Did you have a RE lawyer look over the contract before signing? If not I suggest you have one look it over now.

I'm confused. The permit expenses were $25K + an additional $4K? And who paid these? And now you are $9K over budget? Is your contract with the builder a "guaranteed not to exceed cost" agreement? What does your owner-builder contract say as to the scope of the work? Are permits included or excluded? This isn't about "communications", it's about the terms and conditions of your contract.

The permits were $25k total. $12k was budgeted, $4k we paid out of pocket and the $9k came from other budget categories that were finished where we had overages. Now the contractors are saying we needed that $9k for other categories that might run over budget.

What is the difference between a fixed cost contract and a guaranteed not too exceed cost contract? I thought they were the same thing.

The contract says they'll build the house for the agreed upon amount.

Sorry, but I still don't understand the permit numbers (not that it really matters): Total permit fees--$25K. You paid $4K + $9K from funds for construction = $13K (not $25K). Now the builders are saying that other areas of construction may exceed estimate and the $9K taken from funds for construction, to pay permit fees, may be needed to cover subsequent construction cost. Am I correct?

A fixed cost contract and a guaranteed not to exceed cost contract are essentially the same in this regard. That is, construction will not exceed the "fixed cost" contained in the contract, unless there are approved changes to the scope of the construction contract.

If the scope of work described in the contract does not include and describe the permit expenses, then they are not included. That should be easy to verify by reading the contract.

If you have drawn $9K from the contract construction sum to pay for permits, that does not change the total and final "fixed cost" which you agreed to pay for the construction of the house, unless I'm missing something major here. It's important to remember that it is normal in the construction of a house for some work to be under the estimated cost, while other work may exceed the estimated cost. In a fixed cost contract, all that matters is the final fixed expense for the total house and not the work of one sub-contractor or trade or another. Sounds like that's what the builder is trying to tell you--they will build the house for the agreed upon amount--not $9K less.

It is all about the contract. If it is not spelled out, or states "estimated", "allotment" and the money went truly to the planning department - you don't have a prayer. If it is not in writing - it never happened.... This is too early in the game even to have the dispute.

As far as I understand - prior builder allotted on the contract $12k for the permitting (b.s. most likely contract had the clause that you pay the cost no matter what). The New builder copied the same estimate, true cost of the permits paid to the planning department - was $25k. So to cover it: you paid $4k cash, and another $9k - has to come from somewhere. $25k = $12k + $4k + $9k. You would like the builder to eat $9k paid to the planning from his profit portion.

> if you think we are idiots for even being in a situation

Not really. Any build - has to pay the permitting cost. They did not steal the money, or put it in their bank account. It went to a city Hall. The charge is the same, no matter what builder was chosen. If you had it in writing you could have made builder eat it. But your "relationship" with the builder would have suffered dramatically. I don't think it was "expensive lesson to You" - as you paid what you were required $25k. We always call - to find the permitting cost.

The contract appears to be a Lump Sum or Fixed Price so costs and budgets would not be in the contract unless some items were called out as Allowances or Reimbursibles which means the cost of these items would be determined later and the Fixed Price would be modified by a Change Order.

An allowance is usually treated as Cost Plus but a markup would be inappropriate for a permit fee so it is usually treated as a reimbursable that is not part of the Fixed Price. This should be clearly stated in your contract.

Why did the permit fee get so large?

Your permit allowance was 12K. Because it was an unknown, and structured as an allowance, you are responsible for the difference in cost. Just because the builder's costs on early work has come in under his planned figures does not mean that you get the ''savings''.

On a fixed cost, where the line item is NOT an allowance, the builder keeps the difference if it comes in cheaper, or pays the difference if it comes in higher. The only situation that you would keep any cost difference is if a material choice that is structured in the contract as an allowance comes in under budget. For instance, choosing $5 a square foot wood vs. the $6 a square that was in the allowance.

