Q: We recently purchased at lot in a new development. While excavating for the foundation, our builder informed us:
“We ran into a problem with the soil on the back of your lot. It requires over -digging the footers and installing gravel back up to the bottom of footer. Unfortunately, this was an unforeseen expense that isn’t covered per your contract. Obviously, there will be no markup on this and we will be happy to provide you with the bills and the reports from our soils engineer once they are complete. We just wanted to give you a heads-up. Rest assured there won’t be any other surprises. When it comes to the soil, we have no way of knowing short of doing pre soils engineering which would be thousands of dollars. Sorry for the bad news.”
We’re feeling both duped and naive for not researching what to consider when building new construction. The developer is very engaged in this ongoing project and I wish we were given a heads-up on the possibility of this happening on what appeared to be a perfect building lot. We also have no idea how much money this will cost. Needless to say, we’re very upset and question if the developers should have known. — DV
A: There are almost always some added costs during the course of a construction project, which is why banks typically add a 5% to 10% contingency reserve to your construction budget. Unfortunately, excessive cost overruns are a common problem on construction jobs and a source of many disputes.
Some of these extra costs are driven by the owner requesting changes to the work, some are driven by code officials (for example, requiring an electrical upgrade), and some are due to unforeseen “hidden conditions,” as in your case.
The important question is whether the contractor should have reasonably expected these soil conditions, based on his knowledge and experience, or whether he was taken completely by surprise. For example, did other projects in the same development have similar problems? If he thought that there was a reasonable chance of running into this problem, he should have alerted you to the possibility, and possibly added an allowance for the extra work in the contract price.
I am curious as to what the problem was: natural poor soil such as peat, buried debris that needed to be removed, or something else? Was this a filled site? In that case, you should have been informed about the possibility of problems and soil testing would have been justified. Building on filled sites is always risky. I would suggest getting a copy of the engineer’s report to gain further insight.
If you believe that the contractor knew, or should have known about this problem, then you have reason to contest the charges. If you believe that he was as surprised as you, then you would be responsible for the extra costs, as long as they are reasonable.
These sorts of issues are typically covered in your construction contract in a “hidden conditions” clause. This describes how these job-site surprises will be handled. If there is no such language in your contract, then you have a stronger case to refuse payment for additional work if you feel the charges are unjustified.
It’s true that some unscrupulous contractors intentionally omit items from the contract to keep the price down, knowing that they can make up their missing profits on extras or change orders. However, this does not appear to the case here. The contractor said “Sorry for the bad news” and assured you that there won’t be “other surprises.” That’s a good sign. If there are other surprises, he will have to eat his words and maybe eat the added costs of these surprises.
Every project involves a certain amount of negotiation, give-and-take, and good faith on the part of both parties. There will always be a few bumps along the road – that’s the nature of construction. If you end up with well-built home that you are happy with, with relatively few surprises and few extra costs, then you are doing well.
At the end of the day, a lot depends on the integrity and competence of the general contractor. Hopefully you have chosen carefully and things will go smoothly from here.
Best of luck with the rest of your project and your new home! – Steve Bliss, Editor, BuildingAdvisor.com