Imagine that you decide to hire a local contractor to retile your kitchen floors. You explain the type of tile you want, the floor plans, and the basic timeline. The contractor then gives you a piece of paper indicating that the cost will be $3,000. You agree, and he begins work. After completing the work, however, he claims to be owed $7,000, saying that the labor and materials added up to more than he initially expected. Can you hold the contractor to the original number?
The answer depends partly on how the contractor communicated the original price: Was the original price a firm “bid,” or was it merely an “estimate”?
An estimate is just that: an estimation of a likely outcome. The contractor hears basically what services you want, considers the labor and materials required along with his overhead, and gives you a rough price. Sometimes an estimate is presented as a range (for instance, $1,500-$3,000) and sometimes as a single number, usually combined with boilerplate language on the estimate sheet to indicate that the final price could end up higher depending on various factors.
Obviously, most cost-conscious homeowners engaged in a construction project would want a firm price rather than merely an “estimate.” After receiving an informal estimate, you would want the contractor to submit a formal and firm “bid”—a binding representation of price for services—and sign a written contract describing the scope of work and setting the price.
Some nefarious contractors may purposefully underestimate the costs involved, surprising customers at the end of the work (or in the middle of it) by demanding additional money.
More commonly, though, contractors’ final prices increase because of unforeseen circumstances (such as bad weather, hidden pipes, and so forth) or additional requests by the owner. If owners ask for new work, different materials, or expedited progress along the course of the project, contractors will often raise their prices to meet with those changes to the scope of work.
For both your protection and the contractor’s protection, the scope of work and total price (and any installment schedule of payments) should be spelled out in a formal written contract. Any changes to the scope of work along the way should also be discussed and written up as an addendum to that contract, to avoid misunderstandings when it's time for final payment.
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