Answered: The owner refuses to approve the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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residential client hired a general contractor (GC) to construct a major $3 million executive home. The client contracted separately with a reputable architect for the design. After the permit was obtained, the architect’s contract was closed out. During the course of construction, the owner and the city had requested several changes, but none of them were formalized into the contract. Many of these were additive but some were also deductive changes. Many of the changes were due to building code changes. Because the general contractor understood this to be a time and materials (T&M) project, they had not felt it was necessary to submit change orders against a “budgeted” amount. The GC had previously invoiced and received 67% of the original budget, or $2 million, from the owner. These invoices were all reviewed and approved by the lender. At approximately 90% completion, the GC invoiced the owner for the full 100% amount of the original $3 million estimate. When pressed, the GC indicated that the project will overrun the budget by approximately $500,000. The owner and the GC disagree. The owner refuses to approve the current pay request. Can he do that? The GC pulls off the job and refuses to do any more work until the owner agrees to the revised budget of $3.5 million and pays the $1 million now due. Can the contractor legally do that? The owner dismisses the GC at this point. Both parties sue each other. How did this happen? Who is at fault? What should have been done to prevent this situation? What do they do now?

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