Dispute around construction costs (also posted in the finance forum - wasn't sure which was best)

[James Frome]

Hi everyone, 

We have found ourselves in an uncomfortable position, and I would really appreciate some wisdom. 

For context, a friend (I know!) persuaded me that his building company would look after us. Below is an excerpt: 

 

• “On the project you would have our Project Manager and a part time Quantity surveyor. Both have it engrained in them to run the project to its highest efficiency. That means ensuring cost control and programme duration. That is their job… Again, from the beginning we will have clear costs and a timeline they are working towards so any changes will have an explanation. I will also have a pretty good steer on things.”

 

Based on this and having known him for over a decade, we settled on a contract which was not fixed price; rather, it is a Cost Plus basis contract. We agreed 10 payment instalments in a six month window (May - November 2023). The house was taken back to brick, so there was a degree of confidence in costs moving forwards. 

On October 28th 2023, we are advised that there has been an uplift of £10,000, eating into our contingency. We had had no updates with this for the previous six months, so we were annoyed, but let it go, given that we were still well within our worst case scenario. We were given a detailed breakdown of where these extra costs came from. 

Jump ahead to December 21st 2023, and we are still going with the project. A revised cost plan is sent through, with the anticipation that works would now finish in March 2024. The revised payment plan is accepted (although £5000 under our worst case scenario budget), and we are assured multiple times that the delays will not incur extra management fees by the project manager. Believing the end is close, we pay the next invoice (97% of the current project cost has now been paid - 1% left + 2% retention). 

At this point, the PM suddenly leaves the project with two days notice. My friend (who owns the company takes charge). 

Jump to February 1st 2024 (the project is due to be finished in one month), and we are told that we are suddenly projected to be £30,000 over our max budget. We have made no changes to the project between December 21st 2023, and we can't figure out what has happened. It then takes a week for an email to come through detailing where the extra costs have come through (that email arrived in my inbox this evening). Within the extra costs are £7500 of additional management fees for the remainder of the project / £8000 of missed fees from the 21st December 2023 invoice (the QS' oversight) / extra skips and site welfare fees of £2500 (the delays in the project have been down to screed drying time and waiting on an order to arrive - all of this was orchestrated by the PM) / £7000 of additional joinery work (some missed off architects' drawings) - most of this is not in writing although in phone discussions with PM - this bit is a grey area for me / £8000 on extra materials and labour on 8 different tasks with no forewarning. 

To me, it seems like the QS and the PM completely lost track of the numbers and it all came to a head at the end of the project. My sense is there is some accounting shuffling going on, and they are coming up with reasons to plug the hole that has just recently been discovered. We have seen no invoices with subcontractors, and can't believe costs have suddenly exploded out of control at this point. 

Up to this point, we made decisions based on the knowledge we had. We were given this knowledge by the PM and the QS for 9 months, and our decisions pivoted around this knowledge. 

There is still significant amounts of work to be done in certain areas of the house. 

Any advice / input would be deeply appreciated 🙏 (I realise quite a few mistakes have been made by us along the way in terms of trusting). I can provide further information in response to questions ...

[saveasteading]

13 minutes ago, James Frome said:

seems like the QS and the PM completely lost track of the numbers

That's common. I mean having an accurate gut feel of how it's going is a rare skill. They can analyse of course, and should, but they will be getting surprises too. Costs did increase last year but not that much.

If it's any consolation, I would always allow at least 10% contingency on a refurb/ conversion and expect to have to spend it and overcome as much again with skill and ideas. So I'd advise an amateur to allow more.

Have there been any surprises in the project that had to be overcome?

Regardless of all that, what does the contract say? Is it an industry standard contract or the builders own?

[James Frome]

Some notable clauses: 

a) If the changes increase the amount of work shown in the work details and X (the building company) agrees the changes, X shall quote a price for the extra work and time involved. The Client will then decide whether to go ahead with the changes. 

b) X will keep the Client updated on changes on a regular basis

[James Frome]

It is the builders own contract, although it states it is based on a JCT contract

[James Frome]

In terms of surprises, not really - it was a complete refurb, so we have had a clear picture of the road ahead since June when it was taken back to brick. 

[Lofty718]

Hi James, people warned you in your other thread in March 2023 that this builder did not sound like a good one and the costs were insanse. You clearly did not listen to anyones advice and went ahead anyway. I even sent you a PM at the time because I was alarmed by your post.

 

Building contracts are generally not worth the paper they are written on unless the builder is not operating via a limited company.

 

He sounds like a VERY cheeky fella he's already charging you 660k to renovate and extend a maisonette and is adding all of these costs on top.

Edited February 8 by Lofty718

[James Frome]

Hi Lofty718, 

In retrospect, I made a mistake here. He persuaded me, bringing the quote down to £505,000.  

We had just had a baby (a month before), and I failed to find the resourcefulness to go through the full tendering process (we got a quote from another company that we had been in talks with, but it came in at £600,000 - perhaps they were just highballing as they didn't want the job). 

I did take the advice on board: I went back to the builder with many of the concerns mentioned, and I thought the adjusted quote seemed more reasonable. However, it seems now it was a mirage. Over the course of the project, my trust increased as we were coming close in on budget - it is only at the tail end where costs have exploded (clearly they have suppressed these until the end, camouflaging the true state of things). 

I appreciate the comment and input 🙏

[James Frome]

The building operator is working through a limited company - why is this a problem? 

[Moonshine]

8 hours ago, James Frome said:

Believing the end is close, we pay the next invoice (97% of the current project cost has now been paid - 1% left + 2% retention). 

