Unexpected construction costs are a concern for every builder, especially when the unexpected costs will cause the project to be completed at a loss. Thankfully, there are ways to protect your interests and pass the costs along to the homeowner through the construction contract.
What is a construction contract?
The construction contract is the written agreement between a builder and a homeowner regarding the construction job. Within the contract are various provisions that specify terms and conditions for the job to be completed. One of the provisions that should always be placed in a construction contract is a provision specifying who will be responsible for unexpected expenses. If you are the builder, this provision should specify that unexpected costs go to the homeowner. This provision is standard practice in the construction industry, so it will not cause you to lose any business, but rather ensure that you receive proper payment for your work.
I included this provision in the contract to protect myself from construction cost increases, now what?
Go over the contract in detail with the homeowner before they sign, pointing out that provision in particular. In fact, to ensure that they actually read it, consider placing a signature box next to the provision itself. By making sure that the homeowner acknowledges the provision, you are protecting yourself from a customer claiming they were unaware of the requirement.
I’ve encountered an unexpected construction cost increase, what should I do?
Inform the homeowner of the expense before you act on it. If there are other options or the expense can be avoided, give the homeowner these options as well. Once the homeowner makes an informed decision on what should be done, fill out a change of order contract that details the added expenses. This contract should be signed by both you and the homeowner and stapled to the original contract.