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? 🙄
You brought the industry into the discussion, right?
And I argue that the home construction industry does operate differently.
You can’t compare the VW diesel scandal with the issue of additional costs in home building. There was a whistleblower who went to the mainstream media, and the target audience for that scandal was much larger.
Nobody cares about a homeowner who had to pay an extra 5,000 euros (about 5,900 US dollars) on a 350,000 euro (about 412,000 US dollars) project.
And I argue that the home construction industry does operate differently.
You can’t compare the VW diesel scandal with the issue of additional costs in home building. There was a whistleblower who went to the mainstream media, and the target audience for that scandal was much larger.
Nobody cares about a homeowner who had to pay an extra 5,000 euros (about 5,900 US dollars) on a 350,000 euro (about 412,000 US dollars) project.
N
nordanney10 May 2021 15:38exto1791 schrieb:
Trust me, if it’s a large general contractor building 10 houses a month and runs into problems with 10 out of 50 clients, they just accept the lower margin... Everything is mixed into the calculations anyway, as long as the annual contribution margin works out, it’s completely fine. They simply add those amounts to the ongoing/upcoming quotes (construction keeps going regardless). exto1791 schrieb:
For the general contractor, it’s much less stressful to just build the house with a lower margin than to deal with the stress afterward! You can tell you’re not from the construction industry. What do you think, how common is it that a company suddenly stops showing up at the site overnight? This is not a children’s party or a contest to see who is bigger in the end. Work simply gets stopped, and they continue on the site where there’s more money to be made. There’s no long discussion—just action, from the subcontractor towards the general contractor, and from the general contractor towards the client.
hanghaus2000 schrieb:
They are often neither checked for authorization nor verified for correct height. Another costly lesson for the homeowner.Even if an external tradesperson could do it for half the price, they usually aren’t available on such short notice. So this would lead to a delay for which the homeowner is responsible. Additionally, there is a weak point regarding liability risk.
What other choice does the homeowner have than to accept the overpriced quote from the general contractor? Take it or leave it.
nordanney schrieb:
It's obvious that you're not from the construction industry. Do you have any idea how common it is for a company to simply stop showing up at the construction site overnight? This isn’t a kid’s birthday party or a competition to see who can have the biggest one in the end. The work just stops and the crew moves on to the site where they can earn more. There’s no long discussion—subcontractors against the general contractor and the general contractor against the client just act. As I said... In the background, there are contracts with fixed-price guarantees—guaranteed construction timeframes, etc. (at least usually).
A general contractor (GC) can’t just say, “I’m not coming anymore and I’ll leave the project standing for a year.” That’s complete nonsense... Nobody does that. It’s completely clear that during the current phase there are significantly more issues, especially concerning supply chains and such. But that still doesn’t change the basic principle.
I won’t name any specific prefabricated house manufacturers, but there are certainly some providers where I could actually imagine quite a few “horrible” situations.
That’s why my advice is always to be cautious when choosing your GC 🙂
If you were to take legal action against the GC over €10,000 you don’t want to pay, you would win. That’s simply the fact.
Due to the construction boom, even the smallest construction companies won’t go bankrupt because their upcoming projects are already planned and their order books are full until mid-2022.
There might be times when construction halts because materials run out—completely understandable, that can happen—but that again has nothing to do with the fundamental issue.
Here everything is once again being blown totally out of proportion 😀
No one wants their construction to come to a halt or their project to fall into disrepair. That only happens in really, really extreme cases.
However, I would never just pay €5,000 because I “feel bad” for the GC and think, “Well, it’s not their fault—I’ll just pay it; they’ll probably appreciate it.” In my opinion, that’s just plain stupid 😀
The only discussion was about not blindly grabbing a pen and signing everything as if you had no other choice... That is simply not correct.
