Capital Home Design & Construction, inc.

October 28, 2014
Dear [redacted]:We have received the complaint filed by [redacted] (the “Owner”) with the Revdex.com, along with your request for a response. As we understand the complaint, the Owner claims that Capital Home Design & Construction, Inc. (“Capital Home”) failed to issue a...

certain change order in the amount of $28,000. In order to properly respond to this complaint, some background information is helpful.By an Agreement dated August 24, 2013 (the “Agreement”), Capital Home contracted with the Owner to construct a new home on the property located at 6449 Hitt Avenue, McLean, Virginia (the “Property”). A copy of the Agreement is attached hereto as Exhibit “A”. The Agreement was also modified by a series of change orders. A copy of the change orders is attached hereto as Exhibit “B”. A number of provisions of the Agreement are relevant to this response.
The Agreement contains a detailed draw schedule. Upon the execution by the parties of the Agreement, Capital Home was to receive the first draw. The Agreement also contains certain allowances. Allowances are defined in the Agreement as estimates for the completion of certain items, the cost of which is not guaranteed. Although an amount is provided for those items, the Owner are responsible for paying our actual cost—whether it is lesser or greater than the allowance amount—plus a markup of 6%. No provision of the Agreement entitles the Owner to remove items from the Agreement, or to have those items performed by other contractors.
Despite the provision of a clear draw schedule in the Agreement, the Owner refused to pay the initial draw upon its execution. Instead, they insisted that we were bound by the draw schedule provided by the owner' lender. Although we were not obligated to agree to this unilateral change in the payment structure of the Agreement, and although such a change required us to advance our own funds to construct the new home, we nevertheless agreed to proceed with construction notwithstanding the Owner’s initial breach of the Agreement.
On November 6, 2013, the parties executed Change Order #3, adding, among other things, a deck on the rear of the house. On November 13, 2013, the parties executed Change Order #5, which provided a credit to the Owner of $5,000 by bundling the cost of the framing of the house and the deck that was to be constructed on the back of the new home. This was a discount provided by Capital Home to the Owner, although there was no obligation to do so. The reasoning behind this credit was that the framing of the house and the deck could be done at the same time, thus creating some cost savings. The Owner later decided to remove the deck, and Change Order #12 was executed by the parties on April 26, 2014 deleting that item from the Agreement. The $5,000 credit that was provided in connection with construction of the deck would later become an issue between the parties.By July 14, 2014, a series of eighteen change orders had increased the contract price from $590,622.24 to $618,385.74. At that time, the Owner sought to remove a number of items from the Agreement. Those items consisted of the carpet and floor covering, including installation, and the kitchen cabinetry and countertops, including installation. These items had allowances of a total of $45,000 as set forth in the Agreement. Although we had no obligation to remove those items from the Agreement, we agreed to Change Order #19, which reduced the purchase price to $573,460.74.
With only the final draw outstanding, the Owner requested a change order deleting the plumbing fixtures electrical fixtures, and appliances, all of which were allowances set forth in the Agreement. The total of these allowances was $28,000, for which the Owner sought a credit. Again, although we had no contractual obligation to agree to such a change order, we were willing to do so provided that we received our $5,000 credit back in light of the deletion of the deck. The house was completed, and a residential use permit was issued on July 30, 2014. The Owner has made no complaint regarding the quality of our work.
With the house completed, and certain payment issues unresolved, negotiations ensued between the parties, evidenced by correspondence between the attorneys for Capital Home and the Owner. Finally, on September 15, the Owner's attorney delivered a letter which acknowledged the dispute regarding the $5,000. In this correspondence, the Owner propose (i) the payment of $9,085.06 to the Owner, (ii) payment of $5,000 into an escrow account to be paid only upon agreement of the parties or court order, (iii) an agreement that the outstanding final draw will be paid entirely to the Owner, and (iv) an agreement that Capital Home will sign the necessary documents to have those funds distributed to the Owner. We now know that by that time, the Owner had already filed this complaint. This was also not the only formal complaint filed by the Owner, apparently in an effort to use the complaint process to obtain some advantage in its negotiation with us.
Once we became aware of the complaints filed by the Owner, our ability to resolve this matter became somewhat complicated. On the one hand, pursuant to all of the executed change orders, we were still technically owed money under the Agreement. The Owner had refused to sign a change order returning to us our $5,000 credit from the deleted deck, therefore compromising our ability to achieve finality in the last change order. We have been meticulous throughout the process in documenting every change through an appropriate change order, and we were very leery about taking any action that was contrary to the terms of the Agreement unless an appropriate change order was executed. On the other hand, we were willing to provide the $28,000 credit for the Owner sought. Therefore, in light of the approach taken by the Owner, we delivered to the Owner's attorney alien waiver, a change order making the appropriate adjustment for the $28,000 credit and the $5,000 credit (signed only by us), and a check in the amount of $9,085.06. A copy of that letter, along with the enclosures, is attached hereto as Exhibit “C”.
On October 20, we received an email from [redacted] of [redacted] Title, with whom the Owner had been working in connection with the construction loan. The email stated, “I understand from Guofeng you all have come to an agreement. Could you please complete and return the attached final lien waiver & affidavit at your earliest convenience, thank you!” We promptly executed the documents and returned them to the title company.
To the extent that the Owner's complaint relates to the desire to receive a $28,000 credit through a change order, there can be no doubt that we were always agreeable to executing such a change order. However, since that was to be the final change order (all work having been completed), we wanted that change order to accurately reflect all adjustments made to the final purchase price. In any event, it appears from subsequent events that the issue has been resolved.
We undertook the work under the Agreement diligently and in good faith. Every modification to the Agreement is carefully accounted for in numbered and ordered change orders. We agreed to every change— whether it was an addition or a deletion—that was requested by the Owner. In fact, our entire course of dealing indicates that we went out of our way to accommodate the Owner. We provided a $5,000 credit in connection with the deck, although it was not obligated to do so. We accepted the draw schedule of Owner' lender, even though it was much more unfavorable than the draw schedule to which the parties were contractually bound under the Agreement. We permitted the Owner to have significant portions of the Agreement performed by other contractors, at no small financial cost to us, although there was no duty for them to agree to such an arrangement.If you have any further questions, or if there is any additional information that we can provide, please let us know.
Sincerely,
Vicky H.
President