Contractor's error: How to address it in a way that works for everyone?
November 29, 2016 8:01 PM   Subscribe

Our general contractor made an error that substantially increased the cost of construction. They are now asking us to cover it. How do we respond to this while maintaining a good working relationship for the rest of the project? Input from folks in the construction business would be especially appreciated!

The subcontractor that initially bid for framing backed out at the last minute. Our general contractor misread something and didn't realize that the new framer was bidding more than double what the previous one had. The framers have come and gone, and now their invoice is here...

After reading over the contract we signed, I believe our general contractor is technically responsible for this - it was their error. They are asking us to cover it (by asking us to approve a change order). It would have a pretty substantial impact on our budget - about 7% of the project's total cost. This is the second such mistake they've made, but the previous one was smaller and they were able to cover 2/3 of it by reclassifying money allocated for a buffer in other areas. That left no buffer to cover this larger error.

We like them and they've been great to work with otherwise. We want to maintain good relations and respect the fact that this could be a pretty big expense for them if they ate it - more than half their fee on the project. This is a pretty serious amount of money for us too, though.

Is it normal for a contractor to ask us to bear this cost? Is it normal to request this kind of retroactive change order?

General contractors of Metafilter, (or people who work with GCs) what would be a reasonable way for us to respond? How can we resolve this so that everyone - including us - comes out of it feeling like they got a fair resolution?
posted by sibilatorix to Home & Garden (13 answers total) 3 users marked this as a favorite
Did you see or approve the bid? How much were you told this framing would cost prior to execution of the job?

I'm confused how this cost is 7% of the project, but over 50% of their profit on the total project. Maybe you meant 70%?

In general this was great and it's what you should say in writing or verbally: "We want to maintain good relations and respect the fact that this could be a pretty big expense for them if they ate it - more than half their fee on the project. This is a pretty serious amount of money for us too, though."
posted by jbenben at 8:27 PM on November 29, 2016 [1 favorite]

What type of contract did your sign? Since you mention their fee, it sounds like it's not a hard bid or fixed price contract? If it's a cost plus contract, then you might be indeed responsible, unless you set a limit on the total cost of the project (cost plus with guaranteed maximum price). Design build? There's not enough information in your question.

Also, no contractor who "misreads" subcontractor bid amounts will be in business for long.
posted by halogen at 8:37 PM on November 29, 2016 [4 favorites]

I'm confused how this cost is 7% of the project, but over 50% of their profit on the total project.

Say project is 50K overall. Mistake is a $3500 mistake. Contractor's profit on the overall job was going to be 7K.

I'm unclear if this was a fixed price contract. I'm also unclear if you paid for the first error, the 1/3 that was not covered by the reclassification? If you paid for that one I think you've got a bit more room to push back on this error. If they ate that last one, maybe offer to split this one with them? I don't think under any circumstances should you offer to pay the whole thing (i.e. approve the change order) yourself. I'm actually a little surprised they are asking you since it's clearly their mistake and it's surprising that they didn't have any room to work with the framers once the error was realized. A bit more detail on this would be helpful.
posted by jessamyn at 8:40 PM on November 29, 2016 [1 favorite]

The whole point of change orders is to have documentation that the client requested a change before the change was instituted. So don't sign it now; they are supposed to get you to sign it ahead of time and if you end up litigating this can only hurt you.

The reason you hire a GC instead of contracting it yourself is so they can manage these sorts of bidding and contract issues when their subs under perform. Legally they are on the hook for the full amount. Ethically they made a mistake that you had no control over and I wouldn't feel bad making them eat it.

Also I'd be at least a little suspicious they were gaming you on this. IE: There isn't a no show crew but nominally hiring the no shows would allow the GC's bid to 7% lower. I mean how do you make that mistake? Every bid I've every prepared had a projected grand total bolded at the end of the bid.
posted by Mitheral at 8:46 PM on November 29, 2016 [9 favorites]

I believe it would be considered a fixed price contract - it specifies a "contract sum," one of the contract documents is an itemized bid, and their "fee" that I referred to above is a percentage of the total, tacked on at the end of the bid. The contract specifies that any deviations from the contract require a change order. I'm pretty confident that legally, this is their responsibility. But we don't know the norms here, and we don't want to sour our working relationship halfway through the project.

They are not a design-build firm; we're owner-builders hiring them to build the house out to a certain point, after which we'll take over.

We did pay for the 1/3 of the first error that they weren't able to cover by reclassifying safety buffers - it was a slightly different situation, though. It was their mistake, but we could theoretically have caught it ourselves before signing the contract if we had more experience reading construction bids.

Also, no contractor who "misreads" subcontractor bid amounts will be in business for long.
It was less obvious than just misreading the sub's bid. I could see myself making the same mistake they did. They came well-recommended, and apart from these two errors have been really great to work with.
posted by sibilatorix at 10:40 PM on November 29, 2016

Might look into whether the framer that backed out, did so properly. You can't bid $X as a sub, knowing that the general will rely on that bid, and then say "nah, I don't want to do that job." The first framer might be on the hook for some/all of the excess that the second framer charged. That's (probably) between the GC and the framer, but either way, it might put a dent in the shortfall.

Apart from that, I think your choices are to suck it up (you'll have a great relationship because you're insuring the bungling contractor's fuck-ups, and can expect more of the same) or force them to eat it (which will wreck your relationship and require you to check every other thing with a microscope, because the contractor will be cutting every possible corner that he's not cutting now). Or you can split the baby and get the worst of both worlds.

