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July 18th, 2009 |

The terrors of the time and material contract in the construction of a dwelling

There is a prevalent form of recruitment in the world of housing that is very dangerous for the American homeowner. It's called time and contract material. In the construction of the jargon is known as T & M. "This contract is the cause of flight costs on construction projects of low cost, apparently of origin. The homeowner will be very prudent, very careful of signing a time and material contract with a contractor building houses.

The basics of time and material contracts are very simple. The contractor charges the homeowner for the actual time that workers spend on the project besides homeowner for all costs of materials. The contractor's profit is based on the hourly rate charged to the owner by the contractor for all their workers. Sometimes, a sly contractor have the audacity to add a percentage of their fees or additional benefits to the contract.

The T & M contract is almost always suggested by a contractor to a inexperienced homeowner. They say that the work of home ownership is too complicated for a fixed price offer and the best way to do this project is for time and material. That always sounds so reasonable that the landlord has no reason to believe that things are not going well in your project.

Time and materials contract has been for decades. It became very popular in the late 1970s and 1980s in industrial construction projects worldwide. The time and material contract was used in large scale industrial projects where it was thought the teamwork of the owners and the contractor of the owner would result in a win-win situation for the contractor and the owner. The contractor will have a limited risk and the owner would be a project built on the estimated price.

The time and material contract for these projects took the form of industrial plus contract cost fixed rate. The contractor was paid for all hours of all employees, plus the cost of all materials. The two are added together to give the total cost of construction. Then multiply the percentage of fixed rate times the total construction cost and then added to the set. The fixed fee Typical was at 2% to 10% range.

Sounds reasonable right? It was not though. He was seized or its owner had hired a contractor willing to take a reasonable profit on a project rather than a huge profit at the expense of the owner. It turned out that industrial contractors were not too many who could not resist the temptation of money easy at the expense of the owner.

What really happened is that contractors use every means at their disposal to conduct the hours of labor and material of as high as possible so that the rate may also be higher. It turned out that construction costs rose much higher. So high that the owner of the world were almost bankrupted by this form of T & M contract.

The time and material contract destroyed the work ethic Hard construction workers working at the slow and rewarding laziness. This behavior was tolerated and even encouraged by the managers of construction companies. The reason for this was because the contractor made more money the longer the project took to complete.

The T & M contract also encouraged the use unnecessarily expensive materials in an effort to increase the cost. When two equally qualified materials could be used for the construction of alternative expensive would always be selected, since increased the cost of construction, thus increasing the contractor's fee (profit).

The time and contract material has largely disappeared from the world of the construction industry due to its terrible abuses and its inherent ability to destroy any construction budget. However, I'm happy to report that he is alive and well in home remodeling and construction of the New World of U.S. homes today!

The American homeowner needs to stay away from the TM & contract, even if a contractor says it is the best work of your project. In fact rarely beneficial to the homeowner, but almost always very financially rewarding for the contractor. The time and material contract is a recipe for disaster for owners home without experience in managing start of construction.

How does this relate to the owner of a small home remodeling project or new construction? It relates very well because many contractors convince the inexperienced homeowner (with respect to the construction) that would be very difficult or almost impossible to give a fixed price for your project. They sell the following types of statement: "Your project is very difficult to give a fixed price. But I can promise that if we do your project on time and material basis of its cost is much lower. "Sounds good, but the truth is actually the opposite.

This is because the underlying negative aspects of T & M contracts are the same for the owner as they were in industrial construction projects. Boost labor and material costs up as high as possible. One unfortunate student of mine found this out the hard way.

I received a phone call in early 2007 of one of my old students (my class on how to be your own general contractor), whose project was in trouble. He had taken my class before, when the Pat Fay Method book is not finished. Unfortunately, his project was in trouble and needed help.

I can not give full details on the phone but asked me if I visit you at your house was currently being remodeled. I arrived at 10 am and the first thing I saw was two carpenters come to take development of a smoke break on the scaffold.

They were having a great time catching up with them, laughing and carried out. I could not stop laughing to myself because it was obvious that these men were working on a contract time and material. The reason we knew this is because the carpenters at a fixed price contract would have been working with a cigarette stuck in the teeth crushing with their hammers or nail guns.

