much higher. We also buy all the materials, provide the labor (both that greatly fluctuate up, rarely down),
make contact & coordinate with other contractors (HVAC,Plumbers, Electricians etc) communicate with the HO for choices, changes, upgrades, etc. whatever it takes to get the job done and make a HAPPY CUSTOMER in the end!
And we've done it all on 80 cents on the dollar! and it has not been profitable, we barely break even and we have alot more expenses that vary from job to job, that the GC's do not incur. The only real reason we barely breakeven is because we have the capabilities of preforming everything on the scope except for the HVAC, Major Plumbing, Elecl, Carpet/Vinyl, so we tend to hire the appropriate contractor for the trade. We don't profit from any of these vendors, because we have to tell them up front we only have 80% of this figure right here to work with, give me the bid and we'll go from there. Usually we have to give back the line item because @ 80% its difficult to get the repairs made in like and kind. But the CG's get it done by usually submitting supplements and again tacking on 20% and their 10% & 10%.
 
As far as signing contracts, the contracts we have signed say absolutely nothing about us only billing them for 80% of the scope value. Are you kidding they don't really want to have that out in writing that someone would sign.
They also don't want us to mention to the HO we can only allow you 80% of that line item! Can you tell me why that is? Do you figure its because its going to send the HO into a frenzy and they'll start asking a whole lot of questions.
 
Anway I want to thank you for your input and again appreciate all feedback. We have just tried to do what is right and that is do whatever it takes to make a Happy Customer and we do and have and we always will.
 
Respectfully-
 
 

FirenBlaze

Revisions : 0   |    Posted:  8/6/2009 12:32:12 AM    |    IP:  Recorded    |    Report this post
P: 8/6/2009 1:42:25 AM
dcmarlin

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Total Posts: 26
Last Post: 8/22/2011
Member Since: 10/28/2007

Sosrr2,

Maybe I am missing something but am not sure exactly what you are asking or info you are attempting to get.
 
Are you a sub-contractor of an insurance restoration general contractor?

Revisions : 0   |    Posted:  8/6/2009 1:42:25 AM    |    IP:  Recorded    |    Report this post
P: 8/6/2009 11:09:55 AM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi "Dave" Blue" Marlin-

we are a sub-contractor. actually started out as an project foreman/lead carpenter back in 1984 for a GC/Fire & Water Restoration Company as an employee, then started our own company in 1995 by sub-contracting out work exclusively for that GC, until we found there were discrepancies in numbers. For example baseboards in 1 room were at 1 price, the baseboards in another room were of a different price. (the smaller the LF the larger the price, the larger the LF the smaller price) a meeting was called and to put it quit frankly they were stumbling over themselves and didn't have any answers. Then we ran across the same thing with another GC we did work for but this time it was drywall, the 5/8 drywall in the smaller areas was a larger price & the larger areas for 5/8 drywalll were at a smaller price. I don't know about you but in our eyes 5/8 drywall is 5/8 drywall, we don't care the about the SF from room to room, we do know that the cost of 5/8 drywall is what it is. So that is just a tip of some of deception we have run across in the years of doing this. We have often had as many as 3 to 6 revised scopes of work (some being as many as 50 pages) for one job, that alone tends to be a daunting task just to make sure we aren't taking it in the backside, because what we noticed the most is the revisions never track the same from page to page, making the task of reviewing it that more difficult. Another quick one for you, we had a HO take the scope of work given to him by the GC, they went out and spent darn near every dime of what was loaded into the scope for example on the light fixtures, well after they were done shopping and picking out all there new items, there was nothing left in the line item price to install the light fixtures, when it was brought to the GC's attention, they were like oh no they weren't supposed to do that, then the GC was back pedaling to explain to the HO. Because the HO was under the impression the 10 & 10 P&O were to pay the contractor, because the HO were also led to believe we were "employee's" of the GC! 
This is where the real deception comes into play.
 
so with all that said, I'd to thank you again for you insight, and if you have any insight as to how we can become a part of what "Willstorm" calls the "Direct Repair Program" we would greatly appreciate to hear about it.
 
