How much to charge Builder if they go past deadline date

Question

Hello all,

I bought 3 lots in a subdivision and will be finishing up on the 1st house. Before starting the 2nd I wanted to put into the contract a clause that indicates a daily fee if they go past the due date.  Does anyone know of a daily fee that seems fair. My builder did okay on the first home however I just wanted to tighten up the deadline date.

I would also like to know of any other tips or practices that I should make sure I do on the next home to make sure I cover myself. For example making sure the builder collects on just 5 draws versus collecting money before work is completed.

Any advice would be greatly appreciated.

Mitch VanDeveer · Answer

Also think about the builders side, an experienced builder won’t commit to potential liquidated damages with out an upside or contingency. Are you willing to compensate them for finishing early?  Are you prepared for the contract price to go up since the builder now has more risk?  Also, the project could actually take longer than the 1st house if the contractor adds contingency days to the schedule to mitigate the risk of damages

Good luck

As far as the payments go, there are 2 standard billing practices, percentage of completion which is by far the most common or you include drawers in the construction schedule based on completion on milestones. Ie the foundation complete you pay X dollars.

Brian Pulaski · Answer

Speak with your attorney on this and confirm you are even able to do it and enforce it. Liquidated damages need to accurately reflect the actual loss and not just be any number you come up with (IE: you can’t charge $2500/day they go over time). Also be prepared for the builder to cite any and all delays and keep track of them. When I worked in project management for a GC we were very detailed in any time delay that affects the finish date. We would actually submit time extensions due to unforeseen (bad storms where multiple days were lost, etc). I think it’s a good thing to ad to your contract.

Greg Dickerson · Answer

You will likely have a hard time finding a residential builder that will agree to a penalty clause. There's not enough margin in houses and lots of things are beyond their control.

It sounds like you need to sit down with the builder and be clear about your expectations, how things went well and not so well and get a timeline and construction draw schedule based on work completed in writing. Doe the builder use any project Managemnet software with scheduling tool and budget that you can review online in realtime? This is standard procedure for most builders these days and is very helpful for communication, scheduling and budget.

Remember its all about relationships and as the developer you are the leader so its up to you to provide clear direction in no uncertain terms exactly what you expect and when then measure that performance and hold the team accountable to the goal in a way that is positive and encourages the results you're after.

Sophia Berry · Answer

@Greg Dickerson

Thank you so much.  That was absolutely great advise.  We will just have a sit down and I will make sure my very expectations are clear.

Benjamin Tighe · Answer

You really need to learn more about the construction side of this business moving forward. There are an so many variables that come into play that the contractor can't control or even predict. A storm on the east coast can delay material delivery on the west coast. Permits can get delayed because of laziness and holidays... The liquidated damages pendulum swings both ways. If time is your biggest concern you better have the budget for over time on labor and air freight on materials. Otherwise, vet your contractor based on their quality of work and management skills and live with the results. My area has a massive shortage of skilled labor. I haven't been on a project that was on time in 5 years. I'm working on a 20+ door student housing project that got flooded last week from rain. Paint and drywall are behind because the city couldn't get power to the site in time, making it impossible to keep the heat high enough for the finish material to cure properly, pushing every other phase out, and this isn't the only project in town. Best thing you can do is be flexible and have contingencies in place.

Chris K. · Answer

@Sophia Berry

To add to what everyone wrote, it's often very impractical to enforce liquidated damages since it's not always clear that the contractor caused the delay. We work on fairly large construction projects all over the Northeast. Before that, I worked as a real estate lawyer and banking lawyer. With the exception of truly egregious failure, I haven't seen folks try to enforce liquidated damage clauses for various reasons. Often times, it's just not worth it.

Being in the construction industry, I like the AIA system. It's not flawless but it's the "standard" for various reasons. But if you are working on smaller projects, it may not be feasible due to practical challenges (e.g. dealing with all the administrative requirements, inability to survive the requisition/payment cycle).

On a final note, I would note that the relationship between the parties in construction is not a straightforward customer-business relationship. I think it's more akin to a delicate partnership where everyone holds each other accountable for the job to get done. As a specialty subcontractor, for example, nothing infuriates us more than working with GCs, architects, and owners that have no idea what they are doing.

Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.

Sophia Berry · Answer

@Mitch VanDeveer

Thank you so much. That makes a lot of sense. I didn't think about them requesting compensation if they finish early.

How much to charge Builder if they go past deadline date

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