SCOPE CREEP
This week we’re blending hats! We’re talking about our main business as renovators, and our passion as real estate investors. Ready to walk through some insider info?
Whether you’re renovating your own house, adding a suite or flipping a property (with a hired contractor), you’ll need 2 documents. Technically, you don’t NEED them, but they sure help if there’s ever a dispute!
- A written estimate; also called a Scope of Work document
- A contract that references the Scope of Work, outlines payment schedule, identifies the parties involved, etc…
Today we’re ignoring the contract (my apologies to all the lawyers). Your estimate outlines what work is planned, exactly what is involved, and expected material and labour costs. Contractors also charge GST/HST, and of course there is contractor profit/expenses. If you don’t see the Contractor’s fee in your estimate, just ask how they pay for their WCB, overhead, insurance, licensing, etc…
For example, you might have an estimate for painting, drywall repair, casing and baseboards on a newly purchased rental property. Well, that’s Plan A. You and your contractor meet, make all the decisions, review the Scope of work to make sure colours and design features are written correctly, and then sign a contract.
But then … maybe you take a second look at the kitchen and decide it needs a new countertop. And maybe the vanity in one of the bathrooms is more worn-out than you realized. Maybe the master bedroom really needs new flooring after all the furniture from the previous owner was removed. Occasionally, a legitimate problem is uncovered during demo: mould, water damage, floor joists that have been cut, ….
These can all be elements of “scope creep.” They were not in the initial estimate. We are assuming that you, as the landlord, are making these improvements to attract better tenants, and prevent needless complaints. Ideally you would make all these decisions together and sign a change order.
Haha, but then there’s the real world. Have you ever noticed that once the demo/reno starts, you see things differently? Often times, a landlord or homeowner will think of something on a weekend, or at 2 am, or on their third visit to see the progress. When we start adding things, we always recommend to have something in writing: a change order, an email and/or a text message. Neither of you will remember the conversation next week—never mind next month if it’s a bigger project.
That written conversation needs to be like a “mini scope of work.” What is being added, and what are the anticipated labour and material costs. In a Covid crazy world, it is prudent to ask if there might be some time delays related to your recent request.
Now for the tough part. As a homeowner or landlord you are making the best decisions for your property, right?! The tricky part is taking responsibility for those choices. If you add 500 sq ft of extra tile (Yup, exaggerating just a little here), then it will cost more money and take more time. Your contractor may have given you an original budget, but the tile fairy does not magically deliver your tile choice free of charge, nor does she install it like the tooth fairy—while you sleep.
We often hear stories of contractors gouging homeowners or landlords. However, if we dig deeper, the scope of work was often expanded once a project began. Clients will often say, “while you’re here …” or “can you just?” Sure, but this is a business where we charge for materials (that become part of your house) and for labour (would you work for free?). Oh yes, and the government gets its fair share (GST), and the contractor needs to get paid and cover overhead.
There are lots of other ways to get your renovation project done. You can be your own general contractor. You can do your own labour. If you’re really lucky, maybe a family member has skills and time and the desire to help you out! But if you hire a renovation crew, beware the temptation to add extra items, or entire rooms, to your scope of work. Or add them, but realize this was your choice, and ask for clear written guidelines about extra time and costs to complete your additions (scope creep).