Allowances are just guesses. If the guess is off, you're responsible for the difference. You'd better go through the contract and see what is fixed, and what is an allowance. The allowances are the only pssible place for you to save the extra costs of the permits, but thatis highly unlikely to be realistically possible. Most allowances are too low to cover the actual costs from the beginning. You are limely to have other cost over runs that differ from what you are allowed as well. Time to know what those numbers will actually buy you. Really, the time for that was before you signed, but that's water under the bridge. Find out now.

Cost breakdown:

Budgeted allotment for permits = $12k

Extra funds from other budget category overages (ie grading. Soils report, etc) = $9k

Cash from us = $4k

Total permit cost = $25k (very standard cost of permits here, nothing special or surprising)

As I understand it, everything should be fixed cost and anything that we *choose* to upgrade or change is what we are responsible for over and beyond what is given in the budget.

As there are no categories specified as "allowances", if we were to stay totally within all budget categories and didn't make a single change from the given plans, we shouldn't have to pay a cent more than what is outlined in the contract, so the additional $9k that came from overages in other categories wouldn't be from a choice that we made or something that we changed and we shouldn't have to bear that financial burden.

That's how I'm understanding that a fixed cost contract works. That it is our builder's responsibility to give realistic budgets for all given categories and line items and to eat the cost if they estimated poorly. Am I off base?

It's clear you are trying to manage your limited budget and are frustrated over this situation. I regret that you and your husband find yourselves in this situation.

You still haven't told us what your contract says about fees for permit approvals. If your jurisdiction requires a fee for an occupancy permit, and/or your utility company requires a fee or deposit to activate utilities, your fees may not yet be over.

Owner-builder contracts for construction are commonly for the physical construction only, unless there is specific language to the contrary, describing those additional covered expenses, such as limited site and utility work. Professional services, required reports and fees for approval are typically the responsibility of the owner, unless specifically included in the construction contract.

A fixed-cost construction contract covers the scope of work described therein. Period. And owners do not get to pocket or reuse elsewhere in the project any savings due to in-progress work for which the contract is applicable. If the builder can provide any element of the work for less than her/his estimate s/he gets to keep the difference. If any element of the work costs more than her/his estimate s/he eats the difference.

With this in mind, many builders will not share with owners their estimates for individual sub-contract work, nor what the final subcontractor charge was. Rather the builder, simply bills a lump sum monthly (sometimes more often) based on percentage complete of the project. The owner is protected by the final fixed fee, and the builder manages her/his risk by using periodic savings to offset periodic added expenses throughout the project.

If the permits were estimated to be 12K then I don't see how you think that the builder should pay that amount, unless it were written into the contract that he would pay that. It's not traditional that the builder would pay most of the property development fees for utilities or municipal services requirements or permits, as none of that is really under his control for cost management, nor does he actually supervise most of that. He usually does charge a fee for interfacing with the officials for those services, as it does require time. But, your architect traditionally would be involved in the due diligence for the costs of the property development and permitting process up front. There might be some surprises, as some municipalities are noted for red tape, but that is why it's suggested that you have a healthy contingency fee saved in addition to the estimated construction costs.

How the rest of the contract is worded is very important for you staying on track with your budget. How are the specific line items structured in the contract? Are specific materials named and priced, such as ''Nailed down, sand and site finished 3'' oak hardwood'' or are there terms like, ''Wood floor--19K allowance'' That will make a difference as to your responsibility for any cost over runs.

Some of the information about this project Seems contradictory.

You refer to the contract as being based on a "fixed price" but you also refer to your "budget" and "line items" that had "come in well under budget". There are no "budgets" in a lump sum or fixed price contract nor would there be any reason for the contractor's cost accounting to be revealed to you.

The only explanation that makes sense is the contract is Cost of the Work Plus a Fixed Fee with a Guaranteed Maximum Price. That contract would not set a "fixed price" for the project but it would set a "not to exceed price". You would pay the cost of the work plus the fee until the total reached the GMP. If it cost less than the GMP you would have a savings. If line items actually cost less than the budgeted amounts, the contractor would have a buffer for other items that were over the budget but the budget amounts should not be reduced unless there is good reason to think they will be bought for less.

