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
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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? 🙄
exto1791 schrieb:
Ultimately, the general contractor (GC) does not agree on fixed prices with each individual trade. The price increase is simply passed on by the carpenter to the GC. Since both companies want to continue working together in the future, the additional costs are usually split 50/50 or something similar, depending on how "flexible" the GC or the carpenter is in that case.
In the end, the GC currently has lower margins on all the houses—period. As mentioned, unless there is a clause in the contract, I wouldn’t pay an extra €2,500 or so—why should I? Then the GC just earns less on my house. He will have to price his future offers more carefully to compensate for the lower profit on current projects.
Entrepreneurial risk....Not always. Our GC fixes prices with his regular suppliers after the client’s approval. For example, we committed in October 2020. The building permit / planning permission was applied for in December. Due to conversion of the land and the "quick" processing by the forestry authority, construction will only start at the end of July or August 2021. The GC confirmed again last week that the prices will remain valid until the house is completed.
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hanghaus200010 May 2021 13:27exto1791 schrieb:
In the current phase, almost every general contractor will try to squeeze the maximum out of the client.This is lesson one for successful companies. By the way, it has always been this way. However, this is not about the client but about managing the project for profit.
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SamSamSam10 May 2021 13:28I agree that with these amounts, I don’t want to start a conflict with the general contractor. However, I’m also not willing to fully cover these costs myself!
As mentioned earlier, this is not a company that builds dozens of houses per year.
Starting off on bad terms before construction even begins certainly won’t help ensure that my house is built with attention to detail 😀
Thank you very much for all these helpful answers!
As mentioned earlier, this is not a company that builds dozens of houses per year.
Starting off on bad terms before construction even begins certainly won’t help ensure that my house is built with attention to detail 😀
Thank you very much for all these helpful answers!
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Hausbauer202110 May 2021 13:31SamSamSam schrieb:
I agree that given these amounts, I don’t want to argue with the general contractor (GC). But I also don’t want to show willingness to cover these costs entirely!
As mentioned at the beginning, this is not a company that builds many houses per year.
Starting off on bad terms before construction even begins definitely won’t help my house be built with attention to detail 😀
Thanks a lot for all these helpful responses! If we were to end up in such a situation, I would suggest meeting halfway on the amount the GC states. A 50/50 split, since they actually have no claim to it, but this would show goodwill and ideally keep everyone satisfied.
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nordanney10 May 2021 13:34exto1791 schrieb:
No, it isn’t. The contract is legally binding. The general contractor (GC) MUST build your house at the agreed price. If insolvency occurs, that’s a completely different matter—no question. Also, the GC MUST build my house; that’s why the contract was signed. Only insolvency releases him from this contract. You have to be much “tougher” as the client. Ultimately, at this stage, nearly every GC will try to squeeze as much as possible out of the client.As the saying goes: “Having the right and getting the right are two different things.”I have been watching the development for over 20 years as a financer. And I can tell you, as a consumer you can only lose if you act like the “strong man” alone.
Let me ask you directly. What do you do if the GC simply doesn’t build or only appears sporadically on site? Then you’re the tough guy and complain?! And? What actually happens? You keep waiting for your house. You get help from a lawyer—but you’re still waiting for your house. The lawyer writes to the GC for the 37th time. And? He just doesn’t deliver. And you are still waiting inside your house.
Because it’s not just the GC, it’s also his subcontractors who stop coming because the GC won’t accept their increased prices either. He has contracts, too—and as you said, you have to stay tough.
But in the end, the one who suffers the most is always the customer.
We don’t see these things every day here, but definitely quite regularly. The things that happen…
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hampshire10 May 2021 13:34The contractual exclusion criteria do not apply. With a fixed price, the supplier assumes the price risk. Price increases are not considered force majeure. Force majeure would imply unavoidable circumstances. Since the supplier had options, such as stockpiling to minimize risks, it was possible to avoid this. Based on the excerpts from the contract, the general contractor cannot make a legitimate claim. However, the contract may contain something else on this matter in a different section.
I agree with @nordanney’s advice to take a pragmatic approach. Resolving a problem together at the start increases the likelihood of achieving better results in the end. If one remains uncompromising on the first issue and suspects the other party of hidden selfish motives, the project will likely take a different turn – increasing the risk of stress and poor quality.
I find that pragmatic! Good luck.
I agree with @nordanney’s advice to take a pragmatic approach. Resolving a problem together at the start increases the likelihood of achieving better results in the end. If one remains uncompromising on the first issue and suspects the other party of hidden selfish motives, the project will likely take a different turn – increasing the risk of stress and poor quality.
SamSamSam schrieb:
And starting off arguing before construction even begins certainly won’t help ensure my house is built with attention to detail 😀
I find that pragmatic! Good luck.