Monday, April 11, 2011

The Builder’s Contract

After much back and forth about how to best build this structure, I decided that it would be in my best interest to hire a builder to construct the waterproof shell. The construction process will be done in two phases. Phase I will be bulk of the structural work, and Phase II will consist of the finishing touches. 

The Phase I builder will be responsible for the foundation, framing, siding, roof, windows, insulation, and drywall. He is also going to provide construction oversight for the electrical, plumbing, and other subcontractors that will be working on this project. I haven’t yet determined how I’ll do phase II—I hope to do much of that work myself, if I capable of it. 

In signing the contract with the Phase I builder, we used a Cost + Fixed Fee with Guaranteed Maximum Price ($50,000) and Bonus Contract. This is a very loaded term that means there is a $50,000 cap for the cost of this project; I will not have to pay more than that for the project even if the builder’s costs are greater than this amount. However, leading up to the final stage of the project, we’re going to operate the contract as a time plus materials contract. He’s going to track the material expenses and the hours for himself and his subcontractors. 

For any amount that he completes the project in under his bid price, he’ll get to keep 60% of that amount and I’ll keep 40% of that amount. For example, if he completes the project for $40,000 ($10,000 less than his original bid), he’ll get a $6,000 bonus. If he completes it for $46,000, he gets a $2,400 bonus. There’s a few nuances to this financial structure that I won’t bother to mention here. 

But, needless to say, we both share the goal of completing this project on a low budget, and this payment structure gives the builder a financial incentive to complete the project under budget. In tandem with quality standards, this payment structure makes sense to me. The other key aspect of our contract worth mentioning is the 3rd party certifications. 

His work must not only pass building code inspection, he will also be held to meeting the standards of the Northwest Energy Star program. 3rd party inspectors will checking in on the project during construction using the Thermal Bypass Inspection Checklist as the standard against which to measure the quality of the work. All the Energy Star details for which he is responsible are described on their website, which use clear illustrations and even have Spanish versions. This checklist holds him accountable to a relatively strict benchmark for his construction quality. 

I have to pay $700 for the third party certifications necessary to complete this Energy Star program, but I will receive cash incentives from the Energy Trust of Oregon for successfully building to these standards once the building is complete. These cash incentives will in turn, totally offset the cost of the 3rd party verifications, so it is a no-brainer to participate in this program, as it will inevitably result in a better process and product for both of us.  

Because we’ll be building a certifiably green building, the builder will be able to use this as an additional marketing piece. This project is not going to make the builder rich, but it is a desirable project for his portfolio, and he hopes that this project will lead to more projects like it down the road. I hope it does too.
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