In this scenario, if the budget you gave the new contractor had a line item for the permit fee less than $25,000, that might have suggested to the new contractor that part of the fee had already been paid. If that was the case, although the budget was created by the old contractor, you gave it to the new contractors so they should be able to rely upon it regarding permit fees.

Sanford, there's a lot that is confusing in this thread. If the owner-builder contract is a "fixed price" then the only thing the contractor is responsible for is the final fixed price at the end of construction! The owner seems to think (erroneously) that the contractor is responsible for the estimated expense for each and every trade's and subcontractor's work, which is clearly never the case in a fixed price contract. There's a lot for consumers to learn here.

Virgil, I think the "Fixed Price" must be a "Guaranteed Maximum Price" of a Cost Plus contract.

The only mystery would then be why the budget did not contain the true permit fee.

IMO the permit fee should be a pass-through cost rather than part of the cost of the work. Why would the owner be willing to pay the contractor a fee for paying the permit fee?

So, our contract distinctly days that it is a "fixed price contract" but there is also a budget included with specific line items for all expense categories, including overhead and profit for the contractors. It says things like "front entrance door - $1000", but nothing specific like brand or size.

We are also using a fund control, so we have to sign off each invoice and draw request before any checks are issued to the contractors or subs.

There isn't anything in the contract that specifically states who is responsible for permit fees or if costs go over, simply that the house specified in the plans will be built for the end amount ($300k).

Virgil Carter: if the contractor is responsible for the end amount, doesn't that include the estimates of all the subs as a part of the full scope of work?

Sweetsarahbeth, this is what is giving you a major headache! You just don't understand how a fixed cost contract works. The answer to your question is, no, in a fixed price contract the only legally binding element is that the final cost must not exceed the fixed cost contained in the contract. That's it, unless there is some wording to the contrary in your agreement!

It normally doesn't matter and isn't legally binding how much the site work cost, or the framing cost or the finishes cost or anything else cost before substantial completion or occupancy! It doesn't matter (to the owner) what the builder estimated for framing and it doesn't matter (to the owner) what the framing actually cost. It doesn't matter and it's not legally binding. What matters to the owner is that the total construction cost for the completed project does not exceed the fixed cost in the contract.

Unless the contract wording somehow makes the builder legally responsible for each and every subcontractor and trade bid (the entrance door-$1000, etc.), none of that matters! For example, the front door estimated at $1,000 could have cost $50 or $5000 dollars--it doesn't matter to the owner--it only matters to the builder as s/he tries to keep the project within the fixed cost of the contract.

Thus, the only thing that matters in a fixed cost contract is the final cost at the time of substantial completion--occupancy. And that cost, by contract, cannot exceed the fixed cost stipulated in the contract. If it does, and there have been no owner authorized changes, the builder eats the excess cost. If the contractor delivers the completed house at less cost, then the builder pockets the difference as repayment for her/his project risk.

A fixed cost construction contract transfers all the risk from the owner to the builder. The builder must deliver the finished product at the cost stipulated in the contract--not less and not more. To manage this risk, builders who work under such contracts manage their subs and trades to balance out underages and overages without any input or recourse from the owner so as to achieve the final desired result--a completed project at the fixed cost.

Fixed cost contracts are all about risk management--who is protected and who takes the risk!

Does this make sense? You are very fortunate that the builders are still willing to work with you after you somehow "redirected" $9K from the construction budget to pay for permit expenses. They are telling you that the construction budget is now over by $9K due to your actions and you will have to find a way to save $9K from the balance of the construction before completion.

I'm sorry to have to say that's how a fixed fee budget works! Do you understand?

There is something wrong with this approach. There would be no purpose for a budget in a fixed price contract. Anything not clearly designed or specified would be an Allowance with a budget amount and you would pay the difference between the allowance and a higher buy out price.

The important questions are:

1) Are the drawings and specs complete? (eg, does the front door have a model number and finish?

2) has the contractor mentioned a change order yet?

3) who designed the house?

4) who wrote the contract?

Virgil, the contractors from the very beginning have been the ones that have told us that there would be reallocation of funds between categories to meet that final fixed number for the cost of the build. THEY were the ones who moved the money around, not us. So where does that leave us?

