what is a Builders Contingency ?

Discussion in 'Building Construction' started by Charlie, Jun 5, 2004.

  1. Charlie

    Charlie Guest

    Hello, we got our line item breakdown back from our lender and are
    getting ready to close on our construction loan. There is a one line
    for the "builders contingency". Is this the amount the G.C. has
    budgeted in case of cost overruns ? I'm asking just to be informed,
    not to question or expect any kind of credit afterwards. All I'm
    concerned about is the final price. I'm trying to antisipate any
    monies I can pay myself to keep out of paying interest on the loan.
    (like change orders and such). Thanks much.
     
    Charlie, Jun 5, 2004
    #1
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  2. Charlie

    minerva nine Guest

    Yes, it's a little bit of wiggle room that the contractor puts
    in to cover minor cost changes, like fluctuations in the costs
    of materials and things like that. More substantial cost
    changes should be done by official change order, the contingency
    is just for minor stuff. +/- 10% is standard on fixed price
    bids, for cost-plus I don't know if a contingency is commonly
    used, I would imagine it wouldn't be necessary. -- M9


    "Charlie" <> wrote in message
    news:...
    > Hello, we got our line item breakdown back from our lender and

    are
    > getting ready to close on our construction loan. There is a

    one line
    > for the "builders contingency". Is this the amount the G.C.

    has
    > budgeted in case of cost overruns ? I'm asking just to be

    informed,
    > not to question or expect any kind of credit afterwards. All

    I'm
    > concerned about is the final price. I'm trying to antisipate

    any
    > monies I can pay myself to keep out of paying interest on the

    loan.
    > (like change orders and such). Thanks much.
     
    minerva nine, Jun 5, 2004
    #2
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  3. Charlie

    Phil Scott Guest

    "minerva nine" <> wrote in message
    news:...
    > Yes, it's a little bit of wiggle room that the contractor

    puts
    > in to cover minor cost changes, like fluctuations in the

    costs
    > of materials and things like that. More substantial cost
    > changes should be done by official change order, the

    contingency
    > is just for minor stuff. +/- 10% is standard on fixed price
    > bids, for cost-plus I don't know if a contingency is

    commonly
    > used, I would imagine it wouldn't be necessary. -- M9


    I always show a contingency... my most successful use has been
    to include a long list of things that could go wrong
    (including delays due to late payment..:) ..with a percentage
    price associated with each one and or a dollar price. I make
    sure my contingency list is as long as my arm and covers
    everything imaginable.

    Then when the owner gives me a two month late start for
    instance while demanding that I complete on the original
    schdule 2 weeks hence (when its a 2 month job)... he has
    *already signed the contract with a contingency fee for that
    ....same for when he subsequently pays late on progress
    payments... It just ads up..

    If he's nice I try to skip much of that billng...if he is
    nasty he gets nailed to the wall...it covers my cost of
    dealing with such people...and they really cant object up
    front because it is a very very reasonable list, In the
    past its been some moron plant manager trying to look good by
    putting me under pressure with late payments so he can drive
    the price down when I get desperate.... the solution for
    that is chatty little daily memo's (but specific as hell) from
    before the contract is even signed, and cc a few of his
    subordinants, they wont object...then when the hose job is
    attempted you can bind that all up and send it to his
    corporate management along with a letter from your attorney
    mentioning damages.... works like greased lightening.


    If you dont itemize the list of all possible contingencies,
    they can argue etc. at the end of my list I say ...other
    contingencies at 10% under our normal billing rate and parts
    at cost or client may buy them and we will install at the
    prefferred rate.(limited of course)...This leaves the client
    utterly unable to say you are money grabbing or unfair or
    whatever.. and presents a very reasonable image.

    What I find now predominantly is bad engineering, utterly
    fatal planning on large jobs, total corruption, kick backs and
    special interests...knives coming out from the woodwork that
    you cant predict.... so I have these contingency detailed
    contracts and I mention them by item number (not always by
    subject) in the daily memo's that go out....the memo's form a
    paper trail and by tacit agreeement of failure to reply or
    object actually become part of the contract (supportable in
    court)...only defeatable if the client can say he didnt see
    the memo...(if it gets nasty I make it a point to casually
    stop by and hand the memo to the guy with his staff present as
    I summarize the contents in front of the witnesses... then
    mention that briefly in the next memo.

    I also take a lot of pictures these days.

    I dont do any of this with established clients of known
    character though... only with new ones, and about half the
    time it ends up saving my toast.

