ᐅ Is a general contractor's price increase after signing the contract due to raw material shortages legally justified?
Created on: 10 May 2021 11:57
S
SamSamSam
Hello,
I recently had a brief phone call with the general contractor, who plans to start building our single-family home in September.
During the conversation, they casually mentioned the current situation with raw material availability and said that this could lead to price adjustments if the situation is not stabilized by then.
We signed the contract for a turnkey single-family home in mid-January at an agreed fixed price.
I have now reviewed this contract again but found no information that would legitimize an additional charge due to this issue. At least, I could not find anything in the contract about it.
Under the section on compensation, I only found the following passage:
“The contractor’s fee is guaranteed as a fixed price. Costs for utility connections—gas, water, electricity, and sewage—are not included in the fixed price and are to be borne by the client.
This fixed price applies until handover unless construction does not begin within six months from the date of contract signing due to circumstances for which the contractor is not responsible.
Additional costs resulting from special requests, official requirements, force majeure, or circumstances for which the client is responsible, as well as the conditions listed in § 3 (1), are not included in the fixed price.”
I should mention that this is a small company. As a layperson, I cannot gauge how much a 50% increase in the price of wood affects the cost of a solid wood house. It would likely mainly impact the roof structure, but to what extent? 🙄
I recently had a brief phone call with the general contractor, who plans to start building our single-family home in September.
During the conversation, they casually mentioned the current situation with raw material availability and said that this could lead to price adjustments if the situation is not stabilized by then.
We signed the contract for a turnkey single-family home in mid-January at an agreed fixed price.
I have now reviewed this contract again but found no information that would legitimize an additional charge due to this issue. At least, I could not find anything in the contract about it.
Under the section on compensation, I only found the following passage:
“The contractor’s fee is guaranteed as a fixed price. Costs for utility connections—gas, water, electricity, and sewage—are not included in the fixed price and are to be borne by the client.
This fixed price applies until handover unless construction does not begin within six months from the date of contract signing due to circumstances for which the contractor is not responsible.
Additional costs resulting from special requests, official requirements, force majeure, or circumstances for which the client is responsible, as well as the conditions listed in § 3 (1), are not included in the fixed price.”
I should mention that this is a small company. As a layperson, I cannot gauge how much a 50% increase in the price of wood affects the cost of a solid wood house. It would likely mainly impact the roof structure, but to what extent? 🙄
S
SamSamSam10 May 2021 12:46hanghaus2000 schrieb:
Your risk, as stated, only if you are responsible for the delay. January to September is quite a long time. September was his estimate of when he can start. Unfortunately, we did not include this in the contract.
H
hanghaus200010 May 2021 12:51If the price of wood demonstrably increases by 50%, then the material portion is between 30 and 50%. For a roof frame costing, for example, 15,000 euros, the material costs would then be 4,500–7,500 euros (50%).
We are talking about 2,250–3,750 euros. This would reduce the calculated profit margin. This is manageable for the general contractor but rather unfortunate for the carpenter. A carpenter who knowingly does not account for the expected price increases is to blame themselves.
We are talking about 2,250–3,750 euros. This would reduce the calculated profit margin. This is manageable for the general contractor but rather unfortunate for the carpenter. A carpenter who knowingly does not account for the expected price increases is to blame themselves.
H
hanghaus200010 May 2021 12:55exto1791 schrieb:
Why would anyone accept these additional costs at all, The original poster doesn’t say that. They just want to know if it is legally justified. As already explained, it could affect the client if they are responsible for the delay. For example, if the approval of plans is not done on time, change requests, and so on. In that case, even a fixed-price agreement won’t help.
hanghaus2000 schrieb:
If the wood prices really increase by 50%, then the material share is between 30 and 50%. For a roof structure, for example, costing 15,000 euros, the material costs would be 4,500–7,500 euros (5,000–8,300 USD). Half of that would be 2,250–3,750 euros (2,500–4,200 USD).
We are talking about 2,250–3,750 euros (2,500–4,200 USD). That would reduce the calculated profit. For the general contractor (GC), that is manageable, but it is rather unfortunate for the carpenter. In the end, the GC usually does not agree on fixed prices with the individual trade. The price increase is simply passed on from the carpenter to the GC. Since both companies want to continue working together in the future, the extra costs are often split 50/50 or in a similar way, depending on how "accommodating" the GC or the carpenter is in each case.
Ultimately, the GC currently has less margin on all the houses—period. As I said, unless there is a clause in the contract, I would not pay an extra 2,500 euros (2,800 USD) or so—why should I? Then the GC just earns less on my house. They will have to calculate future offers more sharply to make up for the lower profit margin on the current projects.
That is entrepreneurial risk...
hanghaus2000 schrieb:
The original poster doesn’t say that. They just want to know if this is legally acceptable. As already mentioned, the client could be affected if they are responsible for the delay. For example, if the approval of plans wasn’t done on time, change requests, and so on. Sorry, I probably didn’t read the initial post carefully enough 😀
--> My response is more relevant to the current fixed-price contract situation. I believe many homeowners are currently in this position. The general contractors are likely trying to get an additional euro or two from the homeowner as well.
H
hanghaus200010 May 2021 13:11exto1791 schrieb:
Sorry, I probably didn’t read the original post 100% carefully 😀
--> My answer rather fits the current situation in the fixed-price sector. I think many homebuilders are currently in that position. The general contractors are certainly trying to get an extra euro or two from the homebuilders. You probably read post #5.Those are the homebuilders who want a general contractor. They think: It won’t hurt me to get involved in this kind of dilemma. That’s fine, but it’s pointless. The contractor wouldn’t give you a cent if they save 10 euros per cubic meter of concrete through better procurement or price reductions.