Why aren't home service people paid this way?

[Craig234]

I was thinking, customers are often having to pick, pay a person for a project either by the hour or by the project.

If they pay by the hour, the contractor is incented for the work to take longer. If they pay by the project, there's an incentive to cut corners to get it done fast.

Why not have the contractor offer estimates for each - an hourly rate and a project price - and when the project is completed, the customer picks which to pay (whichever is least)?

That would seem to at least have some mitigation of the conflicting incentives, and the contractor would still get one of the two rates they wanted.

 

[rh71]

It can be a PITA to accept as a project price, especially if the customer changes scope of the work even by making 1 small decision. As a freelancer, I would always charge hourly, but provide a project ballpark at the start to set expectations and to keep from scaring them away.

On the flip side, if I wanted a project done, I would certainly ask for a project price and let the developer work out problems on his own. But do you expect them to keep the price the same should they run into unforeseen problems? I wouldn't, and guys building our house didn't.

 

[3chordcharlie]

I was thinking, customers are often having to pick, pay a person for a project either by the hour or by the project.

If they pay by the hour, the contractor is incented for the work to take longer. If they pay by the project, there's an incentive to cut corners to get it done fast.

Why not have the contractor offer estimates for each - an hourly rate and a project price - and when the project is completed, the customer picks which to pay (whichever is least)?

That would seem to at least have some mitigation of the conflicting incentives, and the contractor would still get one of the two rates they wanted.

This is just shifting all risk for the project onto the contractor, including risk for unforeseen issues.

If you take a project price, the contractor is implicitly accepting risk for any cost over-runs except those caused directly by unknowable conditions (think asbestos removal, knob and tube wiring, etc), including labor, supplies and timely delivery.

If you ask a contractor to work on time-and-materials you are generally getting their best price, but you accept that these over-runs would be your responsibility. So yes, the same job could easily be +/- 20-30% in cost if you did it twice in a row.

There are probably shady contractors out there who would stretch a job out to milk more money from it, but most of us want to do the job properly, and as quickly as possible because we are on to the next customer.

 

[Greenman]

I was thinking, customers are often having to pick, pay a person for a project either by the hour or by the project.

If they pay by the hour, the contractor is incented for the work to take longer. If they pay by the project, there's an incentive to cut corners to get it done fast.

Why not have the contractor offer estimates for each - an hourly rate and a project price - and when the project is completed, the customer picks which to pay (whichever is least)?

That would seem to at least have some mitigation of the conflicting incentives, and the contractor would still get one of the two rates they wanted.

Risk, it's all about risk. If I do a contract project and it takes longer than I thought, I eat it. If it's T&M and it takes longer you eat it. With what you're proposing, I assume all the risk and limit my possible profit. There is no incentive for me to take such a project.

 

[Humpy]

For construction projects I would often offer a cost plus contract which included a not to exceed amount as well as a clause for hidden conditions, weather delays, etc.

I think this was the most transparent and fair way for all parties as long as everyone trusted each other.

Probably 2/3 of residential customers didn't understand the concept. Most of those were most comfortable with a simple flat rate. Some weren't comfortable with any agreement and wanted the work done for free until they felt like paying. LOL. I got a kick out of trolling those customers by continually discussing higher and higher prices until they got pissed off enough to stop calling.

 

[dullard]

Like others have said, there is no universal right answer. You can't force the contractor to take all the risk for any unforeseen problem without them just massively jacking up all prices.

You basically are asking for a win/win situation for the consumer and lose/lose for the contractor.
1) If the project goes smoothly, the consumer chooses the low hourly rate. The consumer wins by having a lower price and the contractor loses by having very little work to bill for that day.
2) If the project goes awry (often for reasons outside of the contractor's control), then the consumer wins by selecting the fixed price and the contractor loses by having to pay for any overages.

The current system is a gamble from both sides. Both consumer and contractor try to balance things so that they win some, lose some, and in the whole over many projects it all works out. Get references to see if the contractor is there to do the job right or there to screw you over.

If I get the chance, I try to ask for fixed price + hourly. I'll might pay a contractor a fixed price to diagnose the problem and give a proper estimate of what the hourly cost will be to fix the problem. Then, I get to cut them off before allowing them to start the hourly portion of the work. Or vise-versa where they are paid hourly to determine all the unknown variables and then I get to cut them off before starting a fixed cost of the project now that there are few to no surprises.

 

[paperfist]

That doesn't happen if you hire an honest contractor.

 

[sdifox]

That doesn't happen if you hire an honest contractor.

Consumer's understanding of honest varies greatly.

 

[DrPizza]

I think the premise of the OP is flawed in that it doesn't consider a lazy, slow contractor who cuts corners. He assumes the contractor will either work slowly, else work meticulously and carefully.

 

[Craig234]

"You basically are asking for a win/win situation for the consumer and lose/lose for the contractor."

I'm not.

Price it as win/win/win/win.

 

[Craig234]

I think the premise of the OP is flawed in that it doesn't consider a lazy, slow contractor who cuts corners.

What are you talking about? There's screening, and there's not getting paid because they didn't meet the contract dates and quality.

 

[3chordcharlie]

"You basically are asking for a win/win situation for the consumer and lose/lose for the contractor."

I'm not.

Price it as win/win/win/win.

There is no such thing.

I get what you are suggesting and it makes sense if you only consider the customer's costs and experience. That's not how the world works. Contractors already work in a competitive environment and have to price competitively unless they are ridiculously in demand. Your system punishes the contractor in the majority of jobs, even though you may not want to see it that way.