If the difference is bigger than a few thousand bucks, you should probably spend a few hundred talking with a lawyer. I mean, this is the second time the GC has come to you with a fuck-up that is going to cost you money. (Yeah, the first one was covered by a built-in cushion, but that cushion was your money, and using it up put you that much closer to having to watch out for cut corners.) Even if you pony up for this mistake, what are you going to do about the next one?
posted by spacewrench at 11:03 PM on November 29, 2016 [5 favorites]

Also, no contractor who "misreads" subcontractor bid amounts will be in business for long.
It was less obvious than just misreading the sub's bid. I could see myself making the same mistake they did. They came well-recommended, and apart from these two errors have been really great to work with.

Hey, member of a yuuuge family of construction company owners and workers here. That you yourself would make a mistake reading the framers' bid is understandable; it's a lot less understandable – to the point of unprofessional – that your contractor would. They're supposed to know how to read bids. It's literally part of their job. Also, interpreting based on my knowledge of construction, the first error must have been on something like the foundation or electrical/plumbing connections, am I right? I don't want to pile on someone who came well recommended, but who exactly recommended this contractor to you? Foundations, electrical/plumbing connections, and framing are the meat and bones of construction. They've got to be done right; as such special attention has to be paid. You just don't misread a framers' bid unless you're unexperienced or, I'm sure you can guess the other possibilities.

I too would spend a few hundred to speak with a lawyer first. I personally would be looking for a different contractor. If you decide to go that route, ask for references. Serious contractors will be happy to provide them and even take you to visit places they've built or are in the process of building (I say this from lived experience – I have seen so many construction sites in my life).
posted by fraula at 2:20 AM on November 30, 2016 [3 favorites]

It's difficult to say whether there's a way to stay friendly with them and also avoid paying the cost. When my mother rebuilt her house the cabinetmaker stained her kitchen cabinets the wrong color and then tried to lean on her to "change her mind" and accept the color she didn't want or split the cost of redoing the cabinets correctly (at significant expense). She stuck to her guns and he had to completely re-build and restain all the cabinets and eat all the expense of that, at the cost to her of damaging the relationship. He was only one part of the entire rebuilding process, so that cost was acceptable to her, and she got the cabinets that she wanted.

I'd say definitely not to sign the change order (now at least, while you are still thinking about how to proceed), because once you do, you will be stuck paying for his mistake whether you want to or not.
posted by Hal Mumkin at 4:05 AM on November 30, 2016 [2 favorites]

Note: I'm not in the US, I work in this world but some technicalities are probably different.

That you know about the fuck up indicates a lack of professionalism on the part of your contractor. If it is a fixed price contract the contractor should be wearing the cost without comment or complaint, this puts you in exactly the situation spacewrench describes, where you are a little bit screwed either way.

The world of construction is rough. My suspicion is that you are coming across as soft clients that will wear this sort of thing (most professional clients wouldn't, ever). The problem with deciding to not wear it any more is that you better be ready to inspect the crap out of the remainder of their work, because it may get a lot sloppier.
posted by deadwax at 4:09 AM on November 30, 2016 [7 favorites]

I've had to work my way through a few issues like this over the years - I work on the periphery of the building industry, also not in the US - and I find the best approach is always a pragmatic one. It helps me to envisage my desired outcome and then work toward it. This minimises the likelihood of me getting sidetracked with frustration when people don't do what I want them to.

At this stage I would be wanting to avoid sacking the contractor if I could because getting another one in the middle of a job may be time consuming and difficult and new people will be suspicious about why you're looking for someone to finish a job. They will be wondering if you're hard to deal with. It will probably end up costing you more too.

Regarding this extra cost, you don't want an outcome that cripples their business if you can avoid it, for a few reasons. Not the least of these is that you'd like the job completed properly and to ideally be on good terms at the end of it in case there are any issues that need to be dealt with. Goodwill is important when it comes to warranty stuff. Perhaps the most important thing in some ways.

Given that you're otherwise happy with them and want a fair outcome for everyone, I would probably offer to pay a proportion of it - maybe up to half - as a goodwill gesture but also note that you won't be doing it again if there are more overruns and that they will need to deal with any issues that might have required the buffer too.

From your description it sounds like you may have the upper hand in legal terms and that's a great position to be in. Influence and power are always most potent when used sparingly though, so I would use the strong position to negotiate with as much benevolence as I could muster. You can afford to speak softly when you've got a big stick, and your contractor, if they've got any brains at all, will be grateful that you don't grind them into the ground.
posted by mewsic at 4:27 AM on November 30, 2016 [7 favorites]

You might offer to pay half, or even all, AT THE SUCCESSFUL COMPLETION of the job.
posted by uncaken at 9:06 AM on November 30, 2016 [5 favorites]

If you're prepared to play hardball, you could cheerfully say that you regard the matter as something to be handled by their E&O insurance.
posted by aramaic at 10:21 AM on November 30, 2016 [5 favorites]

After thinking about this a little, I think uncaken might have the right approach. In consultation with your lawyer, you could draft an addendum that says "if you complete the job on time with no cut corners and no further fuckups, I'll pay a completion bonus of (X% of whatever they want you to pay for now). But if you cut corners, fuck up again, or whatever, then you're fired and get $Y less the cost of the next guy I have to hire to get it right."

That allows you to be as generous as you decide to be, while not giving the GC a blank check to continue screwing up or cutting corners to avoid taking a bath.
posted by spacewrench at 12:53 PM on November 30, 2016 [1 favorite]

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