In construction, nearly everything important is governed by the contract. Without a thorough, written construction contract you are living dangerously. If and when things things go wrong, who pays the extra costs is often hotly contested. At a bare minimum, the contract should clearly identify the contract parties (names, addresses, phone numbers), and define what work is to completed and where (Scope of Work), how the cost will be determined, and be signed and dated. Beyond these basics, all contracts should include contract clauses that address the following issues. Each is a “red flag” clause — potentially critical to the success of your project:
This is the most important part of the contract that should define precisely what work will be included in the project, and what will be excluded. It usually includes both drawn plans and written specification. Read more.
What contractor does not advertise “quality workmanship” or “fine craftsmanship”? Some people think that the building code requires work to meet certain quality standards. But it provides little guidance. Read more
Contractors use allowances in bids and contracts when products or materials have not been chosen at the time of the bid. If allowances are too low, as they often are, owners experience sticker shock when the real price comes in. To avoid this problem, make sure allowances are realistic or make product selections as early as possible. Read more
By their nature, construction projects carry a lot of risk – among other things, you’ve got big trucks and power tools that can cause damage, heavy objects that can fall, workers who can fall from rooftops and stagings, and partially built spaces full of danger and attractive to kids. If the contractor is not properly insured, the homeowner can be held liable for any of these risks. Read more
Warranties are important since defects in construction often don’t show up until well after the last check has cleared. Yet another reason to work with a reputable contractor is that he is more likely to honor the warranty and return to fix things, even after the typical one-year warranty has expired. Read more
Nobody likes surprises in construction work, because they almost always increase costs. Who pays unexpected job-site conditions is often determined by the wording of this critical clause. Read more
If the completion date is important to you, add a time-is of-the-essence clause to your contract. If the date is critical and any delays will cost you money, consider adding a penalty clause that makes the contractor responsible for costs you incur due to delays. Read more
Change orders, which generate extra costs, are often a source of conflict between contractors and owners. In some cases, they are completely justified; in others, they are the result of a sloppy or incomplete contract documents. Read more
The words “match existing” appear in the contract or specs for many remodeling jobs, in which the owner or designer wants the new work to blend in with the existing structure. This is a common source of misunderstanding since a perfect match is often not possible. It’s it’s best to define in the contract precisely what is an acceptable. Read more
“Substantial completion” is an important milestone in a project when the final large payment is typically due. The rest is due upon final completion of the loose ends on the punch list. But the parties don’t always agree on when a project is substantially complete. Read more
Every project involves some give-and-take to resolve the small misunderstandings or differences of opinion that are an inevitable part of such a complex process. In situations where you cannot work out your differences, the contract provides a roadmap for resolving larger disputes. Don’t wait until your in the middle of a conflict to read your contract. Read more
We have an agreement with our contractor to build a house for $160K over a 14 month period. Incremental progress payments have been made each month. Due to covid the project will take 21 months and our contractor wants us to continue the same project management costs for the extra time frame….increasing our cost for this build by 30%. Is this appropriate?
In most cost-plus contracts, the owner assumes nearly all the risk of extra costs. That’s the main reason I don’t like these contracts. Some cost-plus contracts include a guaranteed maximum price that puts some guardrails on the project costs. If you have a typical cost-plus contract, and the contractor can justify and provide documentation for the added costs, then the owner is generally responsible to pay them. If you feel the added costs are unreasonable or inflated, then you can and should negotiate for an adjustment.
If you have a typical fixed-price contract, then the contractor is typically responsible for the extra costs unless the contract specifically states otherwise. For example, some contracts include language about price increase beyond the control of the contractor, including rising prices for materials. Commercial and public contracts may include no-damage-for-delay or force majeure clauses dealing with missed deadlines and increased prices due to external events.
These issues are also covered by state law, which varies in different states. Because of the amount of money involved, you may want to speak with an experience construction lawyer (I am not a lawyer.) At a minimum, you should have a frank conversation with the contractor to discuss your concerns and see if you can negotiate a more reasonable outcome.
