penalty for delay in construction contract

[Chris Campbell]

Hello -

I'm about to embark on a major bathroom remodeling (i.e. gutting that part of the house). This is in a *single* bathroom house and so it's going to be a big disruption to our life for the period that the bathroom is not available for our use. The project is probably going to cost around $25000.

I've seen and heard the horror stories of contractors who take forever to finish projects. So, applying good old capitalist principles, I want to make in the contractor's best interest to get it done quickly and on schedule. To that end, I'm willing to put up an extra pile of money (say, $3000) and then have a cluase that says that after a previously agreed-upon period of contruction during which we have no bathroom (i.e. 2 weeks), that pile gets smaller by $500 a day. Further, after that pile has been eaten a way (after 6 days, in this case), there *continues* to be a $500/day penalty against the final payment. Once we're able to use the bathroom ("use" being strictly defined), the bleeding stops.

I'll be using a reputable contractor, registered with NARI/etc, but I still want something in writing that protects me or at least gives the contractor an obvious incentive to get it done, besides him just wanting to collect on the final 10% payment.

Can someone point me to precedents for this? How can I word this clause best so that I get the incentive behavior I want but it's not so onerous (or weird) that nobody will accept the terms?

[Art Begun]

Use "liquidated damages" instead of penalty.

Courts don't like penalties.

But if 2 parties agree on a per day damage amount before signing a contract (that is known as "liquidated damages" they will enforce it.

[Richard]

Chris Campbell wrote:>>

That's done on a fairly routine basis. But in your case, you should lower the "fine" to a $100 a day. At 500 a day, that's gonna show you being paid by the contractor in short order. If the contractor has quite a bit of experience in this area, he'll understand what your needs are. A bathroom makeover should not take two weeks. After all, a team of five people can completely remodel a house in 5 days, and we're only talking of a bathroom here. Unless your bathroom is ten times the size of a standard one.

[CBHvac]

Illegal here in this state..IIRC.. HOWEVER, you CAN put in a clause that states a given amount, not to exceed XX per day will be subtracted from the final payment..

FINAL 10%????? Wow...your states got some nice contractor laws....here, by law, we are only allowed to get a deposit of 5%...and remainder upon completion..

Trick is finding a contractor that lets YOU set the terms.... None here will...

[Sam Kekavitch]

The contractor will generally have a standard form of contract and it will usually make provision for liquidated damages - with a daily amount to be included. You need to find that provision and negotiate on the rate.

[jim]

go to a local lender that does alot of home building loans.. they gonna be the ones that have the contracts written up with no loop holes.. i know 30 yrs. ago when i had my home built and borrowed money from them for the project, they had the builder(general contractor) by the balls and had everything covered.. it was $100 a day at that time, dont know what it would be nowdays... but i am sure they have some blank contracts that you can look at or get some advice.. let them think that you going to them to borrow money, but you are not sure how much or what and see what they say????? hope this helps...

[james w lazenby]

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but it's not

$500 a day might be a bit steep, but it is your inconvenience to measure as it is your house and your deprivation of use.

The biggest problem often attendant to delay penalties is their not being equitable or a balance between contract considerations. You have described a penalty that does in a sense reward the contractor for timely performance but you have stated it in a manner that does not explicitly state a reward for timely performance. I know, you have the money on the table, but once signed on the line, nearly anyone would consider that the contract price. Period.

A good penalty clause contract has penalty offsetting reward terms. If deprivation of your bathroom is worth $500 a day to you, then use must also be worth $500 a day to you. (Not likely, which is why I said I thought it a bit high on a $25,000 contract.) If so, then the logical argument is that finishing a day early is worth an extra $500 to the contractor. Right? Most government contracts, as example, have monitored schedules, adjusted for conditions as the work progresses, wherein the contractor pays a penalty for "unearned" delay and gains a bonus for "earned" early delivery. For your stick, you should have an equal carrot.

Also, remember, you must monitor the progress. You must allow for certain delays (historically, far more likely caused by the homeowner than the contractor) and, less frequently, the contractor must allow for some opportunities to shorten the reasonable duration (the homeowner yields to a more available, necessary product choice). Now, on large government contracts, this is a worthwhile endeavor . . . from both perspectives, the government and the contractors. Monitoring the ongoing process is a significant investment to both parties, but the loss or gain is even more significant.