Sanford, 1. The drawings are complete, but the specs are not that detailed. We are picking things like doors and windows as we go. 2. No mention of change orders at this point. 3. My husband made the floorplan, the former GC's architect engineered the plans. 4. The builder supplied the contract.

It seems like the way things are structured in our situation is unusual in that it is a fixed price, but we are privy to the details behind the budget numbers and that's where all the confusion is coming in. I think we just need to sit down with our builders and get some clarification directly from them, because it seems like this could continue to happen until we are over by a much larger amount than $9k if the rest of the budget amounts are just as unrealistic. I thought that is what we were avoiding with a fixed price contract, thus the confusion.

"I think we need to sit down with our builders and get some clarification"

Excellent idea!

A big intangible here is you're going to be joined at the hip with your builder for the duration of the project and right out of the gate there's a huge misunderstanding. You're not buying a car where your relationship with the salesman lasts 2 hours, you're going to be in almost daily communication with your builder for months.

If there's not an open and honest "clearing of the air" soon it's almost guaranteed that communication will stop, construction will stop and lawyers will get involved while the house sits, housewrap flapping in the wind with weeds sprouting up all around. And ironically, a budget wrecker that will make the overage on permit fees look like chump change.

Sweetsarahbeth, you understand the problem now. The builder appears to be treating work categories as if they were Allowances. That will be OK until something costs more than the allowance. That would generate a change order to raise the original fixed price.

For items not well defined in the contract documents, the GC'S budget should be treated as an allowance but items that are well defined should not. They should appear in the GC'S accounting but not in the budget shown to you. Labor should not appear unless the scope of the work was not clear; for instance, if flooring was not adequately specified it would be treated as a budget/allowance item but if the area and type of flooring was clear, installation would be in the fixed price not in the budget/allowance list.

The permit fee appears to be a special case to be dealt with separately because it appears mistakes might have been made by both parties in the contract negotiations. The only reason I can think of to make it part of the contract price would be to include it in a loan or some accounting system, otherwise it should be a simple pass-through cost to the owner. My clients write a check to the town or county and give it to the builder.

It would help to see the contract. If you turn on messaging others can contact you.

Hi Virgil, I think the only points that you are missing are the fact that the permit fees were included in the budget by the contractors, who are now saying they didn't realize that the permits were going to be taken out of the budget, and we were required by the bank to have access to and approve of the individual budget items and costs. I am not holding them to each line item as you assume, but to the final number. They are the ones saying that that final number is now not going to be enough money because they underestimated the permit costs that they included in the budget and want us to make up the difference.

That's the issue, from my standpoint, in a nutshell.

Hi Sweetsarahbeth! Thanks for the clarification. Time for a respectful, frank discussion with the builders to find a way to move forward with the support of all parties. Good luck with your project!

"They are the ones saying that that final number is now not going to be enough money because they underestimated the permit costs that they included in the budget"

I haven't read the whole thread in detail but if that's the case the builders could take out the word "permit" in the sentence above and substitute anything else that may come in over their budget number.

A pure form of construction contract would be rare; they are usually hybrids and I think this contact is a good example. It is difficult to write a Fixed Price contract without using Allowances to allow the inclusion of work that is not clearly designed or specified. Since an Allowance is really a small Cost Plus contract within a fixed price contract, if all of the work were to be divided into Allowances, the Fixed Price contract would effectively be a Cost Plus contract in every aspect but it's name. In some regions standard contract forms use the term Budget instead of Allowance. It is common for home improvement contractors to bid projects as a fixed price with a budget line for each piece of the work because specifications are so rare in that field. They also tend to ignore what has been specified. I've been through that nightmare of double speak. The contractor wanted to include the bid proposal budget breakdown in the fixed price contract but I wouldn't do it. They arrived at the next meeting early and persuaded the owner to sign their bid proposal instead of the contract required in the bid documents. I had to deal with what the OP is now. It appears the original contractor got their takeoff into a fixed price because it was more complete than the owner's specifications.

This conclusion is supported by the bank requiring the owners to have access to and approval of the individual budget prices and costs. In the end it is likely to be the bank that determines who owes what to whom.

