What should be considered in construction supervision contracts?

Hi everyone,

We will start building a single-family house in spring 2016 and are now slowly entering the final phase of selecting the company.

Besides "classic GCs" (not a developer, I already have the land, so legally I will be the client anyway), there is also one contender who does not act as a GC but as a "construction supervision" with a construction supervision contract. They advertise themselves as "architect with fixed price guarantee." Besides comparing services, I am currently concerned with reviewing the contract. The contracts will of course still go to a lawyer, but I would still like to ask here:

(I have read the house building guides on this site (very helpful by the way, thanks for your work!!!) but I have not really found anything on construction supervision contracts there)

What are generally special pitfalls to watch out for in construction supervision contracts? The following come to mind:

[*]I am not buying "a piece of finished and defect-free house" like with a GC, but actually only their engineering/architectural service and construction expertise. Along with their work in creating plans/working drawings, tenders, awarding trades, construction supervision, etc. Legally, however, I remain fully responsible.
[*]Since I award each trade myself, I also have to adhere to the warranty conditions of the individual craftsmen. In the worst case, I have no single point of contact but might have to deal with various craftsmen who each blame the other. In reality, you can practically forget about warranty that way. An external construction supervision to prevent the worst nonsense is therefore a must.

[*]On the other hand, it can also have advantages to award the trades individually together with the supervisor; my influence on the exact specs and execution is much greater and I do not have to accept everything more or less as-is as with a GC. In other words, if the heating installer suddenly wants an absurd surcharge for the underfloor heating, I can fire him and replace him. And I can really clearly specify, deliver this and that and nothing else. That requires more work from me but also opens up more possibilities.
[*]They also offer a fixed price guarantee and a construction time guarantee, but how they want to guarantee that is not yet quite clear to me; I will follow up on that next week.
[*]Due to the reduced risk, they can naturally offer a lower price than a GC; after all, they do not have to take the blame for the subs’ mistakes in the end (except for gross planning errors).

I am torn in my evaluation. The company offering construction supervision has a good reputation here; three families in our neighborhood have built with them alone, and they were all satisfied.

I just find the legal situation somewhat unpleasant. It can get really nasty if things go wrong. Although professionally I work in technical project management, and dealing with individual trades and subcontractors does not scare me.

And the price advantage they can offer is a good 10%, so I can already put aside quite a bit as a risk reserve…

Does anyone have further particularities and pitfalls for me to watch out for?

Thanks and best regards,

Andreas

Good evening Andreas,

[*]I don’t buy “a finished and defect-free house” like with the general contractor (GU), but actually only their engineering/architectural services and construction expertise. This includes their work in creating plans/working drawings, tenders, awarding trades, construction supervision, etc. Legally, however, I remain fully responsible.

No. The risk is distributed among many shoulders. For example, the involved architects like structural engineers are liable for their services by virtue of their signature. If you award the trades individually, the craftsmen owe the contractually agreed service and are also liable.

[*]Since I award each trade myself, I also have to adhere to the individual craftsmen regarding warranty. In the worst case, I have no single contact person but can struggle with various craftsmen who each blame the other. In reality, one can almost forget about the warranty. An external construction supervision to prevent the worst nonsense is therefore a must.

Construction management/supervision is always a must! How is the retention regulated? Via account or guarantee?

[*]Conversely, it can also have advantages to award the trades individually together with the supervisor; my influence on the exact specifications and executions is significantly greater and I don’t have to accept everything as a whole like with a general contractor. In other words, if the heating installer suddenly wants an absurd surcharge for the underfloor heating, I can fire him and replace him. And I can really clearly specify: deliver this and that and nothing else. That requires more work from me but also opens up more possibilities.

That requires above all knowledge; a lot of knowledge!

[*]They also provide a fixed price guarantee and a construction time guarantee, though how they want to guarantee that is not yet quite clear to me; I will show up there again next week.

A standard must be agreed upon for that, otherwise it won’t work.

[*]Due to the saved risk, they can of course offer more cheaply with this model than a GU, since in the end they also don’t have to take the blame for the mistakes of the subs (except for gross planning errors).

I consider that a rumor; they won’t work for air and love … at least I won’t.

I am torn back and forth in my assessment. The company with the construction supervision services has a good reputation here, just three families in our residential area have built with them and they were all satisfied.

That’s a good start; if the construction supervision is good, the lawyer has no objections to the contract structure, and you have the desire/time and sufficient expertise to award the trades, I see no problem in building via the described supervision model. Though I don’t understand why the trades have to be awarded individually by you. Then you could also build directly via an architect and at least save yourself the supervision fee.

I just find the legal constellation somewhat unpleasant. It can get really uncomfortable if things go south.

Don’t understand? If you built conventionally via an architect, you would also have to conclude a separate contract with every craftsman.

Rhenish greetings

Hello construction expert,

thank you for your reply,

No. The risk is spread over many shoulders. For example, the involved architects like structural engineers are liable, by virtue of their signature, for their services. If you contract the trades individually, the craftsmen owe the contractually agreed service and are also liable.

