The Importance of Building Contracts for Domestic Projects
Renovating your home can be an exciting but daunting task. Whether you're adding an extension, refurbishing your kitchen, or converting a loft, it's crucial to have a well-drafted building contract in place to protect both homeowners and contractors.
We have all watched Grand Designs and heard the horror stories of when building projects go wrong. When they do, it can be very expensive and very traumatic for all involved. Life savings or businesses can be lost, reputations and relationships damaged.
While a contract may not be able to prevent all problems occurring, it should set out a framework for managing the project and dealing with issues if they do arise, in a clear and hopefully fair way.
Key Elements of Building Contracts
Payment in Arrears
Establishing a payment schedule is crucial for both parties to ensure financial transparency and smooth project management. In most building contracts payments are made in arrears where the contractor is paid after completing specific stages or tasks. This helps minimise the risk for homeowners and ensures that work is performed to satisfaction.
Most reputable contractors will be ok with this arrangement as they normally buy materials on credit, so by the time the need to pay their suppliers they have been paid by the homeowner. It is however important to respect payment terms which must be stated in the contract. This is normally 14 days form the valuation date, which will either be a regular period or completions of specific stages.
The Housing Grants Regeneration Act is a key piece of legislation governing building contracts and payments. Read in full here.
Large up front deposit payments should be avoided if at all possible as it exposes the homeowner. Only in exceptional circumstances where there is a specific upfront cost should this be considered. An example might be the need for a large scaffold to be erected before works can begin.
Fixed Cost and Fixed Term
A well-defined contract specifies the total cost of the project and the timeframe for completion. This provides clarity and prevents disputes over cost and deadlines. It should be possible within the terms of the contract for the cost and time frames to be altered, if specific relevant events occur outwith the control of the contractor that may cause them delay or additional cost.
Late Completion
The contract should include penalties for late completion to incentivise the contractor to meet deadlines. Conversely, provisions for unforeseen delays beyond the contractor's control must also be addressed. When a relevant event occurs the completion date of the contract can be moved through the issuing of an Extension of Time (EoT). This would mean that the point when a penaty for delay could be claimed would move to the new date. If a relevant event does occur and the completion date is extended, it can also add additional cost to the contract because the additional time increases the contractors overhead for the project.
Dealing with extensions is very difficult as there are often conflicting reasons for the delay. A construction professional (such as an Architect or Quantity Surveyor) is best place to manage this process.
Changes to the Scope of Work
A mechanism for dealing with variations or changes to the original scope of work should be included in the contract, detailing the process for approving and valuing variations to avoid disputes. A change to the scope of works may have an impact on cost and time so it is important that changes are clearly instructed and the impact agreed.
Dealing with Bankruptcy
In the unfortunate event of a contractor's bankruptcy, a building contract should outline the steps to be taken, including the appointment of a new contractor or the process for obtaining refunds.
Quality Control
Quality control provisions, including inspections and standards compliance, help maintain the quality of work throughout the project.
Insurance and CDM Regulations
In accordance with UK law, the contract should address insurance requirements. What happens if there is a fire on the site the day before handover? What if the cause of damage is not related to the works? Most contract require a joint names or all risks development policy to be in place so that no eventuality is uninsured. It is also important that contractors carry public liability and employer's liability insurance in case there is damage or injury caused by the works on your property.
Compliance with Construction (Design and Management) Regulations ensure health and safety on site for which the owner has responsibility for, so the contract makes sure everyone is aware of their responsibilities.
JCT Suite of Building Contracts
We normally use a JCT contract, such as the JCT Minor Works and JCT Intermediate contract. These are widely recognised and provide comprehensive frameworks for smaller and medium-sized projects, making them suitable for individual home renovations. These contracts offer clear and fair terms for both parties, addressing the key elements essential for a successful project. These contracts do need a professional contract administrator to be named on the contract. If you are managing the contract yourself you should use a homeowner contract from JCT - this type of arrangement is only appropriate for small project that are relatively simple. It is generally advisable to appoint a contract administrator wherever possible.
Avoiding Common Mistakes When Employing Builders
Not Using a Written Contract
One of the biggest mistakes homeowners make is not having a written contract. Verbal agreements are vague and difficult to enforce, leaving both parties vulnerable to disputes. Utilising a tailored JCT building contract ensures clarity and legal protection.
Not Specifying Payment Terms
Failure to establish clear payment terms can lead to misunderstandings and payment delays. A comprehensive contract outlines the payment structure, including the amounts, stages, and dates for payments.
Overlooking Scope Changes
Changes to the project scope often arise during renovations. Without a mechanism for managing variations, disputes can occur. A well-drafted contract clarifies the process for handling changes, minimizing potential conflicts.
Not Ensuring Insurance and Regulatory Compliance
An oversight in insurance and regulatory compliance can pose significant risks. By using a JCT contract, insurance and CDM regulations are explicitly addressed, ensuring legal compliance and protection for all parties involved.
In conclusion, building contracts, particularly those from the JCT suite, are essential for individuals undertaking home renovation projects in the UK. By addressing key elements such as payment terms, scope changes, quality control, insurance, and regulatory compliance, they provide a vital framework for successful and legally sound renovations. Avoiding common mistakes and utilising comprehensive contracts can help homeowners and contractors navigate renovations with confidence.