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10 Jul, 15 / post / Uncategorized
Written agreements, contracts and contract administrators

Many people know the builder they appoint, or their friends recommended them, or the builder is even a friend of a friend. This is possibly someone you know and like and trust to an extent, therefore you don’t need a contract do you? That suggests you don’t trust them. Surely a contract is only for a builder you don’t know?

After all you’ve given them a lot of detail.

You’ve spent possibly a year planning this project; you’ve got planning permission (or a lawful development certificate) and you took the full building regulations route so the Council has signed off the project as being compliant based on the drawings and calculations submitted.

You’ve then run a tender process using room data sheets to capture all the detail about what is going where; you’ve chosen the paint you want, the sockets, switches and lighting and it’s all captured in a large package of information that the builder quoted on.

You’ve agreed a fixed price for the works and agreed a deadline. It’s all clear, so why is a contract required?

Here are some real examples of issues arising onsite (where the clients had done all the right things before construction work started):

Unknowns with existing buildings and ground works

  • Once the ground works commence the building control officer instructs additional works to satisfy regulations at an extra cost of £2,368;
  • The builder finds cables requiring utility company intervention, causing a 12 week delay and >£1K of extra cost to rectify;

Client decisions and instructions

  • Builder is asked to add in a cupboard above the stairs but the cost isn’t confirmed to the client until after the works have finished – £500, much more than they expected;
  • Client appoints a window manufacturer directly rather than through the builder and orders the windows not realising the sills aren’t included in the price – extra £704 cost to put right;

Money and payments

  • Builder says the cost of materials have increased, in some cases by 30% ;
  • A plumber sub-contracted by the builder has invoiced the builder for extras, which are passed onto the client (even thought these items were included in the tender to the builder);

Mistakes or decisions made without client consultation

  • The planning drawing is not followed when installing the garden landscaping, resulting in a planning enforcement requiring £15K to rectify;
Discovery of a spine wall that didn't sit on the foundations, needing new foundations to be added under the wall to support the house!
Discovery of a spine wall that didn’t sit on the foundations, needing new foundations to be added under the wall to support the house!

So now imagine you and your builder have to sort this out. Your budget is obviously a concern and you don’t want to pay more than you need to.  Your builder wants to get paid for what they do, especially if you have requested some of the additions. When money is on the line even the best of friends can fall out.  So, imagining a dispute over thousands of pounds, why wouldn’t you have a written agreement in place with your builder to cover potential issues?   Often professional building firms require residential clients to have one.

Construction has many unknowns, however prepared you think you are, and people are human and mistakes happen. Having a contract in place protects you and the builder and can be as simple as a written letter of agreement signed and dated by both parties.

What should you put in a written agreement?

Here are our suggested items to cover in a written letter of agreement if you don’t wish to buy a building contract:

  • What is the price?
  • What documents is the price based on?
  • What does the builder need to take design responsibility for?
  • What is the date of commencement?
  • What is the date of completion?
  • What times and days of the week will access to site be provided?
  • What will the sanitary and kitchen arrangements?
  • How much are daily rates for extras / % management for other companies you appoint?
  • How will variations be costed before commencing those works?
  • How often will the builder be paid?
  • How will the amount of payment be established?
  • How will disputes be dealt with?
  • How will delays be dealt with?
  • What insurance do both parties need to hold for the existing house and the new works?
  • What retention of monies will there be?
  • What rectification period is there for defects?

What building contracts can I buy?

There are various building contracts available to buy, if you are going it alone during the construction phase of your build project without a professional to assist you – however we would recommend the JCT Homeowner Contract.

Note that many contracts you buy for your use, along with professional building firms, require the client to have a contract administrator in place.

What are contract administrators? What can they do to reduce cost pain?

This is someone who looks after the contract for you, and usually it will be someone from the design practice you used. Professional building firms like to have contract administrators in place because they can have difficult conversations with contract administrators and not with their clients.

There are many pros and a few cons when using contract administrators.  The key thing to remember is that contract administrators are legally required to act fairly to both builder and client, ensuring the interests of both are protected.

One significant advantage of contract administrators is when you come to pay your builder. This is usually on a monthly basis and you should only have to pay for what has been completed. But how do you know what is a fair price?

Contract administrators will visit site and sign off the value of the works according to the percentage completed, so you’ll never pay too much.

The biggest downside (our clients tell us) is the fact that all instruction has to go through contract administrators yet when builders are in their homes, clients want to be able to instruct “their guys” while onsite.  We understand it, everyone feels this way. However, in most cases be prepared for those simple “could you just move” or “can you just add” requests to end up costing more money than you thought; as in most cases you make your request to the staff on the job, rather than the manager, who then hears from the staff about the extra items you requested…and the first you know (in terms of financial implications) is receiving a list of extra costs.

Another perceived negative is that going through contract administrators to make changes takes more time.  If you’re making changes onsite it’s already too late (i.e. it will always cost you more – see our First Steps video) so the additional day or so – to get a price agreed, to give you confidence in proceeding – is minor compared to pressing on without knowing what it will cost you.

In summary

On every project, to avoid cost surprises:

  1. When running the tender, make as much information available as possible; if you are still undecided on items, be prepared to set aside a percentage of your budget for extras;
  2. Always have a written agreement or contract detailing how changes and cost variations will be dealt with (for additions and omissions);
  3. If you really do want something changing on site, and you don’t have a contract administrator, always ask your builder to price the change and make sure you agree that price before the works happen;
  4. Use a contract administrator; that way you know you will only pay for what has been completed, the builder knows they will get paid for what they do, and both builder and client can avoid the difficult conversations with each other.

Although the industry standard for contract administration is usually a percentage fee of the construction price, we prefer to charge for our contract administration services on an hourly rate basis – so you only pay for what you need, and there’s clear demarcation between your builder’s construction price and our fee.

If you have any questions, please get in touch – we’d love to hear from you.

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