Material cost increases - who eats that cost?

ZeroSum76

Hi folks.

In the event that a tender price is agreed with a builder for a reno + extension and a contract was signed and some work started pre the last lockdown in January, and now as things have opened up again, many of the prices that were in the original tender are no longer valid due to material cost increases, who has to eat that cost? My builder is saying he can't and I need to cough up.... but I can't either as we were already maxed out as-is, what can be done? We're talking about unprecedented price increases here in he range of 5% to 30%.

I intend to have a frank discussion with my builder about this but looking for some thoughts as surely we aren't the only ones bitten by this. Do we just need to lob off parts of the agreed work? Is it not reasonable that we would split the hit on this? Why should we eat all of the cost when we've already been stung for an additional amount of more than €10k in rent due to Covid delays? It's neither his fault or ours but someone needs to pay. The increases on original tender could be north of €15,000 additional on a job that was already €350k. :eek:

Thoughts?

scwazrh

Surely you have a contract in place on a €350 k job ?
If so the contract price is what you pay unless contract states additional charges can be applied for material cost increase

ZeroSum76

Yes we do have a contract in place for the €350k. I will have to re-check the contract for the material cost increases as to whether that's called out or not. If it's not referenced then presumably that means we can expect the builder to meet us in the middle so to speak? I don't want him to get shafted either because we will both suffer as a result in the long run.

ZeroSum76

We had a section (36) in the contract regarding wage and price variations which was struck out of the contract before it even went to the builder. So effectively there is nothing in the contract regarding price increases. Not sure where that leaves us.

scwazrh

If the contract says the builder will complete x scope of works for y amount I don’t understand why you would be willing to pay out more but that’s your choice
.
We currently have 3 projects underway that we signed before the 2nd lockdown and going for increased costs on the materials now just wouldn’t be an option for us. However anything priced and not signed has been subject to cost increase on materials.

scwazrh

ZeroSum76 wrote: »

We had a section (36) in the contract regarding wage and price variations which was struck out of the contract before it even went to the builder. So effectively there is nothing in the contract regarding price increases. Not sure where that leaves us.

It leaves you under no obligation to pay increased costs .

It leaves you with a builder who is likely to walk away from the job unfortunately. You will have to consider what the new tender price would be and whether you will be able to get another builder at short notice. It might be worth negotiating a compromise and try to meet somewhere in the middle, the delay in getting a new builder will probably cost more in rent than the renegotiated price increase.

ZeroSum76

Dav010 wrote: »

It leaves you with a builder who is likely to walk away from the job unfortunately. You will have to consider what the new tender price would be and whether you will be able to get another builder at short notice. It might be worth negotiating a compromise and try to meet somewhere in the middle, the delay in getting a new builder will probably cost more in rent than the renegotiated price increase.

He is about 30% into the job. I don't see it coming to that somehow.

listermint

Your best and first option should be to suit and come to a compromise.

You will simply not enjoy finding a replacement and the same increased costs being the outcome if not more.

You may even have to consider shaving something back if you are maxed.

listermint

ZeroSum76 wrote: »

He is about 30% into the job. I don't see it coming to that somehow.

Sorry but in this market, it doesn't matter what percentage there's work everywhere.

ZeroSum76

ZeroSum76 wrote: »

He is about 30% into the job. I don't see it coming to that somehow.

Depends on whether he feels he is going to lose money on the 70% outstanding, and whether he has another project to go to.

Frozen Veg

Cost should be with the builder. Everyone knew Brexit and Covid were going to increase material costs, it's his own fault if didn't take this into account when pricing.

Price was obviously a factor when you selected the builder so he needs to honour that now.

u2me

I think it is unlikely that a builder will be able to make a claim for the additional costs incurred as a result of delay arising from COVID-19 related events unless specified in the contract. That said there are routes for the builder to try to terminate the contract via a force majeure clause or doctrine of frustration if they wished. I imagine most builders will be open to reasonable discussion regarding such things as everyone has to try to keep their losses to a minimum due to such events. I think you should try to reach a reasonable agreement where both parties can be happy to proceed. It may also be worth asking if the builder has any recourse via business interruption insurance cover regarding the additional costs, but again probably unlikely.

L-M

Spoke to a builder today and rather than re price jobs he had signed up for he has just gone back to the clients and said he’s too busy and too far behind and he’s just cancelling the jobs.

It’s madness at the minute.

DOCARCH

Material cost increases made the RTE News yesterday.

https://www.rte.ie/news/regional/2021/0508/1217765-construction-costs-rising/

Del2005

Frozen Veg wrote: »

Cost should be with the builder. Everyone knew Brexit and Covid were going to increase material costs, it's his own fault if didn't take this into account when pricing.

Price was obviously a factor when you selected the builder so he needs to honour that now.

Meeting in the middle is the only fair option. The builder has the upper hand in any negotiations, they can easily get work elsewhere while the OP will struggle to get another builder, as the OP has a 30% completed job and is paying rent.

spitonmedickie

Just on my experience. Got a new build priced at €250k. No contracts signed yet. Builder came back to say price has gone up an eye watering €37,000. Waiting for the breakdown but don't know what to do to be honest. Wait. Go ahead and cut what we can to keep it within what mortgage we can get. Apply for a smaller house.

ml100

Some of these material price increases are just pure profiteering by manufacturers and suppliers, they claim its supply and demand, were is the demand coming from at a time were sites were closed, I know of two building workers who worked away during the lock down on cash jobs while claiming pup.
I think we are/will see a boom in construction prices followed by the inevitable crash as costs of new houses have exceedsd their value.

have2flushtwice

i think, and coming from a recent completed build , that you will have to cough up the difference.
1. if you refuse to pay the increase the builder will let things sit and if your a third if the way into the build no other builder will come in. if you do get another builder the cost will be the same as your current builder.
2. if you meet in the middle it's probably your best bet.
3. ask the builder to absorb the increase - see point 1.

