If you are building an extension or a new house, both you and the builder need to know what work has to be carried out and how much it is going to cost. This may sound obvious common sense, but all too often a contractor will start work before a lot of detail has been decided and without a firm price.
While both client and builder can be keen to get going as soon as planning consent has been obtained, it is in the interests of both of them, especially in the longer term, to have a contract in writing. This will have two main advantages – firstly, there will be some certainty over the scope of work and price. Secondly, the contract will have a procedure for dealing with issues that arise during the job. Building projects are quite complicated with a lot of different trades involved in the process. But the building contract does not have to be complicated– you can get a contract for self-builders which is easy to download online, read and fill in. Sometimes the builder will have a form of contract to use with a client.
So, here are 10 reasons why homeowner and builder benefit from a written contract.
Define the scope of work.
This will usually be done by referring to an agreed set of drawings and a written specification. While it can take longer, the more detail that is agreed before work starts, the more certainty will there will be for both parties. If some areas of work have not been decided, these can still be identified, with an agreement on how those items will be decided when the time arrive the necessary suppliers and tradesmen and a provisional sum included in the contract price for those items.
2. Contract price.
Every homeowner needs to know how much their building project will cost – and this is particularly important if they are raising a mortgage to cover the work. The builder can only price a job if he knows what is going to build – hence the need for a detailed scope. Clients sometimes complain the builders are constantly asking for more money, but that can often due to the fact that the client has not given enough attention to their own requirements before the project got underway.
3. Payment Terms.
The contract Price needs to be spread over the contract period. The contract will provide for regular weekly or monthly payments or, alternatively, there may be a payment schedule where money becomes due at different stages of the project. Either way, this allows both parties to budget.
4. Contract Period.
The builder needs to know when he will be free to work on other jobs and the client will want to know when they can move into the new house or get access to the extension. So the contract will have a start date and completion date. Sometimes the contract will impose a penalty on the builder who delays completion – a fixed amount of’ liquidated damages’ for each week of delay. This can be useful if, for example, the owner is living in rented accommodation and has to pay more rent while waiting for access to the house.
5. Work on site.
Especially when a builder is working on an extension to the owner’s home, both parties will want to agree on the working hours, arrangements for storage of equipment and materials etc. Health and safety regulations will also be needed and the builder will not want the client to be telling the subcontractors what to do. These things can be covered by a few paragraphs in the contract.
6. Change Procedure.
Even with a detailed specification, the client may want to change some aspect of the work or the builder could suggest an alternative approach to an aspect of the work. Both of them need to know what that will cost and what impact it will have on the contract period. The contract can have a procedure for reaching agreement and for the issue of a change confirmation form which sets out the cost, the new work and any alteration to the completion date.
7. Unforeseen Events.
These do occur from time to time – e.g. archaeological remains or unexpected ground conditions that have to be dealt with. The builder is unlikely to price any risks which are not expected, so he will need extra money to deal with the problem. At the same time, he should report any unexpected event that might impact on cost or time as soon as it becomes apparent. The change procedure mentioned above can be used to deal with the implications, so that there is agreement on the way forward.
Both sides need insurance cover: the builder will have insurance to cover the risk of loss or damage to the materials and plant on site as well as public liability insurance. When the work involves extension to an existing house, the client will want to be sure that there is insurance to cover the existing structure as well as the works. So remember to contact your insurance brokers and be sure that the risks are properly covered.
If a contract doesn’t have a termination clause, it is not always easy to bring it to an end. So a proper contract will give the builder the right to terminate if he doesn’t get paid and the client the right to terminate the builder doesn’t comply with the contract terms or performs the work badly. A contract may also contain a suspension clause allowing the client to suspend the work for a period – e.g. when waiting for some planning consent that is needed. The builder might also want the right to suspend work if it is not getting paid, rather than bring the contract to an end by a termination notice.
A building contract usually has a date for practical completion when the work is finished and the property is ready for occupation. The client’s architect or project manager may be asked to issue a certificate of practical completion. There is then a defects period or maintenance period, during which the contractor is responsible for fixing any problems that appear – usually this will last for 6 or 12 months, at the end of which there may be a final certificate and, in some cases, some money will have been withheld until that point.
11. Latent defects & Warranty.
Under the general law, a housebuilder will be liable for any defect in his work for up to 6 years following completion. If the contract is signed as a deed, this period will be 12 years. Nowadays, it is sensible for a homeowner to arrange a structural warranty. This will usually be for 10 years and if defects appear in the structure, the insurance policy will cover the cost of remediation.
Author : Giles Dixon is a construction solicitor and a director of ContractStore, an online business that supplies a wide range of commercial and construction contract templates.