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? 🙄
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nordanney10 May 2021 13:12exto1791 schrieb:
Ultimately, the general contractor currently has less margin on all the houses—finished out. As I said, unless a clause is included in the contract, I wouldn’t pay an extra €2,500 or so—why would I? Then the general contractor just earns less on my house. It’s basically true that a price is a price (by the way, “fixed price” is just a term, not a legal definition). But that doesn’t help you if the general contractor leaves you out in the cold (whether in terms of timing or quality), or in the worst case goes bankrupt because none of their clients are willing to make concessions.
That’s why you need to deal pragmatically with the contractor’s demands and not just respond with “But that’s a fixed price.”
hanghaus2000 schrieb:
You probably read post #5.
These are the homeowners who want a general contractor (GC). They think: It doesn't hurt me if I get involved in such a dilemma. That's fine too. But it’s unreasonable. The contractor wouldn’t give you a single cent if they save 10 euros per cubic meter (about 0.35 cubic feet) on concrete by better procurement or price negotiation. Exactly, that’s what I was referring to as well.
That’s how it is... in the end, he is neither my "acquaintance" nor a "friend," and he will probably never thank me again. As a homeowner, it hurts me much more than the GC – that’s just how it is. And as you said: If the GC has any chance to get back 10% from his trade or something similar, he will NEVER share that 10% with you 😀
You have to see where you stand...
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hanghaus200010 May 2021 13:15@nordanney Complaining is part of the business. That’s what I’ve learned.
nordanney schrieb:
It is basically true that a price is a price (fixed price, by the way, is just a term, not a legal definition). But that doesn’t help you if the general contractor leaves you out in the cold (whether in terms of timing or quality), or in the worst case files for bankruptcy because none of their clients are willing to make concessions.
That’s why you have to deal with the contractor’s demands pragmatically and not just respond with "But that’s a fixed price." No, it is not. The contract is legally binding. The general contractor MUST build the house for you at that price. If bankruptcy occurs, that’s a completely different matter—no question. Also, they MUST build my house; that’s why the contract was signed. Only bankruptcy releases them from the contract. As a client, you have to be much firmer. In the current situation, almost every contractor will try to squeeze as much as possible out of the client.
I don’t even want to think about how many contractors take advantage of this situation and try to squeeze the last penny out of clients... See the COVID support measures—exactly the same game. Whenever there is an opportunity, they try to increase profits.
It’s business risk... that’s just how it is, but they do earn a lot of money for it. If they can’t handle it and fail to make a profit on future projects, then they are to blame themselves. Their order books are full! And they definitely will be in two years as well. Sometimes you just have to break even on two or three houses...
People are even willing to pay 30% more right now. This won’t end anytime soon...
In the end, no one is grateful to you... You have to stand your ground. Personally, I wouldn’t be so relaxed about paying $5,000 more for the same service just because prices are rising right now.
How often do you think prices have already fallen by 10%, yet the agreements that were already made were still sold at THE SAME price? No one gives you anything for free...
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Hausbauer202110 May 2021 13:19nordanney schrieb:
It is basically true that a price is a price (a fixed price is, by the way, just a term, not a legal definition). But that won’t help you if the general contractor leaves you in the lurch (whether in terms of timing or quality), or in the worst case goes bankrupt because none of their clients are willing to make concessions.
That’s why you need to deal pragmatically with the demands of the general contractor and not just respond with “But that’s a fixed price.” Exactly! We’re not talking about building a small garden shed here, but a house where you want to feel comfortable. Here’s a scenario: the general contractor is working on five houses at the same time, wood is scarce and more expensive, and they ask the homeowners to contribute to the additional costs. Now let’s assume only two out of five agree to contribute. Which houses do you think will get the wood first? This is about much more than just the extra costs. Of course, the risk usually lies with the contractor, and especially with big companies, I don’t think it’s right for them to request such adjustments. But for a small company that may already set tighter margins so you can get a great house at an affordable price, I might consider supporting them under such circumstances. For me, €5000 (about $5400) is a lot of money, too, but you have to look at the bigger picture. This is just my opinion.
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