Planning a home extension, renovation or new build? Contracts with builders play a vital role in making sure both residential and commercial building projects go smoothly.
In this blog we explain one of the most critical, but often overlooked, elements of the building process – the building contract. Here we explain what a building contract is, and why it is in both your and your builder’s interests to sign a builder’s contract. We’ll also talk about onsite variations and how best to control your construction costs.
If you haven’t done already, then we recommend you first read part one and two in this series of blogs. These are entitled Home Extension Advice : Part 1 Design and Budgeting Stage, and Home Extension Advice : Part 2 Tender How to Get the Best Builder’s Quotes.
Contracts with Builders : What are they and why should I have one?
Assuming you’ve got your architectural designs, have established a realistic, affordable budget for your building project, and have carried out a robust tender process (see the above blogs) then you’re now ready to begin the process of formally appointing your builder.
The best way of starting your relationship with your builder is to draw up and together sign a construction or builder’s contract. You may think that builder’s contracts are only for commercial or major building projects and that your modest home extension project does not need to have a legal contract in place. We would disagree. In our opinion it does not matter how small or straightforward your construction works appear to be, they will still involve your spending a considerable amount of money. It therefore makes sense to approach your building project in a professional way. No matter how trustworthy or well-respected your builder is, shaking hands and hoping for the best is never the way to ensure the most successful outcome for both you and your builder.
What is a builder’s contract?
A builder’s contract is a legal document which sets out the following:-
- The responsibilities of the various parties – you (the client), your builder and any third parties (such as your project manager). Your responsibilities would include a responsibility for the documents, payment of any fees, and paying the builder. The builder’s would include carrying out the works, complying with the schedule, complying with planning and building regulations and providing all the guarantees and test certificates etc.
- Description of the works – this is an accurate, detailed, and concise description of the work to be performed by the contractor. It will refer to and include your architects drawings together with a detailed specification.This document will have been used in the tender process, and is usually drawn up by your Architect, Quantity Surveyor or Project Manager.
- The agreed price from the tender process you have carried out, together with the payment terms. A key aspect of the payment terms is to ensure that the payments you are making to your builder are matched by the value of the work as they happen – ie. that you do not pay in advance for work.
- A start date, a detailed construction programme, and a completion date for the work.
- How any changes are to be requested (in writing, rather than verbal), priced and carried out, as well as the circumstances in which the completion date can be altered.
- The quality of work and standard of care to be expected – such as management of the site, sub-contracting etc.
- Insurances that you and the contractor will need to maintain.
- The contractor’s liability period for defects that appear after he leaves the site.
- Clauses stipulating how disputes will be dealt with and how the contract might be terminated.
Clearly if you don’t have a written contract you will not be well protected when it comes to these above elements. There will also be much less certainty on all of the important construction issues such as the cost, timing and scope/quality of building work. You’ll be much more likely to have problems with your building project, and if a serious problem then arises it could be made worse still by there being no paperwork and instead it being your word against your builder’s.
Beware builders who are reluctant to sign a builder’s contract – any professional builder should be happy to have a building contract in place. The contract is not just there to protect you. The builder will benefit too, as he too will benefit from all of the above elements being defined upfront.
Builder’s contracts are available off the peg, but unless you have legal or construction expertise it makes sense to get some professional help drawing yours up. A few hundred pounds spent doing this can save many thousands later on.
Although ideally you should aim to keep to the exact design and specifications that you and your builder have signed a contract against, it is an inevitable part of any major building project that there will be at least a small number of onsite variations.
The term ‘variations’ refers to changes to what’s been agreed upon in signing your builders contracts. It can be an alternation to the physical works, or it can be the way they are carried out. Let’s say, for example, that you chose a certain style of door for your house renovation, and that the style and make you’ve chosen has been written into your building contract. If later decide you want to change to a door to a more expensive one, you’ll be liable for a variation to the original contract – and the builder will charge you accordingly. With this example, the variation would probably be just be the difference in unit cost. If it is something more structural, for example such as moving the location of a doorway, there could be significant additional costs involved.
Variations can easily be the cause of a lot of un-budgeted expense and stress, and so to prevent them completely blowing your budget and your programme, as well as damaging the relationship you have with your builder, it is important that you consider the following:-
Always confirm your instructions in writing – do not rely on purely verbal requests. Even if the change results in no additional cost or impact on the building programme, always make sure it’s documented there and then.
When you request variations, your builder will provide a quote for the cost of the variations. It’s then a matter of agreeing to changes and costs (in writing) or negotiating a different solution. Always insist that prices and all the details of variations required are put in writing and signed off by both parties before the work is done.
Don’t be tempted to rely on the fact you like your builder and leave it until later or assume it’ll all come out in the wash. You’re not aiming to be friends with your builder – what you’re looking for is to have a good professional relationship. Too often we end up getting involved with projects where client-builder trust has been irrevocably damaged because the builder and client have not kept on top of the variations.
Remember, although all of this might seem a bit obsessive, it’s actually in everyone’s best interests to ensure that there’s absolute clarity and agreement. No matter what the scale of your building project, a well-organised variations process with a robust paper trail, is critical when it comes to anything to do with building work and payments!
One other thing to be aware of when it comes to variations, are builders themselves asking for variations. Even if you have a good builder, there are legitimate ways that this could happen. For example, if there are other unforeseen defects in your existing home which need to be resolved before the contracted works can proceed. However, it also a way that less reputable builders make more profit. Typically this would be a scenario where the builder quotes very low to win the tender process, but then boosts his profit once onsite by highlighting additional works that need to happen and then charging a considerable figure for these variations. It is not unheard-of for budgets to be blown by as much as 20% in such situations. Again the rule of thumb is get the builder to put these additional works in writing with a full, itemised quotation. Query the impact they will have on the programme and the completion date. Check the figure with a professional if possible, negotiate if necessary and then make a formal decision and instruct the builder in writing via the formal variations process.
If you follow these guidelines you will be aware of every variation, and its impact as you go along.
Onsite Cost Control
Keeping a detailed spreadsheet on all the payments and purchases made during your building project is a cricitcal part of controlling your construction budget. Make sure you add all the variations onto the spreadsheet – whether they have a cost implication or not. That way you will be able to forecast your final total building project cost and plan financially.
Getting Help and Support
As you can see, getting a building contract in place, controlling variations and keeping track of your construction project costs is time-consuming process which requires an expert knowledge of construction costs and methodology. For most people it therefore makes sense to get a professional Quantity Surveying or Building Project Management Professional to do this for you.
CLPM can do set up your building contract, monitor your variations and help control your consruction costs on your behalf. Whilst this may seem to add an additional cost to your project, it is more likely that you will save our fees several times over by getting more accurate contracts in place, and then avoiding the often ‘unforeseen’ additional variation costs at the construction phase.
If you’d like to understand more about how we can help you to get builder’s contract in place for you building project then get in touch. Call 01923 896550, email email@example.com or complete a contact form.