every thing you need to know about building contrac ts
Solicitor and former builder Chris Reeves explains why it’s vitally important that a written contract is in place between you and your builder before work begins
If I told you that all selfbuild projects are completed on time, on budget and to a good standard, would you agree? As a solicitor who specialises in the resolution of disputes in the construction industry, I can safely say the answer is ‘no’.
I am often appointed as a mediator to help parties reach a settlement in the event of a dispute, so I therefore get to see projects that have been completed late (or not at all), over budget and/or to a pretty shoddy standard. It’s not the norm, but it does happen.
It’s for this reason that we have building contracts. Too often people get caught up thinking about the final bill, completion date or the quality of the work and forget other key details: health and safety, insurance, warranties, payment schedule, extras, penalty clauses, etc.
Do I Need a Written Contract? Absolutely. Despite what people might think, not all contracts are in writing.
Let’s take a worst-case scenario. A builder sends an estimate and you ask: “Can you start Monday?” “Yes,” replies the builder. Monday comes and the builder starts. After a week the builder sends in a bill and wants paying. You thought you’d just pay at the end when you could see if the work has been done properly and on time.
“A formal written contract won’t resolve the disputes, but it will set out the rules. When you have a sensible set of rules then you can see on what side the risks fall if things go wrong”
The initial estimate said nothing about the payment schedule, but now the builder is insisting that he will be paid fortnightly as it helps with his cash flow. Perhaps you negotiate that hurdle, but then the job starts slipping behind schedule, and the estimated completion date comes and goes. What then happens? Can you get someone in to finish the job? If that is necessary, can you withhold payment from the builder and claim compensation?
Now imagine there is a fire. Your project is near completion but the fire service is putting out the flames. You’re not insured — you always assumed the builder would insure the work, but he didn’t. It wasn’t mentioned in the estimate, and now your home is up in flames and you have no recourse to get money back.
This is why you need a formal written contract. All of these situations are surprisingly common (not all at the same time), but can be covered off in a standard form of building contract.
A formal written contract won’t resolve the disputes, but it will set out the rules. When you have a sensible set of rules then you can see on what side the risks fall if things go wrong.
Still thinking about that fire? A workable contract will set out who insures what and for how long. Ideally it will include an obligation on the builder to provide you with a copy of the insurance before work gets underway.
Building projects are complex and have a habit of throwing up all sorts of issues to grapple with. The more detail we have on
potential issues then the clearer the parties are with where they stand.
The Importance of a Payment Schedule Let’s take payment as another example. A decent contract will record the price you are paying for the work. It is usually a fixed price for a defined amount of work, but not always. What’s more, some contracts operate on a ‘cost plus’ arrangement under which the builder is reimbursed their costs, plus their charge for managing the work. It depends on what you agree, but the contract will record it.
The contract will also set out the rules on when the bill is paid. This may be in period or stage payments, typically monthly in arrears. So the builder may do a month’s work, put in a bill and the contract provides for payment in 14 days. This might not always suit the type of project you are undertaking. It might not reflect what the builder wants, but the contract can be amended to record what the parties agree.
Putting a Value on Extra Work A good contract will also set the rules on the valuation of extra work. ‘My project will not have extras’, is an enthusiastic statement I often hear but I have not yet come across a project where there were no changes. Most standard forms of contract require extra work to be valued on a fair and reasonable basis and it is possible to be more sophisticated about how that is arrived at by ref- erence to the existing price breakdown.
It is essential to identify a detailed scope of work, often referred to as a ‘specification’ before the work starts and not as you go. Starting work without this in place is high risk and quite frankly asking for an argument. The contract needs to be clear on what the builder has included in the price and this can often flush out how good
“The contract needs to be clear on what the builder has included in the price, and this can often flush out how good the design and specification are”
the design and specification are. A good set of plans and a robust specification describing the work is essential and will be referred to as ‘contract documents’ in the contract itself.
We know that not all items are designed at the outset, in which case the price is likely to include ‘provisional’ or ‘prime cost’ sums. The kitchen or bathroom might be selected at a later stage, for instance, in which case a fixed allowance will be set out in the price. The final cost will then be accounted for once the kitchen or bathroom has been chosen. The contract is in place to explain this.
Delayed Finishes A well-written contract will also provide the customer with compensation from the builder once the ‘date for completion’ has passed, until the date the project is ready to hand over. This will reflect a good estimate of what the likely loss is to you for items such as extended rent and storage. Contracts usually refer to compensation as ‘liquidated damages’, where the compensation given is an agreed amount, to be paid weekly or monthly, and recorded in the contract.
On the other side of the coin is justification for finishing a project after the intend- ed completion date. This often occurs for good reason: for example, changes made by the customer that delay progress. A good contract will identify the reasons a builder will be allowed to rely on for entitlement for more time to get across the finishing line. These are often referred to as ‘relevant events’. If the builder can prove the change caused delay (not all changes do of course) then there will be an entitlement to put the completion date back by a number of days to reflect the reasonable period of delay caused by the change.
Some ‘events’ might give the builder entitlement to time-related compensation too, such as the additional cost of scaffolding if the project is delayed by changes the customer makes to the roof. Issues that cause delay to the builder that are within the control of the customer will usually be treated by the contract in a different way to delay caused by factors that are not really in the control of either party, like exceptionally adverse weather conditions. If the latter is included in the list of relevant events then this is usually a risk shared by the parties, so will give the builder more time, but not money related to the delay.
If the foundations need to be deeper due to unforeseen ground conditions then the contract can deal with who carries the risk for this — the contract might state that this falls to the builder (in which case they will have no doubt quoted accordingly) or the self-builder. Either way, this is an example of why you need a contract in writing — to provide certainty and to set out how any consequences are dealt with.
The contract should require the builder to promptly notify the customer once it is known that a delay is likely to occur. A contract can be drafted to provide that if reasonable notice is not given then the builder will lose any entitlement to more time or more money — or both.
The Builder’s Perspective Before moving into legal practice I worked for my family building firm. I do not remember any particular problem with being asked to sign a contract. It should be obvious from some of the examples I have given that the builder has just as much interest in a well-written contract as the customer.
The legal landscape has
“The builder has just as much interest in a well-written contract as the customer”
changed quite a bit in recent years, especially in consumer protection. There is now strict legislation requiring builders to set out information with their prices on all manner of things that are outside the scope of this article. The upshot, however, is that there is more reason now for builders to have a written contract, some requiring a formal ‘cancellation period’ to be given, in the absence of which there can be dire consequences. Contracts that are geared towards a consumer project will have these protections in place.
Dispute Resolution A good contract will incorporate any preferred dispute resolution procedures and can go so far as to name a preferred professional body or individual to turn to should a dispute need to be resolved.
Many of the standard forms will include alternative forms of dispute resolution such as mediation and adjudication. It is worth looking into these further to make sure you know what you are potentially signing. Adjudication is a speedy process that can catch the customer out. Following a notice that the dispute will be resolved by adjudication, an adjudicator is appointed who is required to reach what is likely to be a binding decision in no more than 28 days.
Dispute resolution clauses need to be carefully thought through, and the parties may name an individual they feel would be well suited to resolve any issues in the contract.
What Contracts are Available? There are many forms available. Examples are published by JCT, RIBA and FMB, to name a few. The cost can be as little as £30. If you are embarking on a project where you would feel more comfortable with a more bespoke contract then a construction solicitor will be able to offer advice on what is suitable. H