Be honest: I don’t sign a contract without thoroughly checking it 100 times, including tricky clauses, and working it through carefully with the GC—and if an incident covered by the contract happens later, I don’t just say, “Ah, whatever, I’ll pay half.”
Reality is different. Have you contractually set deadlines for each construction phase?
Of course, if your fixed-price guarantee has no time limit, it applies, but typically the general contractor (GC) only owes completion by a certain date. You can’t legally enforce anything before that. Since the deadlines are usually very generous for the GC, you often (not always, but often) exceed the interest-free period on financing. That means every additional month without construction progress costs you a few hundred euros.
If it comes to a legal dispute, delays are dragged out as long as possible. Deadlines are missed, then work briefly resumes to show that progress can continue, only to pause again afterwards. During this time, the GC looks for a subcontractor to finish at the necessary price, but of course, the quality can be unpredictable.
Etc., etc. Even if you win, the small contractor goes bankrupt and restarts under a new company. The large contractor sends a team from Romania that finishes everything in a few weeks just before the completion deadline (the defect correction period always counts separately). You practically have no chance to come out unharmed.
It would be better to compromise, on the condition that no further claims are made and rapid construction progress is guaranteed. The current market situation makes this possible.
In the future, I would only work with separate contracts for each trade or exit clauses. You never know what kind of GC you’ll end up with.
Of course, if your fixed-price guarantee has no time limit, it applies, but typically the general contractor (GC) only owes completion by a certain date. You can’t legally enforce anything before that. Since the deadlines are usually very generous for the GC, you often (not always, but often) exceed the interest-free period on financing. That means every additional month without construction progress costs you a few hundred euros.
If it comes to a legal dispute, delays are dragged out as long as possible. Deadlines are missed, then work briefly resumes to show that progress can continue, only to pause again afterwards. During this time, the GC looks for a subcontractor to finish at the necessary price, but of course, the quality can be unpredictable.
Etc., etc. Even if you win, the small contractor goes bankrupt and restarts under a new company. The large contractor sends a team from Romania that finishes everything in a few weeks just before the completion deadline (the defect correction period always counts separately). You practically have no chance to come out unharmed.
It would be better to compromise, on the condition that no further claims are made and rapid construction progress is guaranteed. The current market situation makes this possible.
In the future, I would only work with separate contracts for each trade or exit clauses. You never know what kind of GC you’ll end up with.
N
nordanney10 May 2021 16:28exto1791 schrieb:
Can a general contractor just say, "I’m not coming anymore starting today," and leave the construction site abandoned for a year? That’s complete nonsense... Nobody would do that. Yes. It does happen. For example, I have been managing a developer project for 1.5 years now. The structural carpenter and the landscaping contractor simply stopped coming. We’re talking about a project with nearly 300 apartments. Currently, there is a delay of almost one year.
That’s how life on construction sites actually is. Even on large projects.
exto1791 schrieb:
If you took legal action against the general contractor over 10,000€ that you didn’t want to pay, you would win. That’s just a fact. No one disagrees with that. But what do you gain from it? The verdict would come in 2023, and the appeal in 2024. Are you going to wait for the end of a legal process?
exto1791 schrieb:
Because of the construction boom, even the smallest construction companies won’t go bankrupt, since their next projects are already planned, and their order books are full until mid-2022. No. That is not correct. Small contractors are particularly struggling. They are now selling their services or the house itself and only in 2022 will they cover the costs for subcontractors and materials. Until then, they’ve already incurred losses. This has been normal for a few years now.
exto1791 schrieb:
Honestly: I would never sign a contract—checked 100 times over, added strict clauses, and thoroughly reviewed it with the general contractor—and then, if something like this happens later that is contractually regulated, just say: “Oh well, screw it, I’ll cover half”? No, then you are the tough one telling your family, “I’m right—we just have to wait longer for the new house. We can handle the double burden of rent and mortgage interest. Even moving into a temporary rental because we have already given notice on or sold our current house or apartment.” Yeah, right.
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