Originally Posted by alexschultz1
Ok, let's say he bids the job for $300k and it ends up being 400k. What do you do?
You end up completing the job but instead of making the $55 per man hour you were hoping to make, you make $35 per man hour. The materials are a fixed price. So that cannot give. The only thing that gives is the amount of money you make after materials (labor, profit).
In that case, in reality, you'd end up paying your workers; paying for a lot of the materials; still owing suppliers for some of the materials; making no profit on the job; some big tax bills, insurance bills, and worker's comp. bills that you wouldn't be able to pay. Then you'd be scrambling to land another job to help you recover your loss on that previous job. As you started getting funds in from the new job, you'd start paying off your late bills that were stacking up. Hopefully, you'd learn your lesson and start learning how to bid jobs correctly. But often times if you cannot get back on track quickly enough, it just ends up putting you out of business, because you're not really accounting for your full overhead and can't pay the bills.
That's probably the most typical scenario.
Another scenario is you run out of funds and cannot complete the job. The client goes against your surety bond and the bond company covers the cost to have another contractor come in and complete the job (read more here
). Then your bonding company retracts your bond, black lists you, and you cannot get a bond anymore. At least not without paying exorbitant rates. So without a bond you lose the ability to bid jobs like this again and go out of business.