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Building Business

Who Pays for Mistakes in a Time and Materials Contract?

Scott Gibson, contributing writer

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Builders have two basic options when it comes to contracts with their clients: a time-and-material arrangement, in which the client agrees to pay an hourly rate plus cover the cost of materials until the job is done, or a fixed-price contract in which a flat price covering everything is negotiated at the outset.

Mistakes on the builder's part, large or small, are likely crop up. With a fixed-price contract, there's no question the builder has to back up and make any necessary corrections on his own. But what about a T&M contract? Should the homeowner be expected to pay for corrective measures? That's the focus of this week's Breaktime Business Spotlight.

In a recent post, Ben asks for guidance on this potentially ticklish question. His own approach is not to charge for mistakes that were "stupid or unprofessional," but to charge the customer to correct mistakes he made when he was being "reasonably careful."

"Any thoughts on this one?" Ben asks. "Also, does anybody know of a credible resource that defines a T&M agreement and describes, in detail, what's billable in a T&M situation, and what is not? I'm thinking that I might need to refer a client to such a document."

From the homeowner's point of view

It all depends on what you consider "reasonable," replies Aimless.

"I'm sure that when my contractor cut off the old 4-in. cast iron vent and left it in the ceiling, he honestly didn't realize that it was now a funnel for rainwater into our house," Aimless says, "or that it was unsupported and would come crashing through the brand new drywall.

"It was an honest mistake. But from my perspective, the idiot should have known better and I seriously resented the T&M for them to fix and paint the drywall, plus the fact that I could see the patch. I fixed the roof myself."

That wasn't the end of his problems. Some tile work had to be ripped out and redone because the tile installer and plumber weren't communicating. Aimless paid for that, too.

"The result? The contractor got paid in full for T&M," he says. "Neither he nor those subs ever crossed my threshold again. Nor did they cross the threshold of anybody that I know."

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Comments (2)

Haakon76 writes: Communication , Communication, Comunication. A picture is worth much more than a thousand words. We typically try to have a set of drawings involved as a reference for our work. It helps our team and the homeowner to visulaize the work expected. But with any remodel there will be exceptions. Being up front with the homeowner when a mistake of consequence occurs and being willing to absorb the cost will go along way with the negotiations.
Don't be afraid to discuss mistakes with the owner but when you do make the inevitable mistake have a remidiation plan available to bring to the owner for your discussion. A plan to fix the mistake with costs associated, or a design change to take advantage of the mistake will greatly help direct the negotiation. Win-Winner.
Posted: 12:57 pm on September 27th

Moshup_Trail writes: I can't bring myself to vote for any of those choices. The fact remains - it's always a negotiation. If the builder is honorable he/she will own up to clear mistakes. But, many mistakes are the result of honest mis-understandings. As the project owner, you owe it to your builder to be clear. When mistakes happen sometimes there's a middle ground that will save you both time and money. Example: My builder knew I wanted the window centered on the wall. But a sloping roof had created the need for slant ceiling and a kneewall on one side. But in centering the window he forgot about the kneewall. Ooops. We talked about what to do. My builder was the kind of guy who would have fixed it, but in the end we decided to simply make the window smaller. It was pretty wide and by making it narrower we could get it just about centered without major reconstruction. Win-win.
Posted: 12:17 pm on September 18th

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