Avoiding Disputes With Your Builder
October 1997

Building a new home is an exciting experience! However as you travel along the path starting with your initial vision of your dream home, past looking at plans and model homes, past selecting an architect and builder to the final product, you will find a number of challenging and frustrating events. Much of that frustration can be avoided by understanding the process and by careful communication.

The first step in avoiding communication problems is to ensure you and the individual you are contracting with have a common understanding of the process you are about to undertake. Prior to selecting an architect, you need to determine what you expect of an architect. In so doing you should consider the following questions, among others:

Do I have a specific plan in mind or do I have a general concept?
How much time do I expect to spend with the architect in explaining my concept?
Do you want to the architect to complete the drawings before you review them or do want to review the plans as they move through the various stages of production? If so how often do you want to review the plans?
Do you want to have an independent review performed once the plans are completed?
Do you want to reserve the right to make changes in the design before the plans are approved for construction?
What role, if any, do you expect the architect to play once construction has begun?
How is the architect to be compensated, i.e. a fixed price or an hourly rate? If you want a fixed price, is there a limit on the amount of time you can spend talking with the architect and a limit on the number of changes, if any, you can request inthe drawings? If you are to pay an hourly rate, is there a limit on the number of hours that can be used and how often will you receive a detailed statement showing the hours expended.
Once you have identified and answered your own questions, you should interview several architects. During the interview you should carefully explain your expectations and ask the architect to explain his expectations of you. Once you select an architect, you need to make sure your contract sets forth your requirements as well as the architects.

As the plans are being prepared, you should begin interviewing builders. Before doing so, you should develop a list of your expectations and requirements to discuss with each builder. During the interview you should ask the builder his/her expectations and requirements of you and for a list of previous clients you may contact. You also need to ask for a copy of the builder's contract for your review. If the builder does not have a "standard" contract form, you should inform the builder that you will have your attorney prepare the contract. If you do use the builder's contract, always have your own attorney review it.

In reviewing a builder's contract, you need to keep in mind that you have the right to request changes to the builder's "standard" form. You must also keep in mind the basic purposes of a contract: risk allocation and "locking" in the terms of your relationship with the builder. The more risk you ask the builder to take, the higher the price; the more vague the terms, the more likely you will have a dispute.

To minimize the likelihood of disputes as well as the impact of disputes, you need to address this matter in your contract. In so doing, you need to ensure the contract contains dispute resolution procedures acceptable to you and the builder. In developing these procedures you may want to consider basing the dispute forum on the value of the dispute.

In this way, as the value of the dispute increases, you may apply more formal procedures. For example, for a "minor" dispute, you may want to have a neutral third party issue a binding decision. For a "major" dispute, you may want to provide for traditional litigation. The most important issue you need to address in such procedures is timeliness. The longer a dispute lingers, the more costly it will get for the builder and the more frustrating it will become for you.

Once construction begins, the most effective tool you have to avoiding disputes are your basic communication skills. Once you identify a problem, you need to look at the contract and drawings to confirm you have a problem and review the contract procedures for addressing the problem.

While it may be tempting to call the builder the second you become aware of a problem, you are setting the stage for a serious argument. It is not unusual for two individuals to have very different recollections of contract and drawing requirements. By confirming the contract terms and insisting the builder check the contract if he/she disagrees, you increase the likelihood that the matter will be quickly resolved to your satisfaction.

In the event you decide to make a change while the work is progressing, you need to reach an agreement as to the cost of the change before the work is performed. In this regard, you also need to consider the impact the change may have on the time to complete the work and the contractor's ability to perform the work in an efficient manner.

I have seen many instances in which the owner asks the builder to make several small changes during the course of construction, which the builder promptly implements without any agreement as to price in order to maintain good customer relations. Unfortunately, when the job is completed, those "minor" changes may cause a substantial increase in the builder's cost, which will compel the builder to seek payment for any such changes. This problem can be avoided by confirming in writing that the change will be done at no cost at the time the builder agrees to make the change.

Building a new home is an exciting experience. You can maintain the initial burst of excitement throughout the construction process by ensuring you, your architect and your builder all have a clear understanding of the work that is to be done and the time and manner in which it is to be performed.