But we haven't even seen the contract or the bank's requirements or the specifications or the budget nor do we know much else about the project so we're all guessing and spinning our wheels.

Good points! All that matters is the contract language and we haven't seen that so we're all trying to respond and be helpful based on our interpretation of what's posted here.

Regardless of the contract language, the only amicable resolution is going to be one based on a results-oriented discussion between owner and builder, and not on the discussions here.

The bank's requirement for the owners to be involved with the prices for individual work may simply be that the bank wants to ensure the active participation in the process by the owners. An experienced lender certainly knows on a fixed cost construction contract some categories of work will be less than estimated and some will be greater.

The owner says, "I am not holding them to each line item as you assume, but to the final number" which just adds to the confusion about why they seem to be concerned about the specific estimates for the various categories of work.

The source of the confusion appears to be that the builders have informed the owners that due to $9K being transferred to pay for permits, the construction budget is now in arrears by that $9K amount.

My guess is that since it was necessary to get the permits before construction could commence, the payment was made. Now that construction is under way, it appears to the builder that their available construction budget has been reduced by $9K and they don't believe they can bring the project to completion for $9K less than the fixed cost.

Regardless of how or why, a respectful and constructive discussion is needed where all parties seek a mutually agreeable solution to the situation. The worst situation will be if one or the other parties dig in their heels and are immovable in an effort to find a amicable way to deal with the situation.

Virgil, your analysis assumes there is a benefit to the owner to tracking the contractor's actual costs plus markup in a fixed price contract but that is not true.

Any part of the work that could not be bid should be put in a list of Allowances. That total plus the base bid price plus any pass thru reimbursable expenses (permit fees etc) should be put into the contract with a list of the contract documents.

I can show you a very well written state bar model lump sum contract that says it "does not permit the owner to review the contractor's cost records". Instead it requires payments to be based on the % of work completed. A one-time schedule of values is required as an exhibit from the contractor to help the owner measure the ratio of the work completed to the value of the Work set forth in a line item in that schedule. This schedule does not modify or supersede any other part of the contract documents. Revealing the actual cost of the work to the owner during construction would be entirely inappropriate.

It is possible the contractor has used their budget to demonstrate why they should not have to pay the remaining permit fee. If that is the case that issue should be resolved first. I confess I can make no sense of the descriptions of that issue.

Good points, Sanford! I am in complete agreement with you about how a fixed cost contract works, and have consistently said from the outset that the owners have no review rights and nothing to say about the costs of the individual categories of work--whether or not the work is completed for less, the same or more than the builder's estimate.

The only thing that matters is the builder delivering the finished house, in accordance with the terms of the fixed cost contract, for the agreed-upon fixed cost.

It has been the owner who first said, "... We had extra funds from line items that had been completed and had come in well under budget for grading and soils stuff, so we put those funds toward the permits... Later she said, "...Extra funds from other budget category overages (ie grading. Soils report, etc) = $9k..."

"Later she said, "... "fixed price contract" but there is also a budget included with specific line items for all expense categories, including overhead and profit for the contractors. It says things like "front entrance door - $1000", but nothing specific like brand or size."

"That's how I'm understanding that a fixed cost contract works. That it is our builder's responsibility to give realistic budgets for all given categories and line items and to eat the cost if they estimated poorly. Am I off base?"

"We are also using a fund control, so we have to sign off each invoice and draw request before any checks are issued to the contractors or subs."

Later in the conversation, the owner changed direction, "...Virgil, the contractors from the very beginning have been the ones that have told us that there would be reallocation of funds between categories to meet that final fixed number for the cost of the build..." And finally said, "...we were required by the bank to have access to and approve of the individual budget items and costs. I am not holding them to each line item as you assume, but to the final number..." Which is certainly the correct approach for a fixed cost construction contract!

As regards the responsibility for permits, the owner says, "...There isn't anything in the contract that specifically states who is responsible for permit fees or if costs go over, simply that the house specified in the plans will be built for the end amount ($300k)..."

