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Is it normal for GC to take all profit upfront?

I hired a GC/Architect (Architect is also GC), and I found out through bank that he took all OH profit upfront before the project began. Is this legal? If so, is this normal practice? Can it be grounds for breach of contract if construction loan funds have dwindled drastically?

2 replies

Jun 19, 2020

This situation is referred to as "front loading" and whether it is appropriate or not depends entirely on the contract documents. It is common for construction costs to be higher than typical upfront to account for mobilization, and project overhead can certainly be part of that, but typically after that mobilization period the profit, at least on a lump some job, is earned as work is actually completed and the project progresses. It is usually identified as a line item on payment applications to the owner/bank. Cost-pus jobs are handled a bit differently. Now, regardless of how the contractor has allocated funds, if the money has been requested by the GC and paid to it while work has not adequately progressed, that is a serious issue and needs to be investigated. On a lump sum job, if the contractor cannot complete the project for the amount they bid, that failure is on the contractor. In that instance, you will usually see a request for a change order due to "unforeseeable" events, and sometimes they are true and sometimes they are not. It simply depends on the facts. If you remain concerned about the management of your project, feel free to give me a call and we can discuss you options in greater detail. Very best, Ben House 2817621377 ben@houseperron.com

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Jun 23, 2020

Hello, That is not normal, and what I find even more disturbing is that you are just finding this out and the bank paid without your approval. You need to require your bank to get your approval before they pay any money. Depending on what is in your contract there could possibly be a breach of contract, but I would need to review it before advising. Feel free to reach out directly if you have further questions. Thanks, Karalynn Cromeens Managing Partner 8431 Katy Freeway Houston, TX 77024 Tel: (713) 715-7334 www.TheCromeensLawFirm.com Privileged Attorney-Client Communication and/or Attorney Work Product: The above message and attachments, if any, are confidential and may be protected by the attorney/client privilege and/or attorney work product. The unauthorized disclosure, use, dissemination or copying of this e-mail, or any information it contains, by anyone other than the intended recipient, is prohibited. If you are not the named recipient, or have otherwise received this communication in error, delete it immediately and notify the sender at the office number listed above or by return email.

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