SOME HINTS TO AVOID BUILDING CONTRACT DISASTERS

PRE-CONTRACT

• Define your objectives – what do you want to achieve?
• Fix your budget (include in that amount a contingency sum – you will use it). Also include an allowance for indirect professional fees and expenses (ie banker/lawyer/valuer/accountant/insurance broker). Ignore the temptation to ‘upsize’ and stick to the budget.
• Obtain comprehensive plans and specifications prepared solely for your job (not generic specifications). Make sure you understand the documents fully and ensure that the scope of the work and all materials to be used (including fittings and finishes) are comprehensively specified in advance of building so that you know precisely what you are going to get.
• Ensure that any covenants and easements on the property title are complied with.
• Call tenders or obtain fixed price quotes from three or more reputable contractors.
  • ask friends or family for recommendations;
  • ask for references from the contractors’ last three clients;
  • check each of the references thoroughly – ask about quality of work, reliability, time for completion, how easy the contractor was to deal with, did they keep them informed as to progress and issues that required their input throughout the job? Were there any financial or billing issues? Ask to look at the workmanship (ignore or look past the furniture and furnishings, they will be eye catching in the showroom, but that is not what you are buying; anything can be dressed up nicely);
  • check the Companies Register – know who you are dealing with and how long the company has been in business (this is particularly important when dealing with group builders who operate on a franchise basis – remember it is not the brand owner that you will be contracting with, it may be a company recently incorporated for that purpose and the directors may have no building experience whatsoever). Walk away if you are in any doubt. There are plenty of competent and experienced contractors available without letting someone learn at your expense;
  • request a comprehensive breakdown of the quoted price (this will help identify pricing anomalies and assist in valuing progress payments);
  • request a start date, a completion date, and a building programme;
  • fix an amount to be paid by the contractor for late completion (liquidated damages);
  • request a schedule of progress payments (dates and amounts);
  • avoid milestone payments (they will often be 'frontloaded', leaving insufficient funds available to complete the work towards the end of the project;
  • avoid including provisional sums or PC sums (prime cost sums) in the contract price. If you must, and there would need to be a very good reason, then understand the exact basis upon which the monetary allowance has been calculated, and how and when it will be expended;
  • agree rates for variations (there will almost certainly be variations);
  • include a defects liability period and maintenance retentions (you need an incentive for them to complete promptly); and
  • require a third party guarantee for the work.

• Do not enter into a charge-up contract on the basis of an estimate if at all possible. If that is the way you wish to proceed then define the exact scope of the work encompassed by the estimate, the hourly rates to be charged, whether onsite and offsite time will be charged, clarify whether travelling time/vehicle expenses will be charged, clarify the hours to be worked and charged (the number and length of meal breaks), and agree the margin to be paid on subcontractors’ and materials invoices.
• Engage a building professional (quantity surveyor, project manager, or building surveyor) to analyse the tenders/quotes and project manage the build and certify payment claims.
• Ask for a copy of the formal written contract to be used. Do not just accept the terms – ask your lawyer to review (and amend) the conditions of contract before you sign anything. Many standard form contracts contain grossly inequitable provisions regarding payment, performance and possession of the property that are heavily weighted in favour of the contractor. Once you agree to those terms, you will be bound by them. It is better to spend money on a lawyer getting good advice at the start of the contract rather than on a dispute at the end.
• Use BuildSafe®’s BuildRight® Conditions of Contract, which provide builders, contractors, suppliers, installer, developers and home owners with a straightforward, fair, and easy to understand contract to use on any residential building project. BuildRight Conditions of Contract are fair, free, and comply with the Building Act.
• Do not pay a deposit directly to any contractor in advance of work being undertaken unless you are prepared to lose it. Contractors require and are entitled to evidence of financial commitment on your part to the project. However, a deposit should be held in trust by an independent third party (ie BuildSafe®), pending completion of the contractor’s obligations. BuildSafe is an independent Security of Payment Scheme (escrow service) developed for the residential house building market in New Zealand to reduce the financial risk for both builders and owners.
• If you own the land, photograph all aspects of the site and neighbouring properties and amenities before work starts (ie fences, drives, footpaths, retaining walls, berms) in case there is a dispute regarding responsibility for property damage.
• Confirm who will be responsible for insuring the contract works and that they are insured – obtain copies of the contractor’s contract works and public liability insurance policy cover notes and/or notify your insurer if you are carrying out alterations to your home. Ensure that the contractor has adequate public liability insurance.
• If it is important to you that your selected contractor is a member of a trade organisation, ask for the membership number and check with the organisation that the membership is current. Membership of a trade organisation alone will seldom give you any protection or adequate redress in the event of a dispute arising.

AT THE START OF THE CONTRACT

• Ensure that you have a written building contract that records the agreement (the agreed terms) that you have made. You must be given a disclosure statement and checklist by the contractor, and you must have a written contract for all projects over $30,000.00. The BuildRight® Contract is fair, free, and complies with the Building Act.
• Request a construction programme (a timetable that sets out when all of the various tasks are to be undertaken and completed) to monitor the progress of the contract works against. Identify any key dates by which you must make decisions or provide items that will affect the progress of the building work.
• Request contact details for the person managing/supervising the project. With group builders or larger operators, it will seldom be the salesperson you have dealt with to date.
• Request regular (say fortnightly) site meetings to discuss and check progress, quality of work and materials, and adherence to specifications. Require formal minutes of those meetings to be taken and circulated.

DURING THE CONTRACT

• Attend site meetings and monitor progress of the works against the construction programme and the plans and specifications.
• Ensure any owner selections or owner supplied items are provided on time so that you are not held liable for any delay.
• Ensure you respond to any Payment Claim with a valid Payment Schedule, otherwise you may become liable to pay the whole of the claimed amount even if it is wrong. Make sure your finances are organised and that monies are available to allow you to pay progress claims on or before the agreed due date (and all obligations in relation to that, ie valuation reports).
• Raise and resolve any issues or concerns about quality/detail/performance as soon as you become aware of them. Do not leave them to be sorted out at the end of the job; they will always escalate, and the cost and the process for resolving them will be horrendous.
• Do not instruct variations without first agreeing the price in writing. You will always be surprised how expensive that ‘little’ change was.
• Record all discussions and instructions in writing at the time.
• Take lots of photos – particularly of anything that concerns you.

AT THE END OF THE CONTRACT WORKS

• Obtain all keys and change any security codes on taking possession of the property.
• Ensure that you advise the contractor in writing of any outstanding, incomplete and/or defective work before the end of the defects liability period.
• Obtain all manufacturers’ warranties and guarantees, and maintenance requirements and obligations for the various components of the dwelling.
• Obtain copies of any producer statements or certificates required pursuant to the Building Consent. These are often required in relation to geotechnical, structural, fire, electrical, gasfitting, waterproofing and siting requirements.
• Ensure that you obtain a Code Compliance Certificate issued by the Building Consent Authority on completion of the contract works.
• Pay the final account promptly on the expiry of the defects liability period and completion of all outstanding, incomplete or defective work.
• Insure the building works and contents on completion of the contract.
• Under no circumstances cancel, or purport to cancel, a building contract without first taking legal advice and following any agreed notice procedures strictly.

For further information in relation to BuildSafe® and BuildRight®’s Conditions of Contract email info@buildsafe.co.nz.