Homeowners entering into a fixed-price contract with a contractor for the building or renovation of their home, should be mindful of the contractual implications a change to payments on a time-and-material basis might entail. We see this occur sometimes as contractors, particularly small ones, find it difficult to carry construction costs under fixed price arrangements.
If the project is already underway, homeowners may feel pressured to agree to this or may come to agree on the basis of assurances made by the contractor that it will ensure speedier project completion. Often this is not the case and there are other things homeowners should know as well.
Some of the other potential disadvantages homeowners should be aware of, include:
- Under a time and material contract, there is typically no set scope of work;
- The homeowner is less able to enforce the contract (i.e. there is no outstanding account to compel the contractor to return for deficiencies, completion);
- Penalties under the Contract for late completion may no longer apply;
- The homeowner is required to make more frequent, regular payments, and payments are no longer pegged to project progress; and
- Total costs are now open-ended, with less ability to control the project budget.
Homeowners therefore need to be aware of these changes, which can significantly alter the terms and nature of their contract, and consult with a lawyer first, before agreeing to a time-and-materials arrangement.