CAN A CONTRACT SAVE YOU MONEY?

A legally binding agreement is the best solution for keeping both you and your builder happy, says Mike Hardwick

Many domestic small works for extensions, loft conversions or renovations are agreed on nothing more than a handshake with a contractor you’ve only just met. However, leaving the project in the hands of a builder and relying on their experience alone to see the job through without the benefit of any sort of formal contract is a risk.

To be fair, many construction projects are successfully completed in this way, but it’s when things go wrong that you’ll wish you’d had an effective means of resolving a problem. Without a contract, it’s impossible to establish who agreed to do what, when and for how much. Here I’m looking at how these documents can help to achieve the right outcome and even save you money.

Why have a contract?

When it comes to small-scale works such as building a garden wall or resurfacing a drive, for example, a simple exchange of letters (or more likely these days, emails) is all that is required. The work is self-evident, you agree a price and a date for it with the contractor, and off you go. With larger jobs – and certainly when building a significant extension or a new home from scratch – multiple trades will be involved and you need to protect your investment and interests should anything go wrong.

It’s a stressful process at the best of times, but if things don’t go to plan, that stress will only increase. While a contract can’t eliminate all of the anxieties, it can offer a degree of protection, reduce some of the inherent risks and allow you to keep control over the process.

Contract options

“A verbal contract isn’t worth the paper it is written on,” is a phrase often attributed to Sam Goldwyn of MGM. The fact that he probably didn’t say it at all is an example of how anything based on word of mouth alone is hard to prove. In fact, an oral contract has the same weight as a written one – it is just that it is almost impossible to prove what was agreed, or if indeed anything ever was, if there is a dispute. It is for this reason that contracts should be in written form. You might be tempted to pen your own, but the problem with that is that in the event of a dispute, clever legal people can challenge what you have written and weasel their way out of trouble because what you write can mean different things to different people.

It is therefore important to use a tried and tested formula that has been scrutinised by legal professionals

Above: You’re more likely to have your build delivered on time and on budget if you pay in arrears in agreed stages – so your builder has an incentive to finish works

Right: If your project runs over, a contract can prove that your builder isn’t sticking to their agreed timeframe, allowing you to legitimately challenge their work

and this is where the small works contract comes into its own (see box on the previous page for more information).

The beauty of these contracts is that they are simple and easy to understand. They are written in plain English so as to avoid impenetrable legal jargon and technical construction terms. Because most of the contract is already drafted, it is for you to sit down with your builder and to go through the entire document, filling in the details that apply and crossing out the bits that you both agree aren’t relevant. The contract is a formal agreement of the scope of what’s required and is your proof of what is included in the price you’ve settled on for the work.

The contract will incorporate copies of the construction drawings and the planning permission, so if something is shown on the drawings, that work is covered in the price unless it has been explicitly excluded. This way, you know exactly what you are paying for and, equally important, your contractor knows they’re going to get paid as long as they build what’s been agreed between you.

The more information that the contractor has, the more accurately they can price the work – and with an agreed price in place, you can formalise a payment regime that rewards progress. By that, I mean paying in arrears at defined stages so your builder has an incentive to press on with work, rather than getting some money every couple of weeks or so regardless of progress. It is important to remember that any subsequent changes to the contract have to be agreed in writing by both parties.

Can a contract save money?

The overriding fear for anyone taking on a major domestic building project is the risk of the builder doing a poor job, overrunning by several months or continually asking for more money to complete the job. In the very worst cases it can be all three. By entering into a watertight contract, there is very little wriggle room for the underperforming contractor. If what is being built simply doesn’t match the drawings, you can prove it. If you are running over, that will be clear from the target completion date agreed in the contract. If more money is demanded, you have proof of the agreed price and drawing showing what was included, so unless the builder can justify additional money for work not originally covered by the contract, you can legitimately challenge their request.

Of course, there will always be some ‘extra overs’ for unforeseen work, and your job is to keep these to a minimum. If you have agreed hourly or daily rates for additional work within the contract, you can keep control of how much additional activity should cost, rather than being presented with an enormous and arbitrary bill at the end of the build with no way of challenging it.

Peace of mind

I used an FMB plain English small works contract on my self build project. I recall sitting down with my builder shortly after I’d hired him, going through everything lineby-line, filling in what applied to us and crossing out and initialling everything that didn’t.

We both took away a signed copy for future reference, but I think the proof of the pudding is that, in the year of work that followed, neither he nor I had any cause to refer to it. My copy sat on a shelf gathering dust because all of the key issues had already been discussed and agreed – we knew who was providing the plant, who would notify building control, we understood what insurance cover was in place, when we would aim to start and finish, what the working hours were and who would arbitrate if it all went pear-shaped and we couldn’t agree who was to blame. We had our moments during the build, but overall I’d say it all added up to a pretty straightforward project and a positive experience for everyone involved.

While any of the contracts mentioned on the previous page would no doubt be just as good, I think the FMB contract I used was well worth its weight in gold, and considering the pressures on my budget, it was one of the few things that cost me absolutely nothing!