Thus, this has been an entertaining conversation, but much like smoke, rising and twirling this way and that. Just when one thinks one has got hands on the material issues, the smokes dissipates and reappears somewhere else!

It's certainly clear to me that the homeowner is frustrated, believes the permit fees are not her responsibility and is looking for some third-party support for her position. It's equally clear that builder says they did not anticipate paying for permit fees, believing that had or would be done by the previous builder or others. The owner's position is "...But the permits were in their budget and we feel that we made it quite clear when hiring them that permits had not been obtained yet and would need to be in the budget..."

Entertaining!

But the only way this is going to get resolved is not in this thread (or any other), but by the owner and the builder having a sit-down respectful and constructive meeting to lay out their positions, and then to come up with an amicable and mutually-agreeable resolution like adults.

Frankly, in my architectural experience, a $9K "extra" on a $300K budget is 3% of the contract sum. If 3% is a major issue this early in the project, it's going to be a rocky road indeed! Prudent owners have a 10%-20% contingency for "extras" which would easily cover this and allow the project to proceed to its final fixed cost completion. If nothing else, both the owner and the builder could split the $9K and move on.

I hope the owner and the builder can find a reasonable solution and move on to happily complete the project and remain friends.

Thank you all for your input. While you are correct that nothing in these sorts of situations is going to be necessarily solved on an online forum, I think one of the benefits of posting situations and asking questions is simply getting the perspectives of many different people who have more experience or know more than you do about something that will maybe help shed some light on a situation.

In this case, I learned a lot about different kinds of contracts and discovered that ours doesn't seem to fit neatly into one kind of category, apparently.

My husband and I approached this whole thing like a collaboration between us and the builders. We have been planning to do some of the physical labor and scout for good deals on materials and finishes.

Like I said before, we obviously need to sit down with them and hammer out some if the fuzziness. I will try to post back with the results of that conversation after it happens. But this has been interesting and enlightening. Thank you.

best of luck with your project.
I hope you'll share your progress
with us.

Sweeraratberth,

My house was expecting CO sometimes in September.

It is in stage of rough-in most done. Exterior brick is set next two week.

I have fixed contract and addressed specific cast-iron bathtubs. Somehow, I caught his plumber use fiber instead of. And I am temporarily ok for them to install but was not mentioned how those costs will be shared yet.

Before signed, his contract was not indicated there are permits, tap water, temporary electric, etc, And I asked, he said they are included. However, I made them put in writing.

Three weeks ago, I found that framing guy installed fixed window in my master bathroom. Emailed and asked it is supposed a double hung window not fixed, and the arch openings have the same curve as garage . He waited until meeting at the house a week later, and said it costs $513 for window (plus labor) that he has to trash because it was custom made, and each arch costed $107 + labor. So, to re-do those he would eat over $1500. I felt bad. Therefore, I agreed to find place to use that window and pay $513 (installation on his), and leave those arch as they are (even I still do not like them).

Right then, I can see he and his superintendent were very happy. And that made me felt so good because I made myself and and everyone involved happy for just spending a bit.

Good luck!

The bathroom window is another example of irregular project management. If the contract documents called for doublehungs, the GC should have paid to correct his mistake. If the docs did not specify the window type, the GC should have asked for a clarification before ordering a custom window. If the docs called for a fixed window, you should have paid to correct your mistake. You didn't explain which of these 3 possibilities occurred leaving the impression of possible irregular project management, to use a polite word for it.

I recommend hiring an experienced design or construction professional to represent you ASAP. It will save you money and pain.

If the permit fee was shown in the original budget as only $12,000 and you gave that budget to the GC, and the contract did not require the GC to pay the permit fee, then you may be to blame for at least some, if not all, of this mistake. But it is not possible to say what would be a reasonable solution without seeing all of the contract documents and the previous correspondence.

Also, I am curious to know how a fee budget of $12,000 was determined and why it became so high (over 4 times the highest fee rate I've ever seen) and how the GC could have accurately predicted that value and why the contract doesn't address responsibility for paying it in the first place. In my experience, a permit fee amount can only be determined after the contact is signed and submitted to the building dept. because there may be adjustments required by the building department. Normally any permit fee amount in a fixed price would have to be treated as an Allowance to get it in the loan) and adjusted later by change order. When possible I require the owner to pay the permit fee as is normally done for other unpredictable costs like surveys and field testing.

