Small Building Projects – A layperson’s guide to avoiding problems
26 Jan 2022
If you are working from home at the moment and thinking it might be great making your home a larger space, here’s some food for thought.
Over the years, I have seen a range of disputes on small projects with a contract price of between £50k and £1m. These can be expensive and acrimonious and often both parties are unhappy with the result. Here is some guidance to help you avoid disputes.
1. Use a construction professional, that is a quantity surveyor or architect, to advise on contracts and to administer the project
- You probably need advice as to what contract to use and on pricing the work, etc.
- You probably don’t have the experience and knowledge to anticipate and deal with the multitude of things that go wrong in building projects.
- It’s useful and sometimes essential to have a semi-independent third party as a buffer between you and the contractor when things get difficult. The ‘in your face’ nature of construction work means that disputes tend to become personal.
Having employed the construction professional let the contractor get on with the job. Don’t interfere with their work and let the construction professional administer the contract. You will probably suffer penalties under the contract if you do interfere.
2. Make sure that you are happy about the choice of contractor and finalise your plans before you enter into a contract
- Get references from the contractor and see if you can talk to their clients on previous jobs.
- Check what other jobs the contractor has on and how they intend to mobilise day workers and subcontractors to work on your project. Contractors want a constant supply of work so tend to overbid. Therefore they often have problems in carrying out and completing work on smaller projects.
- Make sure that you have decided on what you want before approaching a contractor. Ask them if there are any technical uncertainties or problems with your plans and sort these out before entering into a contract.
3. Understand how building projects are priced
There are three main methods of pricing building projects:
- Fixed price (also known as lump sum) is where a price is set on the basis that various assumptions are met. You very often have to pay more, however, because these assumptions are not met – for example because ground conditions are not as anticipated, building regulations change or your plans for the project change. Nonetheless, it’s the most common method of pricing and is recommended as the only or main means of pricing in a small project.
- Cost plus is where you pay the price of materials plus a profit margin, say 3% or 5%. It’s common in small projects where you have not yet chosen relatively expensive ‘second fix’ items, such as kitchen units and surfaces and white goods. This is because the contractor is (understandably) not prepared to take the risk as to their cost. The cost plus approach is fine, provided that you are in full control over specifying the cost plus items.
- With quantities is where the unit price for the materials is set and you pay that unit price multiplied by the quantity of materials used. This approach is now quite rare even on the larger projects. On a small project it is to be wholly avoided because of the risk of the contractor inflating the price without your knowing.
4. Have a contingency available for cost overruns
I have shown how there can be cost overruns even with fixed price contracts. So make sure that you can afford to pay say 10% more than the anticipated price.
5. Use a safe pattern of payments
- Try to avoid paying in advance because contractors are nearly always paid in arrears, in other words, when the relevant work has been done. Shortage of cash, however, is a real issue in the industry. Very many contractors want some payment in advance and the dangers of this are obvious. It’s very difficult to give general advice but in a particular case it might be appropriate to pay limited mobilisation expenses and costs of materials in advance. These payments should be strictly limited with items paid for in advance needing to be installed before the next payment is due.
- Pay monthly on the basis of valuation of works to date because this ensures that you are paying for the contractor’s performance under the contract. An alternative, where for example the parties don’t want to spend time on detailed valuations, is payment by reference to milestones achieved, such as completion of ground works, installation of walls, etc. Resist a contractor’s request for payment that is not linked to works to date.
6. Enter into a proper written contract
- A surprisingly large amount of building work is contracted on the basis of bits of paper or phone texts with little information other than amounts of money. There are some common law rules to rescue you in this situation but given the quite large amounts involved, you need a proper written contract. This ensures that there is no argument as to items such as price, scope and timing and that there is a mechanism to deal with the various ‘what ifs’ that arise in the course of the project.
- There are a range of standard form contracts and your quantity surveyor or architect should be able to advise on this. I suggest that you use the JCT contracts rather than some of the more contractor-friendly industry ones, such as the Federation of Master Builders contract. Information on the Internet on these is limited, however, the JCT contracts range from the Homeowner for the very small projects to those only suitable for very large projects. You will need a construction professional or a construction lawyer’s help with choosