What verbage is in your contract about builder delays?

farmhousegirlJuly 19, 2014

We are concerned about builder delays. Our contract states the build will take 7-9 months. What verbage or protections would be necessary to put in the contract for builder delays (not for unusual circumstance) for builder being negligently slow.. to protect from delays and cost for damages?

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Sophie Wheeler

You've chosen the wrong builder if you have those concerns. There isn't a legal clause possible that can prove that the delays are caused by ''negligence''. Plus, if you are doing a full custom larger home, you have unrealistic expectations as far as the timeline. Figure more like 9-12 months, and be glad if things run smoothly enough to actually hit that 9 month mark.

    Bookmark   July 19, 2014 at 8:47PM
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Well there are a lot of people who have problems with overly slow build..and find out their builder is not what they thought after they signed a contract. While we don't expect problems, and have thoroughly checked our builder, we are not naïve enough to believe you sometimes don't know all of the story until you are deep into a situation, therefore trying to protect ourselves. ie..builders who take on too many jobs at once or don't manage jobs or finances properly.

The contract is one sided...there are charges for delays caused by us...seems what is good for the goose is good for the gander. In some situations (if you don't own the land and it's a builder package) you have a right to walk away if the builder if not complete by a certain date. We built a Toll Brothers home 15 years ago and it was 6 months behind schedule because they were disorganized and backed up. We could've walked away from the house and gotten our deposit money back. In this case, it is our land, so we cannot 'walk away'...however, there has to be some incentive or penalty it seems if a builder is unnecessarily too slow by taking on too much work, being disorganized, not paying subs on time, etc...whether you want to use the word negligence or not, these things do happen and there seems there should be a protection for anyone no matter if the builder is the best or the worst. Anyway, asking the lawyer...but wanted to see if what the standard is.

    Bookmark   July 19, 2014 at 9:26PM
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We are struggling to hit 12 months for our 5700sqft remodel. Our builder recently completed a 30,000 sqft house for another client in 18 months. And this is not tract-land so you can be sure the fit & finish quality is top notch. I think if you have unlimited means and are prepared to spend more money to have more people working longer hours (as well as more careful project management), you can definitely make the process go faster.

    Bookmark   July 19, 2014 at 10:06PM
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30,000sf house????????????? That's bigger than Bill Gates!!!

    Bookmark   July 19, 2014 at 10:25PM
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Farmhousegirl- find an affordable place to live and hang on for the ride. I asked my GC for a room at his house today.... just joking, but yes- I know where he lives. Hell hath no fury. Yep, truer words were never spoken. Thank you, Mr. Shakespeare.

Um... just add six months to your expectations and then, start to put the heat on. Do it two to three months ahead of your lease end and they will get their act together. It is in their best interest to milk you. It is in your best interest to press them. You will find the sweet spot. Be smart. Be tough. Be wise and unreadable.

    Bookmark   July 19, 2014 at 11:17PM
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We have a provision stating that each day over the scheduled date of completion our builder is to pay us $150/day. This is a pretty standard clause that my architect puts in all the GC contracts to protect his clients.

    Bookmark   July 20, 2014 at 7:55AM
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Good question FHG.

Due to the associated costs of an out of state build, DH put an incentive in the contract. We had a 'cost plus' arrangement with a complex footprint. The incentive was $x,xxx if the house was completed in x months. The GC met the incentive, it worked well for us.

Wishing you calm seas on your project,

    Bookmark   July 20, 2014 at 8:43AM
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That's the way to go, offer an incentive for finishing early rather than a penalty for finishing late. Positive reinforcement.

Our contract says something about $100/day for delays past the competition estimate. However, it is followed up by something about "unforeseen circumstances, natural weather, blah blah blah" so unless my GC just decided to be lazy it would come into effect but I realize this process is complicated. I am thinking of offering him $5K to speed this shindig up though after all of our misc. county-related delays. We are so far behind schedule.

    Bookmark   July 20, 2014 at 11:03AM
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A fine for delays must allow for legitimate causes for delays due to weather, other unforeseeable conditions and owner changes/decisions and is therefore often unenforceable. A better approach is to offer a bonus for completion on a date adjusted for unavoidable delays.

It is also wise to include a contract provision for a monthly meeting where an updated critical path schedule can be reviewed. If your GC is not already doing this he needs to upgrade his project management skills for his own benefit as well as yours.

    Bookmark   July 20, 2014 at 11:40AM
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Double post

This post was edited by Renovator8 on Sun, Jul 20, 14 at 11:43

    Bookmark   July 20, 2014 at 11:41AM
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delays in our build all revolve around the weather (yes we could see the mud and feel the 45 mile an hour winds) and the reason we wanted a specific builder was because he builds quality beautiful homes--but he doesn't actually do the work it's done by subs and he's very picky about who works on his houses so we waited a lot on them...
we got the quote a year ago and construction didn't actually begin until
January, then we had the wind and rain, and everybody's builds were backed up
needless to say, we're a couple of months behind and we're cranky but happy.......

    Bookmark   July 20, 2014 at 4:59PM
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If you want to include a penalty clause for lack of completion after a date certain, you should also include a bonus clause for early completion prior to a date certain. The amounts for each should be similar.

Good luck on your project.

    Bookmark   July 20, 2014 at 6:43PM
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What's a reasonable amount for an incentive?

Thanks everyone!

    Bookmark   July 20, 2014 at 7:15PM
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Its probably relative to the cost of the build I would imagine. Our GC has only done two things that were within his immediate control that have delayed our project. Not supervising/looking at the finished insulation job prior to inspection. It didn't meet specs. and was failed twice, upon the second I went out and requested the specs and checked it myself and it was plain to a laymen that it was so wrong I didn't know what to do with it. 3 week delay getting another inspection. Second, he didn't read the fine print that the county inspector wanted to see a letter from the truss co. saying they confirm the trusses were installed according to their specifications. Another 3 week delay, we hope, we haven't gotten past that one just yet. I am not going to pick bones yet but I will be pretty cranky next time he tries to rush me through something when he takes his sweet time.

    Bookmark   July 20, 2014 at 7:20PM
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I would ask what is the best case scenario (the very earliest it will be done) and absolute worst case scenario (everything goes wrong). In your mind plan for worst case scenario date. Then add a penalty for going beyond that worst case scenario date to cover your costs.

My house is less than 1200 SF and I am going on 15 months for a fire restoration rebuild. I was told 4 months (by insurance co) and 4-6 months by builder. My best guess the problem is too many projects and not enough workers.

I agree include both reward and penalty.

    Bookmark   July 20, 2014 at 8:03PM
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GC desired 12 months to complete the build written in the contract, although he felt it could be completed in 10. We incentivized at 5% on top of the GC fee for completion of build by the end of 10 months. For every week after 10 months the incentive would reduce.

We sold our home and were living in a $$ rental. Trips to the build site out of state included travel (airfare or gas) costs and hotel. Factually, the 5% paid saved us in avoided expense. As we were on site every 3 weeks, we never felt the build was compromised by the incentive.


    Bookmark   July 20, 2014 at 10:27PM
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Virgil has it correct you cannot do one without the other. Are you purchasing any your own material or is the builder furnishing everything? If your going to be purchasing (fixtures, cabinets, etc) be prepared and make sure they are 100% ready when he needs them or the delays very well may end up being blamed on you and possibly the reason he did not finish early and claim the incentive. You just need to be careful you do not create potential hard feelings right out of the box.

    Bookmark   July 21, 2014 at 6:45AM
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Don't know why you can't do one without the other. We let the builder set the completion date, then had a penalty clause that kicked in 90 days later, along with the usual exclusions for delays out of his control. Giving him the price he asked for to complete the project on the date he picked seems like adequate reward. Fortunately we didn't have to use this clause, they finished about 8 weeks later than they predicted, about what I expected. The looming penalty may have helped focus attention at the end. The amount was based on our real, demonstrable costs of delay.

    Bookmark   July 21, 2014 at 9:01AM
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Here is the exact language from our contract.

1. DELAYS. Contractor agrees to diligently pursue completion, but shall not be responsible for delays for any of the following reasons; acts of God, stormy or inclement weather, extra work ordered by Buyer, acts of public enemy, vandalism, inability to secure material through regular recognized channels, imposition of government priority or allocation of materials, or delays caused by inspection or changes ordered by the inspectors of authorized governmental bodies, or holidays, or other causes beyond ContractorâÂÂs reasonable control.

    Bookmark   July 21, 2014 at 11:51AM
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Our builder would not allow that type of clause. He said that there are too many unknowns and he would not sign a contract with one. He also stated, that it was not his intention to do anything slowly......... he wants to make money and he has no incentive for working slowly.

    Bookmark   July 21, 2014 at 12:32PM
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Bungalow14, does this language represent and protect your interests in the project? If so, this is fine.

On the other hand, it seems to me that this language simply protects the builder and gives him numerous "outs" in case of project delays without any mention of the owner, owner expenses incurred due to delay, etc.

At the end of the day, owner-builder agreements are all about defining the scope of the project, responsibilities of the parties, financial terms and conditions and defining/sharing the risks inherent in construction projects. If you feel this language does this, you should have no concerns.

Good luck with your project.

    Bookmark   July 21, 2014 at 1:15PM
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Hi Virgil, I didn't have a problem with the inclusion of that section regarding delays, and neither did my attorney when he reviewed the contract prior to us signing.
In the end, we did lose some productivity during the December-January holiday weeks, as well as during some exceptionally bad weather in February. But as far as we were concerned, it had been "baked in the cake" and was inconsequential over the long run. It was an 8 month build, almost to the day, and we'd allowed for that duration.

    Bookmark   July 21, 2014 at 5:49PM
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These sorts of clauses are more common in commercial projects where a business can calculate how much revenue per day they will lose on a project that doesn't finish on time.

I would be wary of incentives to finish ahead or penalties for delays in a residential project. Commercial projects are not usually for an individual client so much as a committee or organization and the quality of build is not quite so important particularly because the interior finishes life cycle of a commercial project is something short, like seven years.

