Fixed price contract: Are necessary basement ceiling height increases the builder’s responsibility?
Hello,
I have a question about an issue that has come up with our builder. We have a fixed price contract for a house that was started 10 months ago. The house is fully framed and the electrical wiring is going in. Today two change orders were submitted to us, one for 13k rock removal while digging the foundation (took place about 8 months ago) and one for 24k for extending the basement ceiling height from 10 feet to 14 feet.
I am confused for a few reasons. First, because it took so long to tell us, not a word was mentioned about either of these issues up until today and I feel this may be them trying to get extra money out of us that they aren’t rightfully owed. Second, because we signed a contract for a fixed price house and we confirmed we could build the type of home we wanted before we made a bid on the land and entered into a contract for construction, we figured since it was surveyed to make sure we could build the house there, they would have been able to determine the ceiling height and/or allotted for extra expenses such as potential wall height changes in the basement.
The contract states:
“If conditions are encountered on the site which are subsurface or otherwise concealed physical conditions which differ materially from those contemplated, or physical conditions of an unusual nature are encountered and cause a furtherance to the Contractor in time or materials, the Contractor will be entitled to an equitable adjustment in the contract price, an extension of the completion date, or both, by change order.”
I read that to mean if they hit rock we are liable for the cost. However, the ceiling height being 4 feet taller than they estimated with their survey, is that on us as well? Or not because it is a fixed price contract?
I have no issues paying what we rightfully owe, I just don’t want to be taken for a ride from a builder because he wants to squeeze more money out of us.
Any insight or advice would be greatly appreciated. Thank you.
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Replies
Joseph,
I'm sure this is a stressful situation to find yourself in, but the last place you should be looking for advice are building forums. Your problem is a legal one about the interpretation of contracts. That's best left to lawyers with experience in resolving construction related questions.
Hi Joseph,
This is one hell of a post. A lot of missing info and lack of proper terminology here, but at first glance, it sounds like your contractor is trying to take you for a ride.
In my old days of project management, change orders are brought to me before they do the work, you know, to confirm things before money gets spent... Now in my days of home building, I find resi contractors will start the work first, do a bunch of shit, then try to corner you into paying for the change. (Usually at a high cost because it's already done)
If they built it to the contract, then you shouldn't have to pay pay extra. If a reasonable unexpected issue came up while they were doing the work, it is reasonable to agree to a change order. This is your call.
Joseph,
You haven't explained why the basement ceiling height was increased. I'm guessing the reason is connected with the need to remove the rocks encountered during excavation -- but you didn't tell us that.
Even when an excavator encounters an unexpected rock, adding 4 feet to the basement ceiling height is unusual. (Get ready for another change order -- to build those extra-long basement stairs.)
1. The reason for the change order matters. Who made the decision and why? Were you in the loop at the time? Did you say, "Sounds good to me"?
2. I agree with Jamie: The ordinary sequence of events is for the contractor to prepare a change order -- a document -- and ask you to sign the document before the work is performed.
Thanks for the responses everyone. I have to speak with the builder on Monday and find out exactly why it had to be increased 4 feet. My kneejerk response is because it's on a slope and that the slope was steeper than they anticipated as it is a raised/basement ranch.
We were in the loop but we were not aware at any point that this was not included in the contract and would require us to pay for it. At the start, it was said the basement height would be 10 feet. At one point, they said that it would have to be increased to 14 feet. We were disappointed when we found out the ceilings were going to be so high because we didn't want higher ceilings but we understood if it needed to be increased. Our feelings on this were expressed to the builder. Never once was it mentioned that we had a choice or that this came at a cost or that we should expect to pay x,y, z to do it. When I asked why the heck they are sending it now after the whole house is framed and he did said that it took so long (about 8 months since they started building) because they were waiting for all the invoices to come in before they gave us a price. I am upset about the delay but do understand if we are responsible for this cost. I am disappointed at the delay and zero indication that we would have to pay this at this stage of the game. We have budgeted appropriately and with the house being 2 months from completion, it's a whammy.
And yes, I agree about the change orders. Every other change order we had to sign before they would even touch it. In fact, we got called and told they couldn't do anything until we signed it and approved it.
Ideally the builder would have given you a "T&M" change order indicating a change that would cost something, but they didn't know how much yet. Apparently that didn't happen. If your question is "did it cost more to pour a 14' foundation than a 10' foundation, the answer would be "yes". Why? More excavation and more concrete, more steel, more time spent and very possibly an upcharge from the concrete contractor for the work necessary for the additional height. Typical 8' wooden foundation forms give you a 7'-10" wall height. (8' for aluminum forms.) Unless the contractor has high forms, high walls require the panels to be stacked, which adds labor, and may require different (and expensive) pouring methods such as pumps. At this point, I'd expect any client of mine to ask for a breakdown of costs involved in the upcharge.
The first thing you need is to get the builder to explain to you why he was forced to make changes to the plan. The next question is why it took so long for him to bring it to your attention. In my area we sometimes encounter “plastic soil” that swells and shrinks moving the house cracking foundations and walls, this layer of soil needs to be removed when encountered. If that was the case you would get a bill to hull away the soil and another bill for rock fill to bring the site back up to grade.
Did you get a construction loan and or escrow company for this project?
It seems strange that the builder did not deal with the financial part of the problem when it accrued.
If not you need to be very careful how this situation gets resolved. You need to make sure the builder has paid all the subs and suppliers and got lien wavers from the paid subs and suppliers. The worst case is builder walks away from the project with your money without paying the subs and suppliers who file liens.
Walta
As Martin said at the beginning, you need advice from a local lawyer who understands construction law. These laws are very different from state to state, and there is no way that anyone here can give you appropriate advice beyond what was already given. We all agree that a change like this should have had a change order, signed in advance of any work being done. In my state (NJ), it is the law. Without a signed change order, they would not have the legal right to demand payment. That said, removing unexpected rock and extending the height of the basement both do cost more and would likely count as unexpected conditions, though I could easily see cases where they should have been anticipated and included in the original price. I like Bob's suggestion to get a price breakdown for the changes. You may be able to negotiate a price that is acceptable to both parties. If not, this could get ugly pretty quick.
Before I retired, I was a lawyer and about half my time was spent dealing with construction issues for contractors, subs and owners. You definitely need to consult a knowledgeable local lawyer who can review your contract and suggest how to deal with the issues. At a minimum, you need detailed documentation of the changes, including invoices or time and material slips from whatever subs were involved. The more organized you are when sitting down with your lawyer, the better.