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11th February 2020

Why you need a contract ahead of building works

Construction specialist, Eszter Lakos, discusses the benefits of agreeing the terms of a project with your builder in advance – and in writing.

Drawing up a contract with your building contractor ahead of embarking on a project will help ensure that your works are completed on time and to budget. Importantly, they also set out the parties’ rights and remedies in case something goes wrong.

Three key points to remember are:

You might have entered into a construction contract without having agreed it in writing.

A construction contract is, in essence, an agreement to carry out certain building works in return for payment. A legally binding contract may be formed, for example, by accepting the builder’s verbal quote for the agreed works and by allowing the works to be carried out. It is possible to enter into a contract by way of a simple handshake.

The risk of relying on a verbal contract is that: if there is a dispute, for example about the quality or timing of the builder’s works, or payment terms, there is no written record of what was agreed.

When the parties fail to agree the key terms of a project, whether it be the budget or scope of works, common questions to arise include:

  • Do I have to pay for unwanted work? If so, how much?
  • What are my rights and obligations (and those of the building contractor)?

‘Informal’ contracts could be suitable for smaller projects – but there are risks.

For smaller projects, such as the building of a new barn or extension of a house, a contract might be formed by the exchange of letters or emails recording what the parties have agreed. These can even reference drawings showing the works to be carried out. In other cases, the builder’s terms and conditions might be attached to their quote.

These types of contracts, in normal circumstances, do not set out in detail the key terms necessary to avoid common disputes. For example:

  • The scope of the works and what happens if variations are required during the build.
  • Who is responsible for obtaining and paying for the various consents (such as planning permission).
  • When and what payments are due, and what happens if they are not paid on time.
  • How to deal with extra costs and overruns.
  • What happens if the works are not concluded on time.
  • If there is a defect following completion of the works, is the builder required to rectify this? And who pays? You can learn more about this here.

The benefits of having a ‘formal’ contract are certainty and clarity of terms.

There are many more benefits to having a written contract. For example, if a dispute arises without a formal contract in place, you and the building contractor are likely to incur legal and other fees disputing what was agreed in the building contract. These costs will often exceed the cost of formalising your agreement at the outset.

There are a range of standard contracts offered by industry bodies like the Joint Contracts Tribunal (JCT), which make for a good starting point. Where there is doubt or complexity in the project requirements, risk can be further reduced by involving a legal professional.

Whilst a construction contract cannot completely eliminate all the stress that might be involved in a construction project, it will provide transparency and clarity on what is expected of you and your building contractor.

To find out more on the topic of this article, or to discuss your construction project, please get in touch with Eszter Lakos or a member of the Construction team.

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