Building contracts

It is vitally important to enter into a contract with your builder that is legal, fair to both parties and comprehensively covers all aspects of the building project.

No matter how well a contract may be legally written, it is incomplete without certain specific information. A contract is written intention of the parties and must cover the following:

  • What is to be done. The specifications and drawings must be annexed to the contract, a clear description of what must be done and the materials and services to be used.
  • How much it will cost. The contract amount that will be paid at predetermined and agreed intervals
  • How long will it take? The contract period – a contract must allow for time extensions and should have a penalty clause.

It is a good idea to employ the services of a lawyer to at least check a contract before signing. The legal feels compared to the average contract amount is negligible.

Although contracts will vary in content, the following should be included in a building contract:

  • Full name and addresses of the parties. The addressed will be domicilium citandi et executandi, being the addresses to the parties have chosen where all notices or processed arising out of the contract may validly be delivered.
  • Specifications – annexed to the contract
  • Working drawings and schedules – annexed to the contract. The local authority should approve the drawings.
  • The contract amount and schedule of how and when this amount will be paid. If a deposit is payable, this should also be included in the contract document.
  • Prime costs amount – sums of money provided in the contract documents for materials and goods to be obtained from a supplier and to be fixed by a contractor. If after purchasing an item, the amount spent exceeds the prime cost amount allowed in the contract, then the employers will be liable for the difference. The amount payable will b paid by the employer to the contractor upon presentation of the supplier’s invoice. If the amount spent is less than the prime cost amount allowed in this Contract amount with the difference.
  • Provisional amounts – sums of money provided for nominated sub-contractors, selected sub-contracted amounts, budgetary allowances or any other monetary provisions. If monies exceed or are less than the amounts budgeted for, then the process described under prime cost amounts will apply.
  • Extraordinary costs payable must be listed and the party responsible for the payment stated e.g. connection fees and plan approval costs.
  • Commencement and completion dates – the duration of a contract wold usually exclude the December holiday period, which is traditionally the ‘builders holiday’ period.
  • Penalty clause – the penalty payable for late completion should be a reasonable amount but at least equivalent to the cost of alternative accommodation or damages suffered by the employer.
  • Variations – before variations occur, a method must be agreed on how the contract price and duration will be affected.
  • Extension of Time – If the contract has allowed for an extension of time, circumstances leading to the extension must be specified.
  • Insurance – the parties must agree who is responsible for the various insurances e.g. public liability, theft.
  • Retention – this has always been a contentious issue. If a reasonable amount is held for a reasonable period, then retention should be in every contract. The domestic building industry norm is 3% of the contract amount held for three months by the contractor’s attorney. It is not advisable that the employer, particularly in home building, holds the retention.
  • Defects liability – it must be agreed by the parties what patent or latent defects the contractor will be responsible for and how long.
  • Default and cancellation – the contract must clearly define how the contract can be cancelled if one party defaults. The employer’s default is usually because of non-payment and the contractor’s default because of lack of performance.
  • The contract should constitute the entire agreement between the parties and no alterations or addition thereto shall be of any force or effect unless reduced to writing and signed by the parties.
  • The contract must be signed by both parties and witnessed.

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