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Contracts and terms

When employing a builder, it is vital that all the arrangements are agreed in a written contract. This is to avoid possible dispute on both sides and sets off the working relationship on good clear terms. There are a few standard contracts available that can be adapted to suit any particular project.

The most commonly used is the JCT Minor Works Contract, issued by the Joint Contracts Tribunal. This is useful for jobs up to the value of 100,000 and is widely available. Zurich Municipal Insurance, who run the Custom Build Warranty scheme, also produce a standard contract which can be adapted to particular circumstances.

Contracts are there for both parties, but many consumer advisers suggest that the standard building industry contracts such as JCT's tend to be in favour of the builder and should therefore be avoided if at all possible. Many people opt to produce their own simple contract in the form of a letter, signed and agreed by both parties. The advice provided by well known self-build author Murray Armor in his book Building Your Own Home, is to avoid builders' contracts and keep the agreement as simple as possible. That way the individual has the full weight of consumer law and case law behind them. Under such an agreement, if there is a dispute at some stage over payment, then it is down to the builder to prove that the client owes money. In the same dispute under a builders' standard contact the opposite will be the case - it would be for the client to prove to the court why they do not owe the builder money!

In the most simple of contracts, the builder will promise to undertake the work as described in the working drawings, to the standard specification written and agreed, for a fixed price and within a fixed time scale. In return, the client promises to pay the builder for the work as it is completed to the satisfaction of the project manager, i.e. the architect, surveyor, management company or, of course, the individual themselves. This agreement should be detailed in a simple letter. Attached to the letter should be a standard short form specification for the work and a set of working drawings for the project, initialed by both parties. The contract should contain exact details of the payment terms.

Under all contracts, payment for the builder's work should at all stages be between a fortnight to a month ahead of payment. A small percentage of the total fee (e.g. 2-5%) should be retained until satisfactory completion of the project. 2-2.5% of this should then be retained for a further three to twelve month defects period following completion of the project. It is then the responsibility of the builder to return after the agreed period to correct any defects before collecting the final payment.

Inevitably some building firms and especially larger ones will insist on using a standard contract and often this will be their own. In such circumstances it is always a good idea to consult a solicitor to check the contract. In all contracts with builders the key points to watch out for are as follows:

  1. For private home builders

    Agreement from the builder to provide either an NHBC Buildmark Warranty or Custom Build Warranty for the structure following its completion. This is especially important for those using the half-way house route where the builder is only constructing the shell of the house. In such circumstances a special shell-only guarantee is applicable and should be listed as a contractual requirement.
  2. For all work

    Details of how to deal with prime cost sums for the supply and fixture of items such as sanitary ware, fitted kitchen etc, should be included. This is generally agreed to be the list price of the item as published in the supplier's catalogue. All expenses for delivery and fitting etc. should be included in the builder's contract sum. This is so as to avoid misunderstandings and extra charges.

    Ensure that the contract specifies that the builder is responsible for all site risks. This must include both public and employer's liability and liability of loss or damage to all plant, equipment, tools, materials, etc. on site. In the event of an accident, loss or damage, if the builder is uninsured, liability will pass on to the owner of the site. It is therefore vital to ensure that the builder is properly insured. Even if the builder claims to have insurance, it is advisable to take out independent site risk insurance, as you probably only have the builder's word that he is fully covered.

VAT

As well as the convenience of being able to hand over the whole project, including costing, finding subcontractors, ordering materials etc. those employing a firm of builders to construct a new house will have the added advantage that all payments are exclusive of VAT. Those managing their own build also get the VAT back on their materials under Customs and Excise Notice 719. However, they have to wait until the project is complete before getting their money back.

Because builders will already be VAT registered, all charges to the client will be exclusive of VAT. Using a builder does not preclude getting involved in the project yourself and you can also still reclaim the VAT for any additional materials you buy yourself via the same route as all other self-build refunds.