In many situations, it’s not completely clear who is responsible for cost overruns. Without clear guidance from the contract, the owner and contractor often compromise and end up splitting the extra costs 50/50 or whatever seems fair.
We have an agreement with our contractor to build a house for $160K over a 14 month period. Incremental progress payments have been made each month. Due to covid the project will take 21 months and our contractor wants us to continue the same project management costs for the extra time frame….increasing our cost for this build by 30%. Is this appropriate?
Construction contracts fall into two broad categories: fixed-price and cost-plus (also called time-and-materials). In general, prices can only be changed on fixed-price contracts for specific reasons stated in the contract. Examples include price-escalation clauses (for price changes at the lumberyard), changes to the scope of work, or hidden or changed conditions. For example, the contractor might encounter ledge underground that requires blasting. In this type of contract, the contractor assumes most of the risk of cost overruns. In cost-plus contracts, the owner assumes most of the risk of cost overruns, but all costs must be well documented by the contractor. The contractor provides an estimate of costs at the beginning of the project, but this is not legally binding. If the job costs more, for any reason, the owner is obligated to pay. Depending on the contract language, there may be specific situations in which a contractor has a legal right to modify the price. You would need to check with a lawyer about your situation. Also, you can negotiate over a price change requested by a contractor that you feel is justified – even if the contract does not specifically allow the change. If you have already paid out most of the $160K and the job is far from complete, then you are not in a strong position to negotiate. The contractor could just walk away from the job and you would have to hire someone else to finish – or sue the contractor for breach of contract. Neither of these is an attractive option, so you may want to get legal advice on your options at this point.
Hi there. I have a contract where a discount is provided if the “project is not 100% complete” by a certain date. The wording was added to override the normal “substantial completion” precedent. Is there a contractual difference between the two terms? Thank you.
“Substantial completion” has a specific meaning in construction contracts which you can read about at this link. In plain language, “substantial completion” means the building can be occupied and used as intended, but may have minor items to complete or adjust. The unfinished work items are typically detailed in a “punch list”. The contract may go into additional detail about what is required for “substantial completion.” For example, the contract may state that a certificate of occupancy (CO) must be issued. “Final completion,” on the other hand, is the point where all work has been completed and inspected and all contract terms have been met. The work is done. At this point, final payment is due. I would assume that “100% complete” means the same as final completion. Of course, the parties don’t always agree about when these milestones have been met. If there is an architect or construction manager on the project, they typically inspect the work and sign a certificate of substantial completion and final completion. Otherwise, it is up to the owner and contractor to agree on when the work is done in accordance with the contract.
Thank you so much for the great information – buildingadvisor is awesome! We hired a deck contractor and specified “100% completion of entire project” by a certain date or we get a discount because we didn’t want substantial work performed going into deep winter. The contractor slapped the deck together in 2 days in an attempt to meet the date and did not follow mfg instructions, so now a complete tear-up and re-lay is required. The contractor is arguing the deck was complete, there’s just some quality issues to resolve. Even if that was the case, if I understand correctly that may satisfy the requirements for “substantial completion” but not “100% project completion”. I’m not sure how to proceed with this deadlock. Thanks again for your advice.
If the workmanship is substandard or not in compliance with the contract documents (plans and specifications), it does not meet the standard for “substantial completion” or “final completion”. So you are justified in withholding enough money to pay someone else to complete the job if necessary. If the contractor has agreed to tear out and re-lay the decking, it sounds like he agrees with your assessment that the work is substandard. So it is surprising that he expects to be paid in full for a job that is obviously incomplete. In, on the other hand, the contractor claims everything is fine and that the job is complete, then you have a more serious problem. If you are unable to work things out through negotiation and compromise, then you may need to terminate the contract, fire the contractor, and hire someone else to complete the job. Before terminating a contract, it’s always a good idea to get a lawyer’s advice about the best procedure to protect yourself from liens or other legal action by the contractor. Best of luck in finding a mutually agreeable resolution – almost always the best option whenever possible. Read more on quality standards, dispute resolution, and terminating the contract.
