A Brief Guide to Building & Home Improvement Contracts

[Ripped-Off]

So you are thinking about employing a builder, but are worried about the possibility of him doing a runner with your money before he completes, or worse, leaving you with this......



Here's what I would do...

1.	Get a quote from at least three builders, even if one of them comes recommended or is a family fiend. Remember, it's not personal, it's business.
2.	Make sure the quote is in writing and lists all the items that you have discussed with the builder and what he has agreed to do. Make sure that it is not just a lump sum figure. If it is, get a breakdown of what you are buying. If you are having new foundations laid, who is designing them? This is normally a job for a structural engineer. The same goes for the roof but companies that manufacture trusses will do free calculations and design the roof for you. Who is responsible for obtaining building regulation approval and paying the fees - you or the builder? How many are you buying? From the number of plug sockets to the number of doors, make sure it is clearly understood. What type of goods are you buying? This goes to the quality of the goods that builder will supply. For example, you may think you are getting 20mm tongue and grooved floorboards but the builder has priced for 18mm chipboard. Write it down so there is no confusion later. What finishes are you paying for? B&Q paint, Dulux paint, Crown paint etc. Be specific. Does the quote include VAT if the builder is registered to charge VAT?
3.	Once the quote is in writing and fully itemised you can consider all the quotes together to make sure they are all roughly like for like.
4.	If you can, obtain references from the builder and go and see examples of his previous work. Also, search the internet. Have a look at companies house to see how long the builder has been trading. If the build has or had lots of different companies with similar sounding names, be suspicious, more so if the companies have been closed down at the same time another has been created.
5.	Try to discover if Trading Standards have received any complaints and/or check the CCJ register to see if any CCJ's have been registered.
6.	AGREE A START DATE AND A COMPLETION DATE and write this into the contract.
7.	When you are completely satisfied about the builder's history you can negotiate with each builder individually on the terms of the proposed contract. A standard building contract such as JCT Homeowners Contract should be selected. It offers protection to both you and the builder. The quotation that the builder submitted should be incorporated into the contract so that it has contractual effect, along with any other important documents that may need to be relied upon to overcome any uncertainty. For example, if you are supplying the kitchen units, that should be identified along with details of how much notice the builder will need to give you so that you can order them and have them delivered in time for the builder to install them.
8.	If the Completion Date is not achieved, calculate what effect this will have on you in money terms and write that figure into the contract for each day that he is late in completing due to events that he is responsible for. Obviously, you can't penalise him for bad weather, or if the council decided to dig up the street and he couldn't get his materials delivered. If he is as good as he says he is then he shouldn't object. In fact, he would be wise to add a couple of weeks just to give himself a buffer, which is fine because you have certainty. Also, if he were a couple of days late but had done you a good job then why would you charge him?
9.	If the builder is a sole trader, then his name and the 'trading as' name should be inserted in the contract. If the builder is a limited company or limited partnership you have to decide whether you can trust that he won't go bust during the build or fail to return afterwards. Builders who trade as limited companies do so for legitimate reasons, but unscrupulous builders will close a company down and start up under a new name to avoid debts and CCJs. This is no good to you if your contract is with the deceased company.
10.	If you don't trust your own judgement on contracting with a limited company, then contract with the individual and not his business. That means the contract will contain two names; yours and his (not the name and address of his company but his own name and permanent address). His company will be performing the work as his sub-contractor, but in the event of a dispute he is personally liable to you and you to him. Make sure you only pay money to the person or company named in the contract. You could consider a tri-party agreement where both he and the company are named but this can become complicated and will need the advice of a lawyer.
11.	As an alternative, consider holding back a retention on each payment made which can be re-paid at the end of the job or following completion after an agreed period has elapsed and all defects have been taken care of. This could be say 10% of the total price, with 5% released on completion and 5% released say 3 months after completion. Details should be written into the contract.
12.	Divide the work into activities and put a value against each activity. You can then arrange for payments to be made only after each activity has been completed. Alternatively, consider employing either a Quantity Surveyor or Building Surveyor to check the quality/quantity of work done before any payment is made. You must select and employ these individuals for the purposes of weekly, fortnightly or monthly payment valuations. To keep costs down you could bring them in at pre-determined stages just to give you peace of mind that the work done is satisfactory and worth what you have paid to date.
13.	The builder will no doubt pay his labour on a weekly basis and could suffer cash flow problems if you are too rigid. Note how many tradesmen he has on your site and how many man days he has worked. As a very rough yardstick, I'd say the combined value (not cost) of his work (including equipment, fixed materials, overheads & profit) in proportion to the number of hours worked will be around £35-£45.00/hr per man outside London and £40-£50.00/hr per man inside London. So for example, if the build is outside London and the builder has 4 men on site (including himself) for 5 days and they work around 35hrs each then 4 x 35hrs x (£35+£45)/2)= £5,600.00. This figure includes the cost of equipment and materials that are fixed. It is only a guide and is likely to fluctuate depending on the value of the materials that are being installed. If the builder comes to you with a bill that is far more, then you might want to look a bit deeper to see why that could be.
13.	Never make up front payments for materials that he says he needs to buy or has bought. If the builder has a trade account with a builders merchant he won't have to pay for the materials for at least 30 days. Paying for the materials up front is one of the many reasons why the builder never turns up when he says he will. If payment is linked to how much work he does rather than how much unfixed material he has on your site, he will do one of two things; (1) deliver materials on a just in time basis or (2) turn up and work hard to build the materials in so that he can receive payment for them.
14.	Make sure payments for things like foundations, electrics, etc are linked to production of the relevant building regulation approval or certification from the proper authorities.
15.	The common law principle of abatement allows you to reduce payments to account for work that is defective, incomplete or not done. However, the law of abatement limits any deduction to ‘the sum which it would take to alter the work so as to make it correspond with the specification’. In other words, the measure of abatement should not exceed the sum which would otherwise be due as payment but for the defective work.
16.	If the builder threatens to remove finished work for whatever reason you can quote him a bit of latin and make yourself look clever. The maxim quicquid plantatur solo solo cedit ('whatever is fixed to the soil belongs to the soil') means that once materials are fixed or incorporated into the works they become part of the land, thus ownership in those materials passes to the landowner regardless of whether the materials have been paid for - Trip v Armitage (1839). There are exceptions but this is the general rule.
17.	If there is a dispute do not bury your head in the sand and hope that it will go away. There are a number of options that are quick and cheap:
	Mediation - The Centre for Effective Dispute Resolution will mediate the dispute for around £1k. Adjudication - The JCT Homeowner contract has an adjudication clause built in administered by the RICS or RIBA. Arbitration - If you want to avoid court action then write an arbitration clause into your contract. All you need is a line saying that any dispute will be referred to arbitration pursuant to the Arbitration Act 1996. Once this is incorporated, s9 of the Arbitration Act 1996 can be used to prevent the Court from hearing the dispute. Note that amounts under £5k may not be referred to Arbitration by virtue of The Unfair Arbitration Agreements (Specified Amount) Order 1999 and s91 of the Arbitration Act 1996.
18.	The majority of disputes arise because of changes made during the build or indecision by the homeowner. Before committing to the build get all the design details, colour schemes and approvals sorted in advance.