Most builders are using cost-plus a percentage of builder’s fee for custom homes. Post-COVID, it makes sense to do so. However, inevitably toward the end of the job, the homeowner requests to remove the pool, landscaping, or outdoor kitchen line item out of the contract. As the builder, you want to finish up the construction, obtain the green tag or certificate of occupancy and be done. You agree to the homeowner’s request. Despite persistence, they never sign off on the waiver of scope and warranty obligations.
The homeowner is trying to save money at the end of the job because the travertine tile ate up the rest of the budget. They ask if you will waive your builder’ fee on the removed items. You respond “no” because the contract specifically states that the builder still gets their fee on any items removed by a deductive change order. You insist on your fee and the homeowner backs off. You have won that battle–or have you?
The next day the Schrecks from the “Money Pit” show up and start tearing up the backyard to build an Olympic-sized swimming pool. They are in everyone’s way, block the driveway, and the finish-out subcontractors cannot get to the house. You are able to manage through it, and house is completed late, but without penalty. And the homeowner pays the builder’s fee on the pool in full.
Houston- We Have A Problem
A year later, you get a letter from We Sue Homebuilders, LLC complaining that the pool is leaking and sliding down the hill. “But that was not in my scope,” you reply. “My client hired the pool contractor directly.” After some quick research on AI, the attorney responds that you took your management fee, which included the pool. So you are liable for negligently supervising the Schrecks, and your portion of the repairs is $200,000.
So, what should you have done? First, obtain a full release and indemnity agreement from the owner on any items withdrawn/deducted from the contract. Second, consider a set fee plus change order percentage for any increase in scope as an alternative builder’s fee structure. This way, when you reduce the scope it does not impact the fee.
As a final practice point, be sure to address the deductive scope and change order contract language in the initial discussions with the owner as the allowance sheet is being built.
Matthew L. Motes is a partner in the Fort Worth office of Shackelford, McKinley & Norton, LLP, and can be reached at 682-339-9870 or [email protected]. The firm also has offices in Dallas, Austin, Houston and New Orleans with a strong foundation in all areas of construction law and construction/design defect litigation.
Having represented both builder clients and owners, Attorney Matthew Motes understands both sides of the cases he’s worked. He says avoiding disputes starts with the “devil in the details” on your builder contract. Listen to his interview on Building Savvy Bottom Line
THIS ARTICLE ORIGINALLY APPEARED IN VOL 5 2025
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