We hired a contractor for renovations, primarily the kitchen. During and after installation of the new tile flooring, it was extensively damaged by him, his employees and a subcontractor also hired by him. There is substantial hazing on the finish and they were pushing and dragging heavy appliances and cabinets across the unprotected floor. 90% of the floor is damaged. At the Contractors request, we contacted three tile repair experts who all advised it cannot be fixed. Also, we are not able to use the kitchen and there are still many unfinished components of the renovation. They have not performed any work for over 45 days. He says he is going to replace the floor, then reneges on it. No liens have been placed on our home, but we have not paid the full amount of the invoice because he has not completed the work and has damaged our property. Can we hire a new contractor to replace the flooring and finish the project? We don’t know if we have held back enough money to pay someone else to have the work done but Contractor #1 is demanding more money. What is our recourse? I really appreciate any advice at this point. Our two-month renovation has turned into four months and counting…and I’m still cooking on a hot plate.
Unfortunately, your contractor’s failure to protect existing and new surfaces from workers on site is a common problem, but rarely to the extent that you describe. This shows clear negligence on the part of the contractor to adequately protect the new kitchen floor from his employees and subs, who are under his control. Therefore, it is his responsibility to do whatever is necessary to make it right, at no extra cost to you. If you have a full written contract, it should provide some guidelines for resolving this sort of issue. For example, it might provide a time limit for correcting problems on the job, a final completion date for the work, or other condition that the contractor must meet. If specific deadlines are not provided in the contract, then the standard used by courts is typically a “reasonable” amount of time to correct defects in the work. What is reasonable is a judgement call, depending on the type and amount of work required and any extenuating circumstances – such as the need to obtain special-order items. If you have lost faith in this contractor’s ability to complete the job, and wish to terminate the contract, it’s best to provide written notice, stating that you plan to terminate the contract and hire another contractor if he does not complete the job in, say, 30 to 45 days. You should continue to withhold enough money to get the work completed by others, or as close to that amount as you can. Before providing notice, it would be a good idea to check with a construction attorney about the best way to protect yourselves for liens or other legal claims if you choose to terminate the contract. Construction laws vary state by state in the US – not so sure about in Canada. In some states, you can file a complaint with the contractor licensing board, which may put some pressure on the contractor to get the job done correctly and in a timely manner. You can read several related questions and answers at this link. Best of luck with getting this issue resolved quickly so you can start to enjoy your new space!
Hi.I read your article with great interest. Can’t say I agree with everything you said (Truth in the eye of the beholder) but for the most part I enjoyed reading and learned a few new things. Keep up the good work and thank you!
Tony G.
General Contractor, Los Angeles
I am building a new house. The contract provides a square foot price allocation and also includes “standard labor.” I stayed within the allowance for the tile, but my contractor is now telling me that the labor to install the tile is not “standard.” The tile is just standard ceramic tile and not too small or too big. It’s also simply being laid in a simple offset pattern with no designs. It seems to me that that’s “standard” installation, right?