You may be enticing a builder to rush certain things, cut corners and lower the quality of finish work at the end of the build if they are behind schedule. I would rather have a delay than poor finish work or cut corners.

    Bookmark   July 21, 2014 at 6:14PM
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Palimpsest raises some good points to consider. In the end, it's all about what sort of contract terms one has in the owner-builder agreement. And what type of agreement an owner has with her/his builder--lump sum, cost of work plus fee, with or without a guaranteed max, etc.

If a date certain is important, then there should be terms which reflect that in the owner-builder agreement. If the owner prefers a penalty for the builder if the work is completed after the date certain, then it's fair to offer an incentive, in an equal amount, if the builder completes all work prior to the date certain.

If quality work and fully completing the work are important (and they always are), then that's the role of the contract documents--the drawings and specifications which are the basis for the owner-builder agreement. This is the reason why full and complete construction documents are imperative. Any deviation or lack of full compliance with the construction documents, without prior owner's written permission, is a breach of the owner-builder contract, regardless of schedule or date of substantial completion.

It's important to keep these two topics separate as they should be--the date of completion of the work is a different issue from full compliance with the construction documents.

That said, this is a topic that every owner should be aware of and owners should make the decisions for language in their owner-builder agreement that represents their best interests.

    Bookmark   July 21, 2014 at 6:44PM
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Unfortunately, I've yet to see what I consider a full (or even adequate) set of construction documents on a residential build. Not that I have been involved in many new builds from the very beginning. Many of the details are seat of the pants or left up to the builder's discretion in a residential build.

We did an almost full set of detail drawings for a gut rehab, and the few things that didn't have them, like a required sinuous curve on the handrail --weren't done. The railing as built was not code compliant, and I almost feel that they did it as punishment for all the other drawings we Did do. And although the required detail drawings were posted (by us) in appropriate places during the build, we often found them scrunched up and thrown into the corner, and when questioned about them the workers would shrug and say they didn't understand English. The homeowners did not pursue correction of most of the details that weren't done correctly as long as they weren't blatantly awful. I told the clients I would not design the kitchen unless they let me choose the installer because their contractors would screw it up.

And most of the time the drawings aren't provided because the client doesn't want to pay that much for plans.

I think it *can be done like virgilcarter says, but I would be afraid to put such a clause on my own building project.

    Bookmark   July 21, 2014 at 8:27PM
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palimpsest's experience has alway been true to a certain degree for single-family homes but is unfortunately becoming more of a problem. Details are overlooked or ignored and so is the building code since it is rarely well enforced by the local building department.

Contract provisions like "liquidated damages" (for late project delivery) have always been difficult to enforce but can be used effectively on larger commercial or multi-family projects but would be virtually useless on a residential project. I would not consider using one in a residential contract but a bonus for timely completion usually works well.

When thinking about punishing a contractor for slow performance consider that holding anyone responsible for events beyond their control or for losses you cannot substantiate is not something on which you want to base a claim especially in court regardless of the contract wording.

There are 2 ways to assess damages for late project delivery: actual damages and liquidated damages. If the actual loss to the owner at the end of the project can be determined that should be the method used. If the damages will not be easily determined at the completion they should be "liquidated", i.e. set forth in the original contract.

But be careful. If the liquidated damages provision bears no resemblance to the actual delay damages which the parties would have anticipated at contract signing, the fine will be considered a "penalty" and will therefore not be enforceable in most states. In other words, you cannot penalize your contractor for slow work; you can only demand reasonable compensation for the loss the delay caused you. Many states require proof of actual damages at the end of the project instead of allowing the contract liquidated damage amounts to be enforced.

Basically, the idea that a contractor can be made to work faster to avoid fines is specious at best.

This post was edited by Renovator8 on Tue, Jul 22, 14 at 10:08

    Bookmark   July 22, 2014 at 9:46AM
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"The contract is one sided...there are charges for delays caused by us...seems what is good for the goose is good for the gander."

This is a specious assumption.

The contractor is in business so owner delays can impact his income and it is reasonable for him to ask for protection from that possibility.

Assuming you are not building an income producing property your claim would be for other kinds of losses caused by a delay in the project completion. Think about what those losses would be and if they could be substantiated in court before arbitrarily setting fines that might be considered penalties unrelated to your loss.

    Bookmark   July 22, 2014 at 10:32AM
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I think part of the problem is that building a new home (and the construction industry in general) is very different than almost any other line of work I can think of.

Most businesses I know of or have worked in accept deadlines as a matter of course. Not returning phone calls or emails is not considered an acceptable business practice.

Building a new home is a very complicated endeavor. But then again so is building a new computer, or a new car. So is providing medical care. Or consulting services. Etc. For better or worse, there is something about the home building industry that will defy your best attempts to control it. :)

I understand what you are trying to do here. Perhaps the best advice I can give is for you to talk with your own attorney about whatever other contract language they've seen successfully used in your neck of the woods. (Different state laws can impact this.)

But ultimately, the smartest thing you can do is have a plan B. It almost always takes longer than you want it to. It's just the nature of the beast. I'd suggest spending your time making sure it is done well, rather than done by "X" date.

    Bookmark   July 22, 2014 at 12:40PM
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