Calahonda52

Frozen Veg wrote: »

Cost should be with the builder. Everyone knew Brexit and Covid were going to increase material costs, it's his own fault if didn't take this into account when pricing.

Price was obviously a factor when you selected the builder so he needs to honour that now.

Typical armchair warrior contribution

Stihl waters

If you can get the builder to take the hit you've met a fool, why would your builder take any financial hit on something beyond his control, hes not doing this for you, he's in the game to make money and if that means walking away from a job now to cut his losses in the short term then so be it, you're probably going to have to cut the size of the job or pony up the extra, no builder worth their money will agree to paying a percentage of the cost of your house out of his pocket

dubrov

Stihl waters wrote:

If you can get the builder to take the hit you've met a fool, why would your builder take any financial hit on something beyond his control, hes not doing this for you, he's in the game to make money and if that means walking away from a job now to cut his losses in the short term then so be it, you're probably going to have to cut the size of the job or pony up the extra, no builder worth their money will agree to paying a percentage of the cost of your house out of his pocket

Because he's already done 30% of the job and not been paid yet. He could walk away but would have to write off that work and could still be sued for non completion of the contract.

Of course forcing a disgruntled builder to finish a job may not work out to well either

Sono

Recently got work done in house, midway through the job the builder told us the cost of materials was increasing so quickly that he actually underpriced the job, my wife and I discussed and agreed that we would pay for the increase in materials.

Stihl waters

dubrov wrote: »

Because he's already done 30% of the job and not been paid yet. He could walk away but would have to write off that work and could still be sued for non completion of the contract.

Of course forcing a disgruntled builder to finish a job may not work out to well either

All he has to do is wait for the first draw down of funds and walk away whatever financial loss he has to make in the short term, no builder with half a brain would pay part of the cost for someone else's house, it's not good for a client to have their builder working at a deficit trying to cut costs to build their home

dubrov

Stihl waters wrote:

All he has to do is wait for the first draw down of funds and walk away whateverfinancialloss he has to make in the short term, no builder with half a brain would pay part of the cost for someone else's house, it's not good for a client to have their builder working at a deficit trying to cut costs to build their home

True but they are running the risk of being sued for breach if contract.

Another scenario might be where the developer refuses to pay the last installment when the work has completed

dubrov

dubrov wrote: »

True but they are running the risk of being sued for breach if contract.

Another scenario might be where the developer refuses to pay the last installment when the work has completed

Who sues a disgruntled builder to finish a job, particularly if they haven’t been paid yet?

If there is a breakdown in the relationship, better for both sides to walk away. Unfortunately the builder loses out on this job but probably can start another one sooner than expected, having modified the quote, and the op has to start again with another builder, in all likelihood with delay and much higher costs because another builder will know there is a degree of desperation.

Government buildings

Pay up if you want the job to be finished properly.

fx83wab

I presume when material costs go down, that builders will pass on the savings?

scwazrh

fx83wab wrote: »

I presume when material costs go down, that builders will pass on the savings?

Of course , Tis is only a temporary adjustment

Stihl waters

fx83wab wrote: »

I presume when material costs go down, that builders will pass on the savings?

That's between the client and the builder, if it drops enough obviously savings should be passed on, if the builder doesn't pass them on then the client can ask them to leave, no one is forcing anyone to work with each other

starbaby2003

We got a job quoted in December. Work started 12th April ( day lockdown ended). The builder has not charged an increase on any set price, although frequently reminds us they are absorbing the costs. I’m very worried about the PCSUM quotes though and we are just getting to that stage now. OP we have had around a month delay already due to material delays. Also are renting so every delay is costing us in time and money. We picked these guys as they did an outstanding job on a neighbours. We have recommended them to two other friends who have signed for them. My point on this, is that reputation is massive for a builder. It’s all well and good for the next few years but a builder who walked away from a job would struggle in the lean years to get work. 2008-2013 won’t be too far from many of their memories. I would explain your predicament of being maxed out. See if you can work something out. Would splitting the cost but deferring the payment until you are no longer renting work ?

flintash

that means that builder overpriced you massively at the start. now he can afford to absorb material cost increases and still make a living. other lads go for rock bottom price and there is no margin for material price increase.

or maybe like you said, builder needs reputation because hes new in a game, but i dont believe he cant walk into another job tomorrow in this construction climate if he wanted.

ZeroSum76

Thanks for all of the replies. We're absorbing most of the cost. We will just need to borrow more money it's as simple as that. I haven't asked the builder or his QS to show me where they have some skin in the game in terms of absorbing some of the cost but he has assured me that he has. I will see if I can get some detail from him about how he has done so. At the end of the day, it's not really fair on either one of us to foot the full bill so we will work it out together and in all probability we as the homeowners will eat the Lion's share of the additional costs.