Avoid the Building Blues!

I’m building a house, what do I need to know about my contract with my builder.

So, you’re building a house, or having extensive renovations done and you’ve employed a building contractor to perform the work for you. Suddenly you find that the job is taking longer than promised, the work is not of good quality and he is asking for more money. You complain and he says that he has done your work in accordance with your contract. Now you are stuck with paying additional rent whilst waiting for your house and maybe employing another builder to fix the poor workmanship and legal fees to recover your money, if indeed you can do that.

Most problems arise long before you start building. It starts the day you sign the contract with the builder/plumber/electrician/tiler/painter/paver/carpenter. It is very common for people to accept a quote without even signing a contract, expecting that everything will be fine and done in good faith. This leaves you open to all sorts of problems. Remember this is probably the biggest single investment you will ever make in your life.

Remember the maxim “caveat emptor” – ‘Let the Buyer Beware”.

So how do we prevent these unnecessary problems? Quite simply, do not just accept a quotation; this simply says that the builder will do this work for this amount of money with no conditions attached, and by accepting the quotation you have actually entered into a contract and any disagreement will be subject to common law. This is not good for the house-owner as there is a lot of wriggle room for an unscrupulous builder.

So what should the contract say?

Parties to the Contract

It should contain the names and addresses of the Contractor and the Owner of the property so that there can be no dispute as to the parties to the contract, should a disagreement arise.

Delays

The Contract should contain a start date and a completion date. It is then simple to show that delays occurred during construction should the builder take longer than expected. It is also a good idea to take progress photographs during construction, as evidence of slow or poor workmanship during the construction phase. Take note of any work the contractor has to re-do as this will affect the construction period. Remember that the start date and completion date are for your protection. The contractor is entitled to do no work for weeks if he chooses, as long as he completes on time, even if he elects to work 24/7, it is his choice. You may raise your concerns with him during construction but ultimately he is contracted to the completion date.

Make sure there is a penalty clause for late completion; it is a good idea to make this a daily penalty so that you can recover money for each day you have to spend in rented accommodation or hotels. Make sure the penalty amount is written into the contract and that it is sufficient to pay any additional expenses such as accommodation for you and your family, furniture storage costs etc.

Poor Workmanship

The Contract should state quite clearly the type of materials to be used – Tiles, Plumbing Materials, Electrical and Lighting Materials etc. These should be named by manufacturer and grade of material; this will prevent the Contractor from using cheaper sub-standard materials. When it comes to the structure, ensure that a particular specification is used. For example, a simple line saying something to the effect of “All work to be in accordance with SANS 1200”. This is a specification used nationwide to ensure that brickwork receives the correct reinforcing, that lines and levels are within tolerance, that plasterwork is smooth etc. Again this will give you ammunition if you have a problem with quality; it also protects the builder from over-fussy owners that want a Roll-Royce for the price of a Mini. Make sure you know what materials you want in your house and discuss this with the builder. Visit tile shops and plumbing shops and obtain the make and part number of the materials of your choice. The builder can then price for your dream home and this gives you the opportunity to make adjustments if the price is too high.

Payment

Most builders require an up-front payment to buy materials; this is common practice and is not too much to worry about. The best scenario is to ask him for a performance bond. This is a bank guarantee that permits recovery of money in case of default by the builder. Not all builders are able to obtain these guarantees and they do cost money, which will be passed on to you through the contract price.

Have a retention clause in the Contract. This permits you to withhold the final payment until a given period after the keys are handed over. Generally the amount withheld would be 10% of the Contract Price, so if you are spending a million Rand on your property you can withhold R100,000, This is sufficient incentive for the builder to fix any defects after you move in. The period should be reasonable to both parties. Generally if your house is going to show defects it will do so in the first six months, such as doors swelling, pipes leaking, blocked drainage, plaster cracks etc.

Your Obligations

We have spoken about the obligations of the Contractor under the terms of a Contract; however, you, as the other Contracting party also have obligations.

You have agreed with the Contractor a Start date and a Completion Date. You are then obliged to ensure that he can get access to the land to commence building on the start date and you must have all the proper permissions in place before this date. If you don’t have planning permission for instance, the contractor cannot legally commence work and this delay will be to your account. If the municipal sewage, water and electrical connections are not available, the builder cannot tie in to them and again the delay will be to your account. Ensure all the paperwork is in place before agreeing a start date.

If during construction you change something, maybe move a door or decide on a different tile, this is a variation to the Contract and may have financial repercussions. Making changes during construction can cause the builder to take longer, either by re-work of something already in progress, or because what you want is more difficult to install than your original idea. Should you want to make changes, discuss it with your Contractor and ask him if there will be a change to the completion date or a change to the cost, or both? Commit to writing any changes requested and the agreed change to the completion date and cost and both parties sign it. Do this even if there is no change to time and/or cost to record this varied agreement in case of future disagreement.

Remember that if you are the cause of delay the Contractor may ask for the cost of his supervisors, plant, machinery and lost overheads. This can be a substantial daily sum.

Disagreements

Decide how to resolve any disagreements and make it a condition of your contract. You can opt for litigation (the courts) which is time consuming and expensive. There are cheaper methods such as Adjudication and Arbitration. These processes are cheaper and quicker in resolving any dispute that may arise. Arbitration may still be too expensive in light of the amounts involved and is very similar to a court case. Adjudication is less formal and simpler. In Adjudication the parties appoint a qualified Adjudicator who will appraise the dispute by means of review of the contract and other documents forming part of the contract, by visiting site and inspecting the materials/workmanship in question and making a decision that is immediately enforceable through the courts. The cost of this process depends on the time needed to gather all information and make an informed and impartial decision. This can take as little as a day. The costs of Adjudication are split between the parties so the cost to each party is half each, whereas other forms of dispute resolution you may find yourself paying all the costs and the cost of the other parties lawyers should you lose.

Ensure you appoint a properly qualified and experienced Adjudicator, preferably local to your area or you could end up paying for flights, hotels food etc. for the Adjudicator.

In closing

So, if after having read this article you find yourself seriously reconsidering building your new home or extension, why not call in a professional who will draft a contract that protects both you and your builders best interests.  Mike Winstanley (The Author) is a highly qualified Arbitrator/Adjudicator with over 40 years’ experience in construction and contracts. He resides in Gonubie and is able to help you ensure that your building project does not become a building nightmare.

More details can be found at www.mjwconsulting.org