    Ive had these people lie bold face to me and thier management
    even as the memo's prove them wrong... what it is...most dont
    even read the memo's... they dont know that you already have
    them by the ass....(thats a real advantage to the contractor).
    I run the memo's in my word processor so I can attach the old
    ones to the new ones, or sections etc. and have it all ready
    to print the whole job history if required later.

    Some will then say the memo's were inaccurate and deny
    material fact...thats when they get the memo reissued with
    photo's attached. There is a lot of peace and joy in not
    having to worry about net outcomes in these cases.





    My only mistakes in that regard are doing some small jobs with
    no contract, just verbal agreement.(usually under 2k a
    week,with weekly progress pmts I dont write a formal
    contract.....a practice I should cease forthwith.... one can
    be sued and be liable without all that.

    With one man decision makers, I find much less need for a
    contract and memo's than with corporations... the internal
    disasters and lies, back stabbing etc can eat you alive if you
    dont have an air tight situation. Ive had some of these
    morons demand a 20,000 kick back no a 50,000 job saying .."but
    YOU are making 50K..." this class of person has absolutely no
    clue about reality.

    They demand a kick back twice my gross and 4 times my net.
    (I dont pay kick backs regardless anyway...but these days its
    costing me a *lot of business... as taxes go up and wages go
    down, many more are seeking to make the difference up with
    under the table money.... understandable but the net effect is
    a disaster wherever it happens)



    I also word my memo's to always be open for added
    contingencies.... solid statements can be spun by a corrupt or
    ignorant management to your detriment.

    So for instance if they decide to move the cooling tower 30'
    after I have had a $100,000 basin poured...I say "Per
    contingency item #12. relocating already constructed features
    costs *should be in the range of 100k, plus T and M on
    demolition (paragraph included)..;plus assorted other costs
    for rushing the job to completion on a now forshortened
    schedule., profit and overhead percentages..etc.

    These days I see some engineering boiler plate that tries to
    preclude ALL of that..and make the contractor entirely liable
    for all of the client, vendor or engineering created
    disasters. I just line it out...and submit a nice low bid on
    that basis.

    Then the owner has to reconcile my 500k bid against the other
    million dollar++ bids and discuss it internally. When that
    happens given the tightness of funds these days they have to
    face the music on these extra's and delays issues that are not
    the contractors fault.......... or pay double or more for the
    project.... money many dont have these days.

    Also I find many jobs are frauds from the start... that is the
    contractor that gets the job is in bed with the corporate
    management and gets awarded extras say on a 20 million dollar
    job of 5 billion... amazing... its no contest because its an
    inside job..a way for top management to seal 5 billion from
    the stock holders...the contractor on these deals get a cut
    too...80% or more though goes on various via's to swiss
    banks..

    One recent example was a US intelligence semi conductor fab in
    Oregon... the prime contractors were Helmut Kohls outfit from
    Germany and a Korean outfit (NO american contractors on this
    US govt job)... and management was all CIA people with bogus
    engineering degrees on the wall... that job was supposed to be
    a few hundred million...it went billions over budget the money
    all untraceable to off shore foreign companies... all
    fraud....they pissed off a friend of mine by claiming that he
    made an error locating a few small pumps then wrote a stunning
    hundred million dollar extra on that...a job most on the NG
    would have done for 10k.


    You won't get into those, they use their own group of
    insiders...if its going to be *gross they use no bid insiders
    like Haliburton in Iraq.... billions a month can be vaporized
    that way as for instance our GI's go without body armor.

    When you see these people not trying to hide it very hard, as
    with no bid contracts or just insiders allowed to bid.... as
    they prosecute small potato's to create smoke ....you know the
    entire mess is corrupt to the core. Its been that way in the
    US military intelligence mess for 30 years now...

    for those are seeing red at these comments... you might be
    interested in the congressional testimony on same
    www.fromthewilderness.com economics links the left margin.
    60 minutes has also run much of this and its been on Cspan...







    Phil Scott


    >
    >
    > "Charlie" <> wrote in message
    > news:...
    > > Hello, we got our line item breakdown back from our lender

    and
    > are
    > > getting ready to close on our construction loan. There is

    a
    > one line
    > > for the "builders contingency". Is this the amount the

    G.C.
    > has
    > > budgeted in case of cost overruns ? I'm asking just to be

    > informed,
    > > not to question or expect any kind of credit afterwards.

    All
    > I'm
    > > concerned about is the final price. I'm trying to

    antisipate
    > any
    > > monies I can pay myself to keep out of paying interest on

    the
    > loan.
    > > (like change orders and such). Thanks much.

    >
    >
    >
     
    Phil Scott, Jun 6, 2004
    #3
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