When we sit in the kitchen of owner asked why he had signed a contract for T & M when I had stressed in the class that is the worst form of getting the start of construction. At first did not answer this question, but immediately complained to me about how often that smoke breaks, eating, talking on their cell phones, and to discuss what they were doing. Some days there will be two workers and other days it would be three to four. He stated that the workers just spent some time working at all and that the project just went. I was so frustrated he was ready to explode.

I let him vent for a while and when I had managed to unburden himself repeated the question: Why sign a T & M? His response was classic. "I signed a contract for T & M because the contractor told me that my work was too complicated for a fixed price contract. He said it was the best way to proceed in my project .

It's really sad for two reasons. One of them, his project was simply adding 960 SF two-story home. One side was being expelled 8'x 30 'and the front 12' x 20 '. The scope of work was to add a new foundation under the walls, demo existing ones, expanding plants change the roof and add channels. It also includes new windows, new interior doors and walls with electric lighting, and standard apartments in the 960 Remodeling SF. That was it! There was even a pipe like this no bathroom and the kitchen was at the end of the house that was being remodeled.

The second reason why I was sad because the contractor had two to four men working in the founding and development of seven months! The foundation and framing should be had no more than 6 weeks. To add insult to injury development was not even complete! The contractor was completely milking the project by the owner.

After reading the headline of drawings of your project, did some calculations, I estimated that this project should cost about $ 80 per square foot. This is less than the $ 100/SF I normally tell homeowners in this project because there was no plumbing. $ 80/SF x 960 SF equals $ 76,800. Add a few thousand of contingency and project budget is $ 80,000.

This homeowner had already paid the contractor $ 135,000. He also the contractor had a $ 40,000 payment upon signing the contract that was not part of the $ 135,000. The total amount of money spent by this owner home was $ 175,000! Besides the definition incomplete, the owner had to pay for the installation of roofs, windows and all interior work. This unfortunate homeowner had already paid twice what the project should have cost and the development stage was not even complete. The way I was going to be lucky finished with a total cost of $ 230,000. That would be $ 150,000 more than the entire project should have cost.

Furthermore, the amount of stress, this poor homeowner was experiencing was terrible. He told me he was up all night, could not eat and was irritable with his wife. All because he believed The following what the contractor said it was the right thing to do. The Pat Fay Method call that reckless. Unfortunately this scenario is played throughout the country in all states in the country. This not only happens to some people, what happens to hundreds of thousands of people each year across America!

I offered to walk out with the owner and the contractor in the fire right now. I promised to stay with him until the workers had cleared their tools and themselves on the site. The owner declined my offer because "you can not fire because I still have my $ 40,000 payment.

I had taught this owner a house in my class not to pay the large down payment upon signing the contract. Also stressed that no matter what never to sign a contract for T & M. (The only exception to this rule is for the demolition work, limited, but the homeowner protecting themselves in a building not to exceed maximum cost to the agreement.)

Why had he gone against the homeowner what he had learned in the class of Pat Fay Method? This owner had no experience and sophistication in housing construction. I learned to work with homeowners in the housing projects that have a need to have a contractor to keep your hands and take care of them.
The big problem with this however is that many U.S. contractors not to want to keep the hand of owner. Like all businessmen, they want to make as much profit as possible. Chapter 16 (Lessons learned from homeowners) in the Pat Fay Method book addresses this issue in greater detail.

The better way contract that the owner of America can use is the fixed price contract. This is where the owner agrees to pay a fixed price for the contractor that runs a fixed scope of work performed in a given period of time. The Pat Fay Method book has a chapter integer (Chapter 9) dedicated to the contract documents. Most owners do not realize they have the right to modify the contract to make sure their needs are included. After all, the contract is a two-part document. The contractor has experience in a skill building and the owner has money.

Pat Fay's method is a professional construction management book written for the owner. If you are a homeowner who does not want the above scenario to happen then invest $ 40 and read the Pat Fay Method. After all, the homeowner is either going to follow the Pat Fay Method or method of contractor. Available in www.patfay.com patfayinc@aol.com or email.

About the Author

Pat Fay is author of the Pat Fay Method, a construction management book written for the homeowner. He is also a professional engineer with experience in the construction of over 800 houses and more than 30 years of industrial construction experience.

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