All of this is mysterious but one thing I can say for certain is that playing with the budget amounts will inevitably prevent you from enforcing the fixed price of the contract. If you wanted to collaborate with the contractor, you simply chose the wrong contract type. This can be fixed but the window snafu tells me to do that you will need someone to represent your interests even if the contractor is being honest and cooperative.

Sweetsarahbeth wrote, "... Like I said before, we obviously need to sit down with them and hammer out some if the fuzziness..."

I wish you good luck with your meeting and hope that an equitable resolution can be reached.

A word of caution: you are entrusting your house to the builder to do a proper job and to do so in a quality manner. If you attempt to make the builder "eat" the $9K at the meeting, you may be able to do so. But if you do, the builders will simply take the $9K out of the balance of the construction cost in ways that you will never see or never know. And you will have established a fractious relationship for the balance of the project. A consumer can never outsmart or outmaneuver an experienced builder.

A friendly and collaborative approach to dispute resolution will go a long way to making things right. Best wishes on your project!

Sanford,

I have specified which brand and model for all windows in my contract.

It was his project manager's fault. To what I have learned so far, Builders do not take a lost or tolerance at home owner's fault period

Was tried to be nice with them because they are building my home and he is aged and ill (in processing of curing cancer). So bless what and where am at now.

Thanks for your sharing!

It's not really possible to advise you if there is an unusual back story to every unusual situation. I hope you can finish the project without too many more surprises.

So, I talked with the contractors for a while this morning, and I realized that part of the problem is that it seems difficult for them to answer a question simply and concisely. They tend to overexplain things and go off on tangents and tell me the same things over and over again, but none of it directly answers the question that I asked. So I decided to write them an email and hopefully their response will be clearer:

"Hi J and A,

I know you guys are busy, I just wanted to reiterate and make sure that I understand what we talked about today and ask a couple more questions. Please correct me if I have anything wrong.

1. Because the permits cost $9000 more than was allotted in the budget, those funds need to be made up for in other places.

2. One way to make that up is in labor costs by having Noah do some of the finish work.

3. If we come in under budget in any categories in amounts that more than make up for areas where we have a deficit, we are free to use that money in other budget categories or roll it into the final mortgage.

Some (ok, a lot of) follow up questions:

What happens if our total cost is over the total amount allotted? Are we responsible to pay that out of pocket?

If for whatever reason we were unable to make up the difference, would your responsibility be to simply install builder grade finishes?

Does our liability for cost depend on what categories caused the overage or whether it was the result of a change that we made?

Are all of our budget categories considered allowances or only the ones where the cost depends on choices we make (ie. finishes, change orders, etc)?

I guess I am simply looking for a more precise definition of what everybody's responsibilities are in a fixed price contract.

Also, I don't know that we ever came up with a specific way to handle change orders, such as having the front door moved and changing the layout of the master bath. What would be the best way to go about that so we have everything clear?

I think if we just have it all in an email it will be easier to refer back to so I don't have to all you to explain it all to me again. :)

Thanks!"

Are there any other questions that I should be asking?

Yes, you should be clarifying if this actually IS a fixed contract, or a cost plus with some hard estimates. If it IS a fixed price, you need to clrify whic elements are allowances within that fixed price. As the permits obviously were. And you need to find out if there are other site development costs that coukd be passed through to you as well.

You also need to talk to family about a backup safety net loan potential if things go the usual way they go with building.

Thanks Sophie, I think we have a sufficient amount of liquid contingency funds unless things go horribly, horribly awry. I'd rather not borrow more than we absolutely have to.

There, in the email, you used the word allowances. Is this the word the builder is using? That word answers a lot of questions.

So many twists and turns in this saga...

"Are all of our budget categories considered allowances or only the ones where the cost depends on choices we make (ie. finishes, change orders, etc)?"