There are a couple of issues here. First is whether your tile installation was “standard” or not. The installation style you chose – an offset pattern – is not the simplest and most common pattern, which is a simple grid, sometimes referred to as a “straight lay”. After the straight lay, the most common tile layouts are diagonal and offset, like yours. Diagonal layouts take more time in cutting. Offset layouts can be more difficult because of lippage issues. Lippage is a small variation in height where two tiles meet. If the tiles are slightly bowed up or down, as they often are, offset joints place the lowest part of one tile next to the highest point on the next tile. This can require more thinset mortar and more fidgeting with installation and grouting to keep lippage to an acceptable level. The level of difficulty depends on the specific tile. Larger tiles, rectangular shapes, and irregular (less-than-flat) surfaces are more problematic. How much extra work is involved, I can’t say, but some premium labor charge may be justified. The second issue is one of communication. Ideally, the contractor should have informed you about the extra charge before installing the tile, not afterwards. In some contracts, notification that you will be exceeding your allowance is required. However, even if not contractually required it is good business practice for the contractor to notify the owners that they are going to exceed an allowance price if they choose a certain material or installation pattern. At a minimum, a contractor should document any change to an allowance price with material or labor invoices that justify the change in price. Since this is a labor allowance, it’s reasonable for you to ask what the standard labor charge would have been and how many extra hours were required for your type of installation. If advance notice of price changes was not specified in your contract, then you will have to negotiate with your contractor to find a mutually agreeable solution. Hope you are able to find an amicable resolution and best of luck with your new home!
My windows are installed. Work done,inspected by project manager, balance paid. A week later receive an invoice for $1700 more for labor…. ? I’m not paying. Paid the agreed upon estimate. I’m angry and confused by this type of business practice from a locally well regarded contractor. With the extra I could have chosen several contractors who came in much higher….feel like this is a bait and switch.
Do I have any recourse?
These types of surprises at the end of a job are never pleasant and are often improper, as I think is the case here. In general, the owner is not responsible for extra charges on a fixed-price contract, unless you specifically agreed to the extra work. In a formal work arrangement, extra work is agreed to in a written “change order,” which describes the extra work and cost, and is signed by both parties. Sometimes these agreements are verbal, which can lead to misunderstandings. But the critical factor is that the owner approves the extra work and cost before the work is done. The contractor might claim that the “estimate” was non-binding, as is often the case with a “cost-plus” contract where you are billed for time and materials. In this type of agreement, the owner pays whatever the job ends up costing unless there is an agreed-to maximum price. The owner takes on all the risk for cost overruns. Based on your description of the events, you should not be responsible for these extra charges. To protect yourself from any legal claims or liens filed by the contractor, however, you may want to speak briefly with a lawyer about the proper procedure for disputing the charge. State laws differ on dispute resolution for construction contracts. Best of luck in reaching a quick and fair resolution.
Is the phrase”match the existing” in addition remodeling a understood construction phrase in contracting? For example, I had a contractor put up clear ponderosa pine next to knotty ponderosa pine and say I didn’t specify knotty pine although I gave him a sample of knotty pine for matching. He also put in the wrong grade of oak flooring. which did not match. Do you know any legal precedence for this problem?
The phrase “match existing” is commonly used in remodeling contracts and is a frequent cause of problems. A perfect match of old materials is often not possible. The original materials may no longer be available, or may show wear-and-tear and color fading that cannot be matched. What is a good enough match is a matter of opinion. There is no precise, legal definition of the phrase as far as I know, but disputed interpretations of this clause have gone to court. For example, see the match existing lawsuit. To address this issue, some contracts state that the contractor will make “every effort to match existing” but that if an exact match is not possible, he may substitute materials of similar quality and appearance to the original. It is best if the customer [or architect] has the contractual right to view and approve the match or attempted match before the work is done. With that type of approval process, you would have avoided the problems cited, where the contractor clearly dropped the ball. If a perfect match is not possible, this approach directs the owner and contractor to work together to find an acceptable solution, which I think is the best approach. If the only solution acceptable to the owner requires customized, special-order materials, then the match may involve a change order and extra costs. Like much in construction, this involves some give-and-take and compromise by both parties. In your situation, it seems clear that the contractor did not may “every effort” to make a good match. You should schedule a meeting with the contractor to discuss the issue and request that the work be redone properly. If he refuses to redo the work, you have a few choices: You could withhold enough money from payment to hire another contractor to complete the work (after first talking to a lawyer, as you are potentially breaching the contract); or you could start legal proceedings to attempt to force the contractor to redo the work in compliance with the contract. Lawsuits or arbitration should always be the last resort as they are slow, stressful, costly, and uncertain in their outcome. However, sometimes a single letter for a lawyer can produce results. A brief consult with a lawyer experienced in construction law could help you determine the best course of action. Best of luck with finding a mutually agreeable resolution. Read more on Match Existing.
