Here in Oz we work mainly for Architects, contracts are standard by law but conditions for each contract are flexible to a point.
Houses down here are getting dearer and therefore more money is outlayed by us before we get paid.
My post is about a job that a regular Architect we do work for has asked us to tender on, the house is probably 800k-1m, the conditions I don’t like are ‘liquidated damages’ (penalties if we don’t deliver on time) of wait for it $500.00 per day!$3,500.00 per week.The other condition is defect liability period 2.5% of the contract price is held back for a 12 month period after that the Architect inspects the house and we get a list a minor issues to fix, if we don’t fix they get someone else and deduct it from my money (this scenario hasn’t happened we always back our work)
We usually have a 3-6 month defect liability period which we think is reasonable but with the potential of approx $25k outlayed for 12 months is too much of a stretch (plus we have other jobs with money held back so it adds up)
I am going to refuse this offer but what happens with you guys do you have similar contracts.
Cheers,
John
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A Greek client lent me some advice once. Build a business in your own back yard--not in someone elses. I took that as play by your set of rules--not someone elses.
Architects are great--but on the few occasions I have gone through the grief involved in just landing a contract for one--I wrote my own contract--based on theirs of course.
I don't go for the whole bid a job against 7 others--work for free on takeoff and do shop drawings for free on spec. Too much work for free.
Over here contracts drafted by architects or large contractors are entirely negotiable. Signed and witnessed contract is law. I don't mind taking a big black marker to anyone's contract--lease--mortgage... whatever. Just business.
L
GardenStructure.com~Build for the Art of it!
Good points......
Additionally, Why am I called the Contractor and he/she the Architect?
Perhaps......it's because I handle the "contract" end of the job. Archy handles the plans & specifications.
If an Archyhands me a contract, usually AIA, I read it, copy what works for me and print it up on my letterhead.
If the Archy has done their job, (complete plans, specification, renderings and that vision thing!) I don't need them anymore. Really.
If Archy insists on AIA contract, I figure he doesn't want to leave the party yet and wants to be the project manager................see ya!
And if the Owner insists on a Liquidated Damages clause, I say O.K. just as long as I put one in equal, that rewards me for completion every day b4 deadline and conpensates me for every day of delay caused by......(o'my)... incomplete designs, specifications, and that vision thing.
As for holding money.......I suggest they try that at the grocery store or at a restuarant.............."hey, mind if I pay you following the bowel movement on this meal?"
It's called a warranty! And it's legally enforcable.
Everything has its price.
I'd go for the penalty clause if there is a corresponding early completion reward, i.e. for every day I finish ahead of the schedule I get $500.
I'd also go for the 2.5% holdback at 18% annual interest, happy as I am for the chance to loan money at high rates. I can borrow the money to fill the gap at 6 or 7%, so it's free income.
we have strict contract laws here writing your own is not permitted,some clauses can be struck out but not many.
The money goes into a joint bank account which attracts lousy bank interest.
We usually only tender against 2-3 other Builders any more and I'm out.
As I said before I won't be going for this job it upsets me that when you put your heart and soul into a project to deliver a fine home and the first contact with the conditions are 'we don't trust heres a huge penalty if your not on time'
We have worked with liquidated damages before and been over time however penalties have never been applied as they know we have tried to build on time and have done a good job.
Penalties are to stop Builders taking on too much and neglecting one job over another,but $500.00 per day is a bit extreme plus the 12 month defect period on top.
Cheers,
Johnhttp://www.johnwalkerbuilders.com
Look at the proposed schedule to ensure that it's reasonable. If it is, figure a "safe" number of days you might go over, and add $500/day times that amount to your price. If you go over, you've got the money in the job, if not, you've got some gravy for taking the risk on the LD's.
Regarding the 2.5%, that'sa simple one- just add 2.5% to your price to cover if the homeowners or architect try to screw you after the 12 months . If they do, that's fine- you had the money to cover it. If not, you made an extra 2.5% on the job for the risk.
Bob
The last few homes I've built have had penalty clauses and I have no problems with them. When you are building these days with prices being what they are a homeowner putting out 2-3 million needs some insurance.
I don't know what interest rates are down there in OZ but at 10% 2m is close to $500/day. I have protection with a change order fee that adds both time and money along the construction. There are always plenty of changes adding ample time so I've never come within 30 days of an overrun. In my part of the world wearher ins't a real problem so it is easy to deal with.
As for a hold back, I figure that in the bid price and plan on never seeing any of it. If I get a check in 6 months( the time my contracts allow) it's vacation time.
pete... i think you've got good sloutions that work.. the thing that bugs me is that "intellignet people" can't see that any GC worth his salt is NOT going to absorb the cost of risk..
he's simply going to bury the cost in the contract price ,
bonds, liquidated damages, retainage.. those are all unneccessary costs added to the project..
it would be simpler if everyone were dealing off the top of the deck
for instance.. i always get a fee to prepare a Proposal, often times the customer asks if they can get the fee back if i am awarded the job.... the easy answer is "sure"... but i f they stop to analyze the situation they must realize that it would just become a shell game with me adding the cost of preparing the Proposal into either my overhead or the project overhead, so i can "give it back".. i like to think they are intelligent enough to see that i am avoiding the duplicitness by simply charging them up front
my ideal job condition is a great designer ( not me ) ... a great owner with a realistic budget.... and me, the GC... that's a team that can do anythingMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
I like your ideal job scenario but man are they few and far between. Even if they start like that they can fall apart before the dream is realized. I think the only job I will ever get like that is when me and St.Peter rehang the Pearly Gates in Satin Nickel. Unfortunately i will be outbid on that one by a Chinaman using undocumented labor and a .001" thinner layer of nickel.
Scott
scott, i'm from Rhode Island ... i know a guy who knows a guy who knows St. Pete..
lemme see what i can do Mike Smith Rhode Island : Design / Build / Repair / Restore
Thanks, Help a Brother Out...............S
Scott,
on the up side when those gates fail, you'll be able to name your own price.:)Cheers.
http://www.johnwalkerbuilders.com
Pete,
Adding on the money would be a real option, however I probably would not win the job and would waste time bidding so its easier to say no at the start.I will keep that in mind for future use.
Cheers,
Johnhttp://www.johnwalkerbuilders.com
john.... f'g liquidated damages... bet the architect didn't have that in his design contract..
last time i walked away from a contract with that clause , the guy that got it had it waived.. and the owner made so many changes the contract went double the original time limit... double
no way would i sign a liquidated damages contract unless i had full control and there was an offsetting sweetner if i come in under the time limit
No disagreement with other posts at all. Kind of thing hacks me off. Possible solution. Somewhere in your bid on this while you were sitting down and assigning numbers, you've probably got a line that says warranty issues, and you assigned a number to it. My rationale on that, it's money you're charging when the job is done in anticipation that you may have to go back, and pay yourself for doing it. Or you might have to pay some other trade to remedy something. But that money isn't cash thats covering labor thats already happened.
So put it in escrow. Your client has a $5000 account (or whatever) in escrow, which is tagged for any kind of warranty issue. If they want something remedied, and it is not something you'd warranty, i.e. you'd fix it but charge them, wasn't your bust, then the money comes out of there. At the end of the 12 month period, whatever is left gets cut in half. Half to you, half to them. So every dollar they spend is something they won't get later. And neither will you. I feel this works because they know there's money set aside to fix things, and they have to be realistic with themselves about what is really a legitimate bit** and what's frivolous, because perception wise, it's still money coming out of their pocket if they're not being realistic. If it was your bad from the start, you're fixing it no matter what.
"A bore is a man who, when you ask him how he is, tells you." -Bert Taylor