The contract may seem to be just a formality, just another ‘bit of paper’…but it is in fact a most important document.
In it, you lay out how you want the build project to progress. It contains key elements, to clarify what you expect from your builder and in turn the builder has a recognition of progress, and of course… a reference for payment.
The contract should not be rushed. It should be considered. Call upon personal knowledge, previous documents (if you have been involved in the building of a house before), external references such as the internet, contract books, etc. when drawing up the contract to make sure you include everything.
Firstly…here is what NOT to do. Do not let the builder ‘help you’ by drafting or producing the contract. This will be the most one-sided document in history! Something like ‘pay me at the start of the stage’ or ‘split the cost into 3 or 4 and pay in advance’, or ‘pay me the contract value up front and in return I will deliver the house build at some point (undefined)’!
Obviously, that is not good
Before you start
You need to decide a few things before even drafting a contract. Is it a full contract? Or build only – will you purchase materials and the builder supply labour and expertise only? Will you organise specialist trades, such as plumbers or AC engineers, at set points?
The structure of the contract should include some basic elements
Timescale
Include both stages and overall timescale. There needs to be a check at each stage of the build to make sure work is completed before moving on. This is a key element of the contract – it prevents the builder fulfilling parts of different works and then justifying a payment even though no stage has been completed. Complete each stage to get paid.
Payments
Linked to those timescale stage are the associated payments. Payments should NEVER be in advance. If the builder says he can only do the job if he has large amounts of cash up front you have to question the builder’s ability to deliver the project at all. Is he really that hand-to-mouth? What happens to your cash if he has a crisis at home? Of course, your cash will sort out his problem…but then he is again short for your project.
Also, beware of potential builders wanting huge up-front payments – some up-front costs can maybe be justified, but some builders may just build nothing and do a runner with your money.
Inclusions in the contract other than the build
What about the conduct of your builder and his crew? If a situation develops, say with a neighbour – who is responsible if a cost is incurred? This is important – this must be the builder’s responsibility – he is responsible for how his building team behave. That needs to be in the contract.
What about accidents? Can your builder come to you with a massive claim if his roofer falls and breaks his back on your property? Again – needs to be clarified.
Material specifications
Here is where your careful research into the finishes you want in the build are detailed. Yes, really. If you want an XYZ tile in bathroom 1 and an ABC tile in the kitchen – specify it. Tile. Reference number. Colour if relevant. Supplier. This again avoids the builder just sticking plain white budget tiles everywhere. He is building it but you will live in it. You need to be happy with the finishes and he needs to provide them. Be clear and specify everything to avoid doubt.
Changes to the contract
After thinking the contract through, agreeing it and signing it, that’s it right? It could be, but we all know that in the real world, things can ‘come up’ along the way – a change of specification, a solution to an unforeseen problem, a different way of doing something and there needs to be a mechanism in the contract to consider this.
As a start, it should be specified that notice and agreement must be in place before any contract variation takes place. This stops the builder agreeing everything and then cutting corners with materials of labour quality to save money. Notice of change must be given and agreed, not just given. This obviously favours the owner as his change is likely to be adopted as long as any additional cost is paid.
And, changes to contract that make savings should also be detailed. What happens to those savings? Who gets the benefit? It is important to write this into the contract.
Can you recommend a contract document template I could modify to suit my proposed build project.
Hi Karl,
It was difficult to find a contract template when i was looking – I ended up creating my own, made it comprehensive and luckily, my builder agreed most, we negotiated and the finished document was signed by both parties.
I could let you have a copy for a small consideration.
Before that though, have a think about what you want in it… what is important. The contract also needs to be realistic and achievable by the builder. Make it too hard and he will walk away. find the balance is the key thing, but without giving up on what is important to you!
As an example of what i mean… electric wall sockets. yes – we all need them. the thai way is to put one or if you are lucky two single sockets about 1m up from the floor and ‘add’ more sockets by plugging in extensions. brrrrrrrrrrrrrrr! FAIL (for me, anyway). The reason the sockets ar up from the floor is because they need to be out of water if it floods! So… the builder is not planning to raise the land to eliminate that issue!!!? and…one socket / room? saves the builder money but…useless for you for the following years you live in the place. solution? specify the type, location and number of sockets in each room, in an electric plan, and add a clause to the contract that…’the electrical plan shall be followed 100% with no omissions or location changes…” simple really. (and each one a DOUBLE-socket, of course!!)
I had 50+ contract clauses covering this sort of thing, who was responsible for theft, who was responsible for drunken employees vandalising the neighbours car, who was responsible if a worker fell off the roof and broke his back, etc etc.
The contract is very important.