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Time and Materials Construction Contracts
Avoid the Pitfalls of Time and Material
Contracts
By Mark J. Donovan
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There are two common forms of
contracts used in the home construction business. The most common is the
fixed price contract. The other is known as the Time and Materials contract.
Whenever possible homeowners should only accept fixed price contracts. Time
and Material construction contracts, though seductive sounding, leave
homeowners vulnerable to higher than anticipated costs and schedule delays. |
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A time and materials contract is a
contract that effectively has the homeowner paying the contractor and his
subcontractors on an hourly basis for the work performed, plus the cost of the
building materials. Though on the surface this may sound like a cheaper way to
go with a home construction project, almost always it ends up costing the
homeowner more in money and time. In addition, this type of contract frequently
leads to debates between the homeowner and contractor for the cost of work
performed. |
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I recently had a situation where I
had a young painting subcontractor show up an hour and a half late for a meeting
at my home to discuss painting my house. He said he was late due to hanging out
at the gym too long that morning. He also went on to tell me he spent his
winters in Europe. Anyways, after he walked around the house, he came up to me
and quoted me an hourly rate plus materials, and said he would complete the
house over an 8 week period.
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I held my tongue and said thank
you very much, I’ll get back to you. He never said how many hours per week
he would be charging. This type of offer is effectively a time and materials
contract, and I am sure it would have led to me getting soaked and
frustrated. Needless to say he didn’t get my business.
There are situations, however, where time and material construction
contracts are necessary. Typically they are used for situations where there
are uncertainties in the home construction project, for example using
construction materials and construction methods that the home construction contractor is
unfamiliar with. |
Photo by Mark Donovan |
In addition, there may be issues with
the home construction or home remodeling project that are difficult to cost out.
For example, if there is a portion of the project that cannot be fully assessed
until the contractor goes in and does some demolition or prep work on the
project. Another example may be the installation of an artesian well. In
this type of example the well contract
doesn’t know how deep the well will have to be dug until he hits water.
If a contractor suggests a time and
materials construction contract, ask why, and see if there are ways that limit
only a portion of the contract to a time and materials contract. Also, ask if
there can be maximum dollar amounts set for both the labor and materials. If the
feedback is negative to these requests, then look elsewhere for a contractor.
Also make sure you obtain multiple
construction bids. If other contractor bids suggest a time and materials
contract then there may be an absolute need for one.
For a more comprehensive new home construction
checklist, see my
New Home Construction Bid Sheet. The New Home Construction Bid
Sheet provides a request for quote checklist section that you can provide to
prospective building contractors. It also includes a comprehensive new home
construction cost breakdown table, in Microsoft Excel format, that allows the
contractor to include his projected new home construction costs for every phase
of the project.
How to Finance your Home Remodeling Project -
can help provide funds for your new home improvement project if financing is
required.
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