 

Am I reading this correctly that you have paid pretty much all of the money for the work and it's not complete, and the builder is asking for more?

 

I have been back over the original quote and half of it was provisional sums, did these get finalised with the cost revision  of £505k

 

Sounds a right mess and sounds like your 'friend' will be having a nice new car and some nice holidays this year.

[saveasteading]

8 hours ago, Lofty718 said:

Building contracts are generally not worth the paper they are written on

A matter for another day perhaps. Industry contracts, esp JCT,  are designed to be fair and equitable.

 

From the quote above it looks as if the builder did not have authority for all of this, so isn't due all the money. You have a contract, so Lawyers can work with that.

 

[Kelvin]

A bit hard to follow your figures. How much more will the final cost be over the original estimate? How much more cost to finish? Is the quality of the work good enough? 
 

Either they low balled the total cost to get your business and always planned to up it like this once you were committed or they have been very poor at managing the costs and lost control of it. Probably the latter. Very poor if they had both a QS (cost clarity) and a PM (cost control) 

 

You need a full and frank conversation with your friend and a full breakdown of all the costs since the start item by item. If you can come to some agreement your are both happy with then great. 

[James Frome]

We have discovered the work is of a very low quality (two builders came up to me on my last site visit to tell me this unprompted). 

Looking at £60,000 more in costs with them. We have agreed to take over the painting and decorating phase.

They did have a QS and a PM. 

 

[Lofty718]

Can you post some photos of the job? how often are you visiting the site and what is left to be done?

[Kelvin]

1 hour ago, James Frome said:

We have discovered the work is of a very low quality (two builders came up to me on my last site visit to tell me this unprompted). 

Looking at £60,000 more in costs with them. We have agreed to take over the painting and decorating phase.

They did have a QS and a PM. 

 

I’m afraid that’s shocking. The whole point of the QS is to stay on top of all of this including the quality. That said if they were working for the builder then they aren’t independent. Personally I wouldn’t be paying another penny until it is fully completed and remedial work done on the poor quality areas. 

[saveasteading]

2 hours ago, Kelvin said:

The whole point of the QS

A QS works in the interest of who is paying them. 

[Kelvin]

1 hour ago, saveasteading said:

A QS works in the interest of who is paying them. 

Sure but that doesn’t mean big surprises for the client or it shouldn’t given that his friend said:

 

• “On the project you would have our Project Manager and a part time Quantity surveyor. Both have it engrained in them to run the project to its highest efficiency. That means ensuring cost control and programme duration. That is their job… Again, from the beginning we will have clear costs and a timeline they are working towards so any changes will have an explanation. I will also have a pretty good steer on things.”

[saveasteading]

27 minutes ago, Kelvin said:

It shouldn’t

I agree. 

 

27 minutes ago, Kelvin said:

That means ensuring cost control and programme duration. That is their job… 

But he doesn't actually say this is to benefit the client....

 

 

I discovered a long time ago not to use friends in construction....there's always something where there will be disagreement. 

[ETC]

As others have said your builder’s QS is only interested in his employer - not you.

 

Get your own QS to look at EVERYTHING. He will charge you a few hundred pounds for the privilege but he will fight for every penny of your money and go through the “contract” with a fine toothed comb. Your contractor will have to justify all costs to your QS and will have to produce invoices.

[Gus Potter]

11 minutes ago, ETC said:

Get your own QS to look at EVERYTHING.

That is great advice.

 

It also takes the personal element out of things. If you get the support of a good QS it will be good for your mental health not least and you may salvage a friendship.

[ETC]

49 minutes ago, Gus Potter said:

That is great advice.

 

It also takes the personal element out of things. If you get the support of a good QS it will be good for your mental health not least and you may salvage a friendship.

I think the friendship boat sailed a long time ago.

[Kelvin]

15 hours ago, saveasteading said:

I agree. 

 

But he doesn't actually say this is to benefit the client....

 

 

I discovered a long time ago not to use friends in construction....there's always something where there will be disagreement. 

You can infer it. Moreover it’s ambiguous at best which can mean that a court would rule in favour of the client given the builder drafted the contract. 

[saveasteading]

46 minutes ago, Kelvin said:

a court would rule in favour of the client given the builder drafted the contract. 

You would hope so. But common sense and fairness isn't the basis of our legal system.

A judge would want it all pre-argued by construction specialists. Then they would expect arbitration rather than court.

Yes, it would count that the builder wrote the contract rather than use a standard one..but it is still the agreed contarct.

[Andehh]

I'm sorry OP, self building can be a long hard slog!

 

A degree of getting screwed over by someone is par for the course, especially if you are average Joe self builder where you have a job, family and are not die hard involved in the build itself.

 

We got taken to the cleaners by an electrician's final bill to the tune of £20k more then expected, he was a useless shit as well.

[saveasteading]

1 hour ago, Andehh said:

I'm sorry OP, self building can be a long hard slog!

Yes I've been low on expressing symparhy perhaps.

I'm not an amateur yet stuff went wrong with our house refurb. I had the day job, building other peoples buildings and left the work to a very experienced and trusted foreman.

Costs rose a lot, several things had to be redone. Gradually some poor work emerges.

Things do go wrong, esp in remodelling  or change of use.

[Kelvin]

1 hour ago, Andehh said:

I'm sorry OP, self building can be a long hard slog!

 

 

Yes it really is. Ours has been very hard at times too. What I’ve learnt is that 95% of the things that go wrong are fixable with some careful thought and the help of buildhub. More importantly something that’s all consuming in the moment once addressed is forgotten about.