In this case, the main issue was that many agreements made between the client and the general contractor were only discussed verbally and not documented. In this case, the client contracted a GC and an Architect separately for the design of the $3 million executive home. Once the permit was approved, the architect’s contract was closed out.
In the contract, the GC discussed in details what could be reimbursable, but it did not tie the GC to a fixed price. In the contract, the $3 million were referred to as the “budget”. The owner assumed that this amount was the lump-sum agreement because of verbal discussions and early “bid” estimates prior to the contract agreement. During the project, many changes had to be made mostly due to building code.
The GC believed this was a (T&M) time and materials project, therefore he felt that paperwork for change orders on a budgeted amount was not necessary. at 90% completion, the GC invoiced the owner for the 100% payment and also indicated that the project would overrun $500K. The owner then refused to pay the GC. the GC then pulls off the job and will not complete the work until the owner pays off remanding $1 million and the additional $500K, at that point the GC is dismissed by the owner and both parties sue each other.
Legally I believe that firstly the GC cannot pull off a job. The GC is at fault for not completing his part of the contract and abandoning the job. However, the owner is also at fault for not contracting a third party owner’s rep or agency construction manager involved that would’ve helped him out as this was his first time being involved in a construction project. The GC is also at fault for not submitting or notifying the owner about the changes that had to be made due to the building code. In order to avoid this situation, there should have been a fixed price set and the architect’s contract should’ve not been closed out until final completion as he would’ve had control in the situation. In this case, I believe that the owner has to pay the GC the remaining $1 million from the contract, but the $500K should be the responsibility of the GC as he never notified the owner of ongoing changes to the project.