Sincerely 

FirenBlaze

Revisions : 0   |    Posted:  8/6/2009 11:09:55 AM    |    IP:  Recorded    |    Report this post
P: 8/6/2009 12:16:29 PM
Willstorm

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Total Posts: 4
Last Post: 12/2/2009
Member Since: 10/18/2007

My comment regarding that job on Monday was completely tongue-in-cheek to check how astute you were.

If you think you have what it takes, call 904-394-6200 and ask for member services.  Be prepared to have your company thoroughly checked out and don't be surprised if you don't make the cut.  But, good luck!
 
 

Thought I had been there and done that but I saw a new one today!

Revisions : 0   |    Posted:  8/6/2009 12:16:29 PM    |    IP:  Recorded    |    Report this post
P: 8/6/2009 12:36:02 PM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi Willstorm,

thank you again for your reply. I will call that number is there a name to this Company behind this number?
 
We have a great company and have done great work, with many many happy homeowners behind us.
 
thanks again and have a great day
 
 
 
 

FirenBlaze

Revisions : 0   |    Posted:  8/6/2009 12:36:02 PM    |    IP:  Recorded    |    Report this post
P: 8/14/2009 12:10:56 PM
Kevin Hromas

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Total Posts: 79
Last Post: 12/15/2010
Member Since: 10/18/2007

SOSRR2

I think you are confusing the contractual relationship's between the HO and their insurance company (IC) / the contract between the IC and the GC / the contracts between the GC and the SC's and how all those relate to applicable insurance laws.
 
The insurance contract exists between the HO and the IC. Any "insurance fraud" must go to the terms and contractual relationship there. Outside parties can be brought into the penal nature of the fraud laws if there is colusion between those outside parties and either the HO or the IC to de-fraud one of the other parties to that contract.
 
When an IC promotes any preferred vendor program, they are doing so as a promise to their insured HO that the repairs to their home will be done professionally and for a cost that has been generally pre-negotiated with that GC (usually by agreement to work from the adjuster's numbers and estimate) and that the cost of the claim to the insured will be limited to their deductible participation. THEY DO NOT CARE ABOUT THE RELATIONSHIP A GC HAS WITH HIS SC'S ... with the sole exception being that he promptly pay those subs so that there is no chance of a lien being placed on the property of their insured.
 
If you do not like the way a GC is treating you ... DON'T WORK FOR THAT GC! So far, this is still a free country (owned by the government it seems!) and you have freedom to contract with whomever you choose. If enough sub-contractor's quit working for this GC, he will either get the message ... or be out of business.
 
(PS - I ran the preferred vendor program for a major domestic carrier in one of their regional offices so I speak from experience.)
 
Kevin Hromas - JD, PLCS
Executive General Adjuster
Houston, TX

Kevin Hromas - JD,EGA,RPA,PLCS,WIND Umpire
Houston, TX

www.KevinHromas.com

Revisions : 0   |    Posted:  8/14/2009 12:10:56 PM    |    IP:  Recorded    |    Report this post
P: 8/14/2009 6:08:37 PM
FirenBlaze

Member

Total Posts: 8
Last Post: 8/14/2009
Member Since: 7/30/2009

Hi Mr. Hromas,

Thank you for your response I've appreciated all the feedback on this.
 
I'm pleased to hear from an Executive General Adjuster in the Insurance Industry. 
 
Can you tell me how we can go about becoming a Direct part of the Preferred Vendor Program?
 
I've been given a number in another reply and come to find out its Crawford Contractor Connection,
and again via another reply to this post CCC also takes a percentage of the gross. 
 
That is exactly why we are no longer completing work for any of the GC's in our area involved with Insurance Repairs.
 
We don't need or want a middle man (GC) to sell/get the job from the IC, take their 20% cut, plus another 20%  when they are NOTcompleting ANY of the physical work, purchasing materials, paying labor etc, for making these repairs. 
I feel confident the HO's would feel the same if they were being informed on what is taking place. 
(I feel this is where the act of deception is coming into the situation which could constitute fraud)
 
We have hundreds of VERY Happy HO behind us from just about every Major carrier out there and that has only come from our commitment in providing Superior Customer Service and Outstanding Craftsmenship to them while completing the repairs to their homes over all these years.
 