I am building a new home and the contract has an allowance for drives and walks. No drive or walk has been poured yet but there is a $4,000 charge on the ledger under drives and walks. When I asked the builder what this was for, he stated the concrete front porch that was poured at the same time as the garage and basement slab. There was no mention of a porch and even if we back that $4k out of the allowance, I will be facing $4,000 to $5,000 of overages. Is it legitimate to include the porch under drives and walks if it is not spelled out?
It’s always challenging from a distance to judge who said what to whom, but clearly there has been a misunderstanding here. From your description, it sounds like you are being charged extra for a concrete porch without your knowledge or consent. In general, any time there is a change to the contract, or before an allowance item is selected and priced out, both the contractor and owner consent to the change – preferably in writing. If the porch is included in the plans and specs, then it should have been included in the contract price. If it was not shown on the plans or mentioned in the specs, and you did not agree to add this, then you should not have to pay for it. It sounds like the contractor considers the front porch part of the “drives and walks” allowance, which was not made clear to you (and doesn’t make a lot of sense to me). In any event, you did not agree to include the porch, did not agree to the price, so it should not be added as an extra charge. By the time you add the actual driveway and walkways, you will be well over the allowance amount. Underpricing allowances is a common tactic that some contractors use to keep the contract price artificially low. There’s not much the customer can do about it if he agrees to an unrealistic allowance, such as $2/sq. ft. for ceramic tile. In this case, however, the contractor has added a new category to the allowance (the porch) and did not get your consent. I would suggest sitting down with the contractor to go over this and any other allowances. Make it clear that any price adjustments – whether allowances or change orders – need to be approved by you in advance. You shouldn’t have any more $4,000 surprises. You will have to negotiate a mutually agreeable solution to the current $4,000 charge. After hearing what the contractor has to say, you will need to decide whether the charge is reasonable in whole or in part. You could compromise, refuse to pay, or keep the peace by paying now but withholding the $4,000 (or a portion of it) from the final payment if you are still unhappy with the job. Best of luck in finding a workable solution that both parties can live with so you can move forward with the project!
A201 does not define a time limit to the Contractor’s Warranty. The typical 1-year correction period that is included in A201 is often erroneously referred to as a one-year warranty.
Good point. Owners should definitely ask whether a contractor’s work is guaranteed and for how long — and should get this in writing. Typically material warranties are handled by the product manufacturer, while the contractor is responsible for installation (although which is at fault is not always clear). And product warranties are often prorated and do not cover labor. So, for example, if your roofing fails in 10 years rather than 25, you may get a check for about half the cost of materials — but nothing for the labor for tear-off and replacement. Contractor warranties are governed by state law in some states, so it’s worth doing a little investigation with your state’s consumer affairs or attorney general’ office.
Read More about Contractor Warranties
The information provided in the “Hidden or Changed Conditions” narrative above is valid with respect to how disputes arising from hidden or changed conditions are typically dealt with in the industry. However, the 1918 United States Supreme Court decision to United States v. Spearin (248 U.S. 132), also known as the Spearin doctrine, states that the owner is liable for conditions that could not reasonably be known by the contractor as an implied warranty of the construction documents. Clauses requiring the contractor to visit the site, check the plans, field verify, etc., do not relieve the owner from liability of incomplete/incorrect information in the construction documents or conditions that could not reasonably be anticipated by the contractor, and are thus considered erroneous statements in the documents with limited merit.
The information above was/is very nicely presented. It was well worth the small time spent reviewing especially the RED FLAGS, as I about to assemble and sign a contract for a medium renovation project. I also appreciate northernbuilder’s contribution. Thanks