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? 🙄
I think you have some misconceptions, @exto1791, or are you perhaps from the industry?
For a small private builder who might only build a house once in their life, a large general contractor usually doesn’t care much. If you try to generate bad publicity, their legal department will sue you into the ground — and if you sue them, they will drag it out until you run out of energy...
Smaller contractors might care more about their reputation, but just look at how many reviews you can actually find for small general contractors. The small number of houses they build works as protection against internet algorithms. There simply isn’t enough relevance or volume.
Losing you as a customer doesn’t matter these days. It’s a seller’s market because everyone is building. Prefabricated house manufacturers have waiting lists of a year or more, while the traditional brick-and-mortar builder down the street can start immediately once the building permit / planning permission is granted, which is very attractive.
Tradespeople jump from site to site and can afford shoddy workmanship that’s hard to detect.
You are at the very bottom of the ladder and can only try to avoid the biggest headaches with an incredibly flexible spine...
For a small private builder who might only build a house once in their life, a large general contractor usually doesn’t care much. If you try to generate bad publicity, their legal department will sue you into the ground — and if you sue them, they will drag it out until you run out of energy...
Smaller contractors might care more about their reputation, but just look at how many reviews you can actually find for small general contractors. The small number of houses they build works as protection against internet algorithms. There simply isn’t enough relevance or volume.
Losing you as a customer doesn’t matter these days. It’s a seller’s market because everyone is building. Prefabricated house manufacturers have waiting lists of a year or more, while the traditional brick-and-mortar builder down the street can start immediately once the building permit / planning permission is granted, which is very attractive.
Tradespeople jump from site to site and can afford shoddy workmanship that’s hard to detect.
You are at the very bottom of the ladder and can only try to avoid the biggest headaches with an incredibly flexible spine...
Tolentino schrieb:
I think you have the wrong idea, @exto1791, or are you perhaps from the industry?
When it comes to large general contractors, as a small builder who might be building a house only once in a lifetime, you don’t matter at all. If you try to generate bad publicity, their legal department will sue you into the ground – and if you sue them, they will drag it out until you run out of energy...
Smaller contractors might care more about their reputation, but just look at how many reviews you can actually find about small general contractors. The relatively small number of houses built is actually protected by online algorithms. There simply isn’t enough relevance or volume.
Losing you as a customer doesn’t matter these days. It’s a seller’s market because everyone is building. Prefab home manufacturers have waiting lists of a year or more, so the local traditional house builder, who could start immediately as soon as the building permit/planning permission is granted, is very attractive.
Craftsmen jump from site to site and can afford shoddy workmanship that’s hard to tolerate.
You are at the very bottom of the ladder and can only try to dodge the biggest messes with an incredibly flexible spine… No – definitely not.
As I said, I know from personal experience with a lawsuit against VW. VW gave in because they don’t run out of energy, but because financially it no longer made any sense—it’s just a fact.
Negative publicity is one of the worst things that can happen – the legal department can do absolutely nothing about it! Especially for regional companies, even less so!
The only point I agree with you on is the waiting lists – because of them, a construction company can afford much more. However, these facts don’t change anything about how such cases are handled. There will always be exceptions – but looking at the whole picture, you only have yourself to blame if you always see yourself as the “little guy.” 🙂
And this has nothing to do with the construction industry specifically… regardless of the industry, a company’s philosophy and profitability always follow the same principles – depending on the leadership.
Believe me… you get away with much more than you think 🙂
And above all, this discussion is about a current market development – these are currently planned houses with fixed-price contracts. Is the time for that over? Aren’t the new offers with 10% higher costs already running? Believe me… the current projects are simply being carried on – anything else would be total nonsense.
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SamSamSam10 May 2021 15:16hanghaus2000 schrieb:
They are often neither checked for authorization nor for correct height. Another lesson learned for the builder.In many cases, that is simply not possible! As a result, you are at a disadvantage there.In conclusion on this topic from my side:
If a situation like this arises for a homeowner, they of course have the right to decide according to their own judgment. Maybe funds are readily available and they choose to accept the demands? Or perhaps it’s simply a matter of personality—they don’t want to negotiate, or they fear that doing so might jeopardize their project?