I do not think your $25,000 bathroom is worth the effort. Not on your part and not on the contractor's part. You might select a contractor on a separate basis and then discuss your concerns with him. Reach a mutually acceptable agreement (in writing) at that time. Do not include such a provision in your "Invitation to Bid." You will prevent the better contractors from being at all interested in the headache (including you, for that matter), and some less worthy contractor may well see an opportunity to sucker you.

Jim our

[Don Phillips]

Liquidated damages for delays are common on large projects and providing an early completion incentive prevents a purely adverserial relationship before the contract is signed. A good idea, I think, is to ask for a detail schedule so you can follow along and help the schedule where you can.

The issue you will probably run into are owner caused delays. It may not take much for the contractor to claim a day lost was your fault, therefore he gets an extra day. Some possible causes of these delays could be any owner furnished material being late, any late selection of finishes, any finishes requiring special order, any finishes no longer available and needing reselection, any lead time for special orders, etc. These items should appear on the schedule and be accounted for except those that are truly outside of the contractor's control.

Similarly, you should factor in the permit and inspection process. The schedule should account for inspections and if you pulled the permit, this could be your delay.

Sincerely,

Donald L. Phillips, Jr., P.E. Worthington Engineering, Inc.

145 Greenglade Avenue Worthington, OH 43085-2264

[e-mail] (remove NS to use the address)

614.937.0463 voice 208.975.1011 fax

[Jim Fincher]

You are really full of it.... I would not even take my skill saw to a job where I am the "one to be hanged" before the job even starts....

What one must do is to find a reputable and professional contractor and work with them to produce the desired result. This adversary BS from the getgo is going to run off any reputable high level contractors.... holding back 50% of the job..... you're nuts....

Jim Fincher

[Jim Fincher]

Some very good points here Jim.... the OP's entire posting makes this GC shudder as to what one would be getting into with a contract to build that bath.... what most of these owners forget is that the entire building process should be a partnership between the owner and builder... this person's approach certainly casts it differently...

Jim Fincher

[the_plumber]

Ah shut up about it already. You wouldn't know a troll if it told you to f*ck off..

[Chris Campbell]

I'm just posting to thank you all for the excellent responses, remarkably free of the "you're an idiot!" posts one often gets on Usenet these days.

I will take all of this advice under consideration, and I do plan to get review by a lawyer when it comes down to the final contract. Thanks again.

[bambam]

Oh my! Just read this whole thread. Gets sillier and sillier.

Liquidated damages, performance incentives, performance bonds , yada yada, yada. By the time your lawyer talks to my lawyer ... the damn bathroom could have been finished.

Get serious! You're remodelling a bathroom, not building an airport. Pick a contractor you like, talk with the owners of the last two bathrooms he's done... and make your decision.

Doesn't matter whether it costs five thousand, 25 thousand or 100 thousand ... it's a bathroom.

Contractors are people ... they know they're taking your only bathroom out of service ... and they'll bend themselves out of shape to move the job along.

If you have so little faith in the contractor (and in your own ability to judge people), why are you hiring him/her?

Ken

[james w lazenby]

(Chris Campbell)

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Although I don't agree that the thread is silly, I do agree with the premise of this response.

For the OP's peace of mind (and there are lots of folks out there who have a great mistrust of anything and everything, so they must live with that . . . thankfully, most of us do not), he should run the agreement by his attorney.

He might also string have his attorney point out any areas of likely misinterpretation or needless liability on his part . . . listing them or margin=noting them. Then, he should discuss this with his builder. If that gets into a contest, he likely will be looking for another builder. If his attorney insists on rewriting the agreement, he is assured of looking for another builder . . . likely for a long, long time . . . or else find a very hungry builder, which would be a catastrophe for both parties.

An attorney or an accountant looking over a contract for a party is being paid. He wants to do something for his pay. Keep that in mind. Also, a contract can not protect either party for every contingency. Keep that in mind. In a small project, a "small" agreement is likely best. Every lawyer will agree, a handshake is the very best contract. Unfortunately, they are not speaking literally.

Jim