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Just Making Sure I Have This Right (fixed price contract question)

8 years ago
last modified: 8 years ago

Hi there,

This is my first post and I'm afraid I'm going to sound like an idiot, so don't judge me too harshly. I think that we have fallen for the classic trap of signing for a budget that is unrealistically small and then going over it.

My husband and I are in California building a 2200sf 2-story custom home on 1.5 acres for a fixed contract price of $300k (super simple design, not a lot of bells and whistles).

We originally hired a design/builder to work with us on a floorplan that my husband drew up. We paid him a $7k deposit for engineering and design work while we were getting our loan processed.

During the loan process the bank discovered some negative credit history on the part of our builder and declined to work with him. Because we were getting the best terms that we could find from the bank, we opted to change builders.

The new builder we found (a husband wife team) came in and said they could do the work for the same price and essentially slipped right in to the other builder's place. They even used his exact same budget on their own letterhead (and told us that's what they had done).

Going through the permit process was a nightmare and took months and cost us $25k, however, only $12k was allotted for them in the budget. 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 and then, to speed the process along, my husband and I threw in another $4k cash.

Now, however, the builders are saying that they thought when they made their initial bid that our previous contractor was going to handle permits and they were going to take over from there. 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.

They are saying that extra funds that went to permits were counted on to fund other parts of the project and now we're already $9k over budget and my husband and I need to make that up somehow, either with cash or by offsetting labor costs by my husband doing some of the work.

We know that our budget is very very tight and my husband has been planning from the start to do a lot of the work himself to help offset costs, but we were hoping to be allocate those funds to go towards things we wanted to upgrade (like being able to put the labor costs of flooring into the material budget instead), not because they underestimated permit costs and don't want to cut into their profit margin to cover them.

Since the permit costs were not for anything unusual pertaining to our project, just standard fees, and the contract is a fixed price (but there isn't specific verbiage pertaining to this situation), are we responsible for making up that $9k? Or am I misunderstanding a fixed price contract?

Early on in the process I had the builders explain again to me that they are responsible for building our house with everything included on the plans for the amount stated and we are responsible for covering out of pocket anything additional that we add in later. This isn't something that we're adding in, this was a standard fee. They even brought up the fact while we were signing the contract that our permit budget was a bit low and we'd have to probably use some overage to cover it.

If we are in the wrong and have to eat the $9k as an expensive lesson learned, so be it, but I thought I'd get some other opinions.

I should add that so far we have a very good relationship with our builders and would like to keep it positive. We are about to finish framing and have liked their work and would like to continue working with them. I'd like to believe that they're not actually trying to cheat us, but that there was honestly just a big communication regarding permits.......

(Again, if you think we are idiots for even being in a situation to ask such a question, please refrain from reminding me. Thanks.)

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