That sentences confuses me. Do you have everything selected or are allot of things still a budget/allowances as that changes allot and can mean many things?

It is impossible to know what is going on here without reading the contract but my guess is that the bank required the original GC to submit a Schedule of Values that is sometimes used solely for the purpose of determining appropriate progress payments in a Fixed Price contract which is important to a lender. It is usually written after signing the contract and should not be a part of the contract documents unless it is a non-binding Exhibit.

Apparently the new GC accepted the original contract amount and the original SOV that apparently contained a line item for the Permit Fee even though the contract did not require the GC to pay it. The final fee amount was extraordinarily high by any standard (for reasons not explained) and the GC tried to edit the SOV to be able to absorb it within his contract price but not surprisingly he was unable to do that.

To know what should be done would require a careful reading of the contract so I recommended hiring a professional to help resolve the matter but the OP seems to want to continue trying to do it without assistance.

Our permit fees are $2100 and our impact fees are $7600. I agree that double 12k sounds very high.

That is what our contract says with regard to fixed price and permits.

This is what the budget looks like that we were given. As I mentioned before, we are also working with a fund control and they verify all purchases and receipts and will not fund a draw until the work has been verified as complete by the bank inspector and only fund draws according to the budget.

Re the high permit fees: we are in southern California. The builders are working on another project right now where the fees were just as high. It's what they cost here in our particular area, so they knew what to expect, they just didn't plan for it.

ETA: done if the permit fees were school fees ($8k) TIFF, building permits ($4k), septic permit, grading permit, park fees, etc. Each one is thousands of dollars and that's how they add up so quickly. I have all the receipts, those are just the ones I remember off the top of my head.

If a professional's help is necessary, we will seek it. For now we have a meeting with them on Friday to discuss this stuff more in depth and we'll see how that goes. We have a good relationship with them so far, and would like to resolve this between us if possible.

Also, I don't know why my picture is upside down. Sorry.

Also, also: in case it isn't clear, someone else (houses14) posted some issues they are having regarding windows that have nothing to do with my contract/permit fee question. Just to keep people from getting confused.

All that says is that the builder will be the one applying for the permits, not that he will will actually be paying for them out of the home's estimated costs.

Where is your schedule of finishes? List of items that are included?

If everything is termed an estimate, as your paperwork shows, then everything is basically an allowance, and the cost is NOT fixed. Which means that you pay for all overages, potentially with a change order fee. You do get to credit any unused allowances towards the overage. 9K is a lot to cut to get back into budget on a 300K build. This is why the 20% contingency fund is recommended.

Hi all, I think we got it cleared up. The contract price is guaranteed by the builders, ASIDE from the permit overage and any change orders that we make.

They made the mistake of taking the permit fees from the construction categories rather than the finish categories and that was where the confusion came in.

We have the option of trying to make up the overage within the budget by choosing less expensive finishes and having my husband do some of the work to offset labor costs or we can simply add in more cash. But the final word from them is that the house will be built for the total fixed amount specified.

Lord willing, there shouldn't be any more big surprises.

I don't know if this whole saga was actually helpful for anyone, but thanks for all the input.

The shifting of project values to allow invoicing for costs not in the contract and balancing it with a reduction in the quality of finishes already in the contract appears to ignore the contract requirement that changes in scope be handled with written Change Orders. In this case it would only require one CO with a net change value of zero. That would allow the invoicing to be for what was in the contract keeping the records clean in case later you are not willing or able to reduce the quality of the finishes or install some of the finishes yourselves. It would also keep the Fund Control people happy and protect the bank's investment.

The sole purpose of the Budget and Fund Control is to prevent this kind of misrepresentation of progress billing values. I would be interested to know if this system of ad hoc informal markers can be fairly resolved at the completion of the project. I hope these strange contract procedures don't prevent you from getting the house you want.

Those are additional concerns of ours as well.

Again, we really like our builders, we really don't think that they are dishonest, but we do worry about their bookkeeping skills, which is not a good worry to have. We are planning to stay as on top of things as we can from our end and keep communication lines open and clear.

On the other hand, framing is almost done and we've been super happy with the quality of work so far. So there's that.