Maybe I expressed myself a bit extremely. Of course, the architects/structural engineers and trades are liable for their services, that is clear to me. Now there is simply no one left who is liable for the overall project. To put it bluntly, if the building collapses, the architect will blame the structural engineer, who will blame the concrete contractor, who will blame the expert for the geotechnical investigation and whoever else. As a private person, you are in a pretty lost position because the risk is spread over various shoulders and everyone will somehow wiggle out of it. A general contractor (at least the GC constellation I know professionally) holds overall responsibility towards me. If the house collapses or anything else goes wrong, I can calmly say: "Your problem, solve it!"

And this assumption of risk is also the reason why GCs (again: as I know them professionally) basically have to be more expensive.

Or am I completely wrong and the GC (contract for work) responsibility is completely different in these "small projects" than what I am used to?

Site management/supervision is always a must!

Site management/supervision of course takes place through the construction supervisor. I would just like to have a second, independent one.

How is the retention regulated? Via account or guarantee?

Thanks, that is an example of a point I haven’t considered yet. The construction supervision contract I have so far says nothing about this, there are apparently annexes to it which I do not yet have. I will request them today.

What kind of retention is actually usual? So far they mentioned 5% for the period of the 5-year warranty. The question is still open whether I withhold 5% individually from each trade (which in a serious case would only be 500 - 1500 euros, not much for a wrongly installed heating system) or if I withhold 5% globally from the total sum, which would be much better.

A standard must be agreed upon, otherwise it won’t work.

Of course, but I have to ask stupidly: how far is a specification definition in this area common? When I gave requirements to the construction supervisor and also the GCs in talks like: Please install exactly this heating system, with this control and this pipe spacing in the screed and please use these thermostats; they looked at me as if I was crazy. And I hadn’t even properly started yet, we as GC sometimes have to specify the font and size of cable labels in projects.

I consider that a rumor; they won’t work for air & love... at least I won’t

Hello Andreas,

first of all, I have edited your post; in my humble opinion, it is more clear for the users here to read and especially easier to answer. In your next reply, do not click on reply, but on quote; the rest will become clear by itself.

And this risk assumption is also the reason why the GUs (again: as I know it professionally) basically have to be more expensive.

That doesn't change anything, because the individual trades are also liable for warranty. For the GU in a larger sum 5% (his subs remain responsible in the worst case; he just takes care of the paperwork), in the above construction a total of many small amounts 5%. What can be reduced in my humble opinion are the costs of the architecture; but that's basically it, because the profit just shifts to several accounts.

Construction management/supervision is of course done by the construction supervisor. I would just like to have a second, independent one.

If that makes you feel better: good decision!

Although the question remains open whether I withhold the 5% on each trade individually (which in the serious case is only 500 - 1500 euros. That is not much for a wrongly installed heating system)

For each trade 5% retention by means of security retention.

or whether I retain 5% globally of the total sum, which would be much better

It does not change anything. Because you are not "allowed" to deduct money immediately in case of defects, but must first give the craftsman a reasonable deadline for rectification. Only if this proves unsuccessful, you can withhold an amount twice as high as the assessed defects.

Of course, but I have to ask stupidly: how far is a definition of the specifications usual in this area. When I made requirements in conversations with the construction supervisors and also the GUs like: Please install exactly this heating system, with the control and the distance of the heating loops in the screed and please these thermostats; they looked at me like a car. And at that time I had not even really started yet, we as GU sometimes have to agree on the font and size of cable labeling in projects

You confuse your job as well as the awarding via architect with a construction supervisor! I myself work as a construction supervisor - but differently from what you described. My offer is based for example on a fixed BB, which of course can be extended at any time for an additional cost. I am currently not conducting a tender; each of our BUs knows our BB and knows what he must deliver. What a customer cannot prescribe to me is which heating our BUs install, nor how closely the heating loops must be laid. This is because we work with different BUs; each again with different sanitary companies - logically, since some kilometers lie between them. One likes to work with Vaillant, the next with Buderus, another again with Wolff etc.. I will also not force any sanitary company a system "onto their lap" which they are not familiar with; trouble is programmed there. The necessary distance of the loops is derived from the heating load calculation by the way.

If your wish for self-determination goes so far that you want to specify the WE, you should build with an architect in classical single-trade awarding. In my humble opinion you are better placed and also more satisfied there.

I will report

Do that!

Rhenish regards

Hi,
just as feedback. After legal review of the contracts and several rounds of negotiations, I have decided to step back from the construction supervision provider. The contract went to a "classic general contractor." In the end, they were almost the same price and much easier to deal with, and above all, willing to include important points and agreements in the offer text for me.

Tomorrow the site will be leveled and shortly before Christmas the building application will be submitted to the building authority.

Thank you very much for the tips and suggestions!

Best regards,

Andreas