On paper, all the projects are beautiful and feasible. In action, everything is different. Réno-réalité aims to be a frank testimony on projects that are happy for some or painful for others.
Testimonial: Geneviève* and Jean*, Verdun, Montreal
Professional: Natacha Boivin, lawyer and partner at TCJ, Therrien Couture Joli-Coeur SENCRL
Start of work: Permit application, January 2020
Estimated end of works: Fall 2024
* Fictitious first names, due to ongoing legal proceedings
The project
What is the project ?
PHOTO JOSIE DESMARAIS, THE PRESS
The duplex was purchased in 2016.
Geneviève: We bought the top of a duplex in 2016: bright with a front balcony, a rear terrace and a parking space, the Holy Grail!, but with a tiny living room. A few years later, it was read that the neighborhood would encourage landlords to expand by building a mezzanine on their roof (to combat duplexes turned into single-family residences and the housing problems of families in the neighborhood). We estimated a budget. It was expensive, but cheaper than buying bigger in the area. It was our chance! Well, since luck is not our thing, we submitted our permit application at the beginning of 2020 and COVID-19 fell on us.
What type of contract have you approved?
Geneviève: A cost-plus contract (cost-plus). To tell the truth, we didn’t have much choice, few contractors responded and there was no one left as soon as we mentioned wanting a detailed estimate. We were presented with two turnkey budgets, the low margin if everything goes as planned around $202,000, and the high margin, if we accumulate contingencies, approaching $350,000. The low margin, although above what we had envisaged, was not unrealistic, with a re-borrowing on our mortgage. We were often told that we could end our contract at any time and choose to do certain things ourselves, so that we could stay at our limit and finish later if we ever exceeded the costs. We were certified that at each stage, all the options would be offered to us to choose together according to our budget. We would have invoices every Friday evening to have access to the real cost and stop in time if the money no longer followed. It seemed to us a good compromise despite this kind of contract without “limit” a priori.
Stephanie’s advice
During the pandemic, we noticed that many contractors no longer accepted fixed price contracts. Hourly or cost-plus contracts have become increasingly common, but offer less control to consumers unfamiliar with renovation-construction. It is difficult to evaluate in all conscience the time of the work for a neophyte. The fixed price contract, on the other hand, binds both parties. Better balance. If there are unforeseen events or extras, an agreement is made jointly.
Unforeseen
What are the terms and limitations of a cost-plus contract?
PHOTO JOSIE DESMARAIS, THE PRESS
The budget was a determining factor.
Natacha Boivin : In such a business contract to cost-plus, the risk rests on the shoulders of the customer, rather than those of the contractor. Even if the parties determine a budget together, unless they agree on a guaranteed maximum price, the contractor is under no obligation to respect it. However, it is possible to agree on a sharing of variances from the budget. For example, any savings or overruns of an agreed budget can be split 50/50. This encourages the entrepreneur to remain efficient. Moreover, unless an expert is called in, this effectiveness remains difficult to assess for a client. Is the number of hours devoted to a task reasonable? Are we being billed for work that had to be redone because it was poorly done to begin with?
To avoid disputes, the cost price must be well defined, with a list of the elements that make it up. The mark-up on the cost price, which corresponds to the administration and to the benefit of the contractor, can itself be a percentage or a fixed amount. It is important to agree on what goes into the markup. For example, is the time of the project manager who works in the office included in the markup or in the cost price? If the owner of the company acts as a project manager and superintendent on the site, his hours fall into which category? It has to be negotiated.
Did you find it difficult to keep control of the project and the budget with this type of contract?
Geneviève: Initially, we were able to track the budget effectively with itemized invoices. However, when we approached the established limit amount, we quickly realized that we were very far from having a finished mezzanine. We had four walls and a rough floor, basic plumbing… but nothing electrically and, above all, no insulation, exterior cladding or roofing. So the building envelope was not protected. Looking at the invoices more closely, we realized that we had big discrepancies in the labor time planned for the different tasks. We also had extras for the return of over-ordered materials, equipment installed more expensively or in greater numbers than necessary, tasks on our invoices when they should have been part of the subcontractors’ invoices, etc. Then, a systematic delay in invoices made the project more difficult to monitor. We were in the unknown.
In a construction or renovation contract, can the client terminate a contract? What does he have to do ?
Natacha Boivin : The customer’s right to unilateral termination, provided for in the Civil Code of Quebec, may be exercised at any time, by advising the contractor in writing of its decision and by summoning the contractor to vacate the site and provide final invoicing for the work performed up to the date of termination. Unless there is a clause in the works contract providing for a penalty in the event of termination, the contractor can generally only claim payment for work carried out or materials ordered to measure, but not yet installed and impossible to return. He cannot claim the loss of profit.
The client should obtain an expertise (architect, technologist, engineer, depending on the nature of the work) on the quality of the work performed and its value, before entrusting the rest of the work to a third party. If corrective work is required or overbilling is demonstrated, the client must give the contractor formal notice to correct the work and issue a credit for the overbilling, failing which he will have the work corrected by a third party. The formal notice is mandatory to exercise any recourse in the event of a disagreement.
The solutions
What were your solutions?
PHOTO JOSIE DESMARAIS, THE PRESS
The work had to be stopped to avoid disaster.
Geneviève: To stop the bleeding from our bank account, we had to end the work before the end. But the essentials had to end, including insulating for the winter, even if the mezzanine was not livable. Then, we only asked for one worker to finish the necessary work with us. But that was not enough to combat the forgotten invoices suddenly found and the invoices estimated without justification. It was apparently difficult to assess since the work had stopped before the end. Then came the end-of-contract extras, such as cleaning, which was not done. Eventually, we had leaks with every rain until we brought in another roofer at our expense…
With hindsight…
If you had to do it over again, what would you do differently?
PHOTO JOSIE DESMARAIS, THE PRESS
Money is the sinews of war. An emergency fund should be provided.
Geneviève: First of all, we would clearly wait for more funds. I think that before embarking on a big project, everyone should not only have the funds available for their project, but also a little more so that they can call on legal counsel if things go wrong. Then, we would have accepted the project follow-up proposed by our architect. After analysis, several things did not follow our architect’s plans and partly explain the labor time overrun to redo everything, almost $60,000.
Stephanie’s Conclusion
Finally, work is now progressing slowly but surely. And failing to go on vacation, for lack of money, the couple discovered new skills in construction by finishing their project themselves!