We would like the opportunity to work Directly with the Insurance Companies and their HO/Insureds one job at a time.
 
Respectfully,
 

FirenBlaze

Revisions : 0   |    Posted:  8/14/2009 6:08:37 PM    |    IP:  Recorded    |    Report this post
P: 8/20/2009 9:48:58 AM
johnclark719

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Total Posts: 2
Last Post: 8/20/2009
Member Since: 1/1/2008

sosrr2,   Your comment

"(I feel this is where the act of deception is coming into the situation which could constitute fraud)".
 
 
 
Your question I believe was answered by Kevin, in that there is no fraud in what you are stating of the 20% & then another 20% when he gives the job to you as a sub contractor. Your deal is with the GC and if you do the work for that amount then it is what it is. I have known many GC's that get the work done for less than the amount given on Xactimate or MSB and end up with a lot more than 20%.
 
You should be set up to do your own scopes and estimate of the damage and make your own price, as a sub, with an amount you are comfortable with. If you have Xactimate or MSB then you can go for your own work based on your own estimates also.
 
If you have done work and have satisfied customers then it would appear to me you should talk to the Insurance Agents of those homeowners you have done work for. With the many different companies out there the best place to start would be where you have a satisfied customer willing to acknowledge your customer service and workmanship. Agents like satisfied customers and can direct you to the Insurance Carrier that you had already done repairs for a policyholder. That would be a way of getting your foot in the door.
 
John Clark

Revisions : 0   |    Posted:  8/20/2009 9:48:58 AM    |    IP:  Recorded    |    Report this post
P: 1/31/2014 7:32:17 PM
djs

Member

Total Posts: 1
Last Post: 1/31/2014
Member Since: 1/31/2014

Hi there,

I needed to reply to this even though it was some time ago.  We have currently rebuilt our new home that burned to the ground.  We used the preferred GC that the insurance company recommended.  They are a fire and restoration company.  All was fine until the GC's project manager told me a door was going to be double what I could purchase it for.  That was the very first clue to me as to what was going on.  I worked in the construction business for 10 years so I knew the billing ins and outs.  I asked my insurance company to break the xactimate down to time and material with out the 10 and 10 added to the costs.  They did this and sent me the break down.  I shared with the GC what I was doing and how I was budgeting the items that were going to go into our home.  I wanted wood flooring instead of the tile and carpet we had and i made sure that i shoppe until i found a wood floor that fit within that labor and material budget.  I did this for everything, i moved money all over the place and confirmed several times with our insurance adjuster that this would be ok.  He stated as long as I was within the amount allocated I was fine.  Our file went back to the insurance company 3 times and each time they agreed to come back with more funds for our project.  I still stayed within the cost of the original time and material document.  There were several issues with our build and I believe the GC has put those losses in to the figures that now have come back a 3rd time.  They are now almost 100,000.00 dollars over what has been allocated.  Our adjuster went to them and said we are done.  They had the audacity to tell us that we had extras and would be paying more out of pocket.  I have requested invoices from all the subs.  They will not give them to me so I did waiver lien releases and recieved most of them and they did give some info to our adjuster.  With this documentation I am still at a loss how in the world they want more money.  I know it is because they have a certain profit margin and I cut into that when I started shopping for my items with in the insurance time and material budget.  Even though our adjuster told us we did not have to have the same items in our house, we just needed to stay in the budget the GC was deciding that we needed to have our house exactly as it was and they would have been able to keep any over and above money's not including the 10 and 10.  I get that everyone wants to make a profit, but sometimes you just don't win them all and when you have a very informed HO, a GC needs to manage the job a bit differently.  I believe we will be going to court on this one.  We do not have any change orders verbally or written with the GC.  As a homeowner and someone who works in a very regulated industry, I am very appreciative of people like Firenblaze and would hire you in a skinny minute.  Thank you for looking out for the HO. 

Revisions : 0   |    Posted:  1/31/2014 7:32:17 PM    |    IP:  Recorded    |    Report this post

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