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? 🙄
SamSamSam schrieb:
That’s true, but having the right and actually getting it are two different things, which was the point of my post. The typical additional costs you mentioned usually end up being a few percent higher.
If he really wants those few extra euros from you, he will get them. No contract is ever airtight enough to prevent someone from squeezing out a few extra percent. We’re not talking about huge amounts here; those have already been defined in the contract. That, in turn, depends on the main contractor... But yes, that can always happen—whether you challenge the main contractor in this area or not. Ultimately, it’s a matter of principle. The customer doesn’t take it personally at all. The main contractor simply tries it because, of course, they want to increase their profit. It’s completely obvious and straightforward in this regard.
N
nordanney10 May 2021 14:51exto1791 schrieb:
Is the general contractor (GC) just trying to increase their profit? It seems pretty obvious and straightforward to me.However, a GC doesn’t get rich from building a small house. What do they actually make? Around 10-20%. With planned construction costs of €350,000 (about $380,000), that’s between €35,000 and €70,000 ($38,000–$76,000). So a GC will quickly consider how much passion to put into a project that, after cost increases, might only yield around €15,000 ($16,000). And that’s before tax, after a stressful year.H
hanghaus200010 May 2021 14:52nordanney schrieb:
This has nothing to do with being a professional or an amateur (P.S. The customer is not an amateur ;-) ) Thank you for the hint. I have difficulties with reading and writing. So please excuse me if I make mistakes again at some point.
nordanney schrieb:
A general contractor doesn’t get rich from a single house either. What’s their profit margin? About 10-20%. With planned construction costs of €350,000 (approximately $370,000), that’s between €35,000 and €70,000 (approximately $37,000 to $74,000). So a general contractor quickly thinks about how much effort to put into a project that might only yield around €15,000 (about $16,000) after price increases. All that for a stressful year and a pre-tax profit. Believe me, if it’s a large general contractor building 10 houses a month and they have issues with 10 out of 50 clients, they simply accept the lower margin… Everything is calculated with some buffer anyway, as long as the annual contribution margin targets are met, it’s perfectly fine. The amounts get absorbed in ongoing or upcoming bids (since construction will continue regardless).
If a general contractor builds 2 houses a month and has problems with 2 out of 10 clients, it’s the same story…
This doesn’t change the fact that the stress the general contractor experiences is no different from the client’s stress. Psychologically, you’re right—the client usually suffers more. Ultimately, the general contractor will never go through the stress of trying to undo the contract or chase the project for years through lawyers. They simply pay the extra $10,000 and move on!
For the general contractor, it’s much less stressful to build the house for a lower margin than to deal with stress afterward!
And here we are again: this is simply the easier solution for the general contractor. A company in situations like this almost always chooses the easy way!
H
hanghaus200010 May 2021 15:00SamSamSam schrieb:
Additional costs then simply end up being a few percent higher.
If he really wants those few euros from you, he will get them. No contract is ever tight enough to prevent someone from squeezing out an extra few percent. We’re not talking about huge sums here, those have already been defined by the contract. Well, I’d say there are hardly any cases here without additional costs in the double-digit percentage range. That might seem like little to you, but with today’s house prices, it certainly hurts some people.
H
hanghaus200010 May 2021 15:08Musketier schrieb:
Simple solution from the general contractor.
If the client is not willing to be lenient, the contractor includes it in the change orders.
And there will definitely be change orders. These are often not checked thoroughly for validity or correctness of the amount. Next lesson learned by the homeowner.