No doubt... this is something everyone must decide for themselves. For my part, I just want to point out that especially in the current market conditions, you shouldn’t accept everything without question and should only partially agree to any demands from the general contractor.
You also don’t always have to handle this through a lawyer... with a bit of negotiation skill and some firmness, you can often reach a satisfactory solution in other ways. If the general contractor was carefully selected, you likely have an established, trusting relationship and can have a proper conversation about it 🙂
If a situation like this arises for a homeowner, they of course have the right to decide according to their own judgment. Maybe funds are readily available and they choose to accept the demands? Or perhaps it’s simply a matter of personality—they don’t want to negotiate, or they fear that doing so might jeopardize their project?
No doubt... this is something everyone must decide for themselves. For my part, I just want to point out that especially in the current market conditions, you shouldn’t accept everything without question and should only partially agree to any demands from the general contractor.
You also don’t always have to handle this through a lawyer... with a bit of negotiation skill and some firmness, you can often reach a satisfactory solution in other ways. If the general contractor was carefully selected, you likely have an established, trusting relationship and can have a proper conversation about it 🙂
Regarding the profit margin, my partner’s favorite joke goes like this: Two old school friends meet after a long time. One is doing well but wants to make the other understand how tough his business is: “Oh, you know, I became a trader. I buy things for one dollar and sell them for six dollars—but I have to live off the five percent *sad face*.”
Even though this sounds only moderately risky in terms of insolvency if the original poster (OP) stands firm: IF insolvency occurs, the client usually becomes a deeply subordinated creditor and thus the last one to be affected. Insolvency administrators are contract partners to someone who has done a terrible wrong; you wouldn’t wish them on your worst enemy. So the OP should carefully check the value and reliability of their completion bond before making a decision ;-)
The fewer trades the general contractor (GC) can cover with their own workforce, the more likely it will happen that they will hire their regular subcontractors for the client who bears the increased costs, and try to “buy at the old conditions” with the contract holdouts by gambling whether the “cheap guy” will perhaps complete the trade without defects.
How “strict” a client can remain also depends on the “stakes” involved in the finishing level—that is, the quality risk is much higher with tile installation and high-tech air conditioning than with plaster and a gas boiler. The supposedly avoided extra costs might instead have to be spent on expert inspections if you later need to check whether the low-cost drywall installer simply botched the sound insulation mats.
https://www.instagram.com/11antgmxde/
https://www.linkedin.com/company/bauen-jetzt/
Even though this sounds only moderately risky in terms of insolvency if the original poster (OP) stands firm: IF insolvency occurs, the client usually becomes a deeply subordinated creditor and thus the last one to be affected. Insolvency administrators are contract partners to someone who has done a terrible wrong; you wouldn’t wish them on your worst enemy. So the OP should carefully check the value and reliability of their completion bond before making a decision ;-)
The fewer trades the general contractor (GC) can cover with their own workforce, the more likely it will happen that they will hire their regular subcontractors for the client who bears the increased costs, and try to “buy at the old conditions” with the contract holdouts by gambling whether the “cheap guy” will perhaps complete the trade without defects.
How “strict” a client can remain also depends on the “stakes” involved in the finishing level—that is, the quality risk is much higher with tile installation and high-tech air conditioning than with plaster and a gas boiler. The supposedly avoided extra costs might instead have to be spent on expert inspections if you later need to check whether the low-cost drywall installer simply botched the sound insulation mats.
https://www.instagram.com/11antgmxde/
https://www.linkedin.com/company/bauen-jetzt/
S
SamSamSam10 May 2021 15:32exto1791 schrieb:
And above all, this discussion is about a current market development – these are houses currently planned with fixed-price contracts. Time is running out? The new offers with a 10% increase are already in place? Believe me... ongoing projects are simply adjusted accordingly – anything else would be complete nonsense. However, we are talking about an unpredictable market development that will still have significant consequences.
It is difficult to insist on a small general contractor’s right and claim that they will recover their lost margin elsewhere when this contractor currently cannot take on new orders because securing materials for future projects is uncertain.
Compared to an example from my circle of acquaintances, where a large general contractor made a mistake by failing to include the lintel above the windows in their calculations and then tried to pass the additional costs on to the homeowner, this situation needs to be viewed more carefully in my opinion.
You always compare it to large companies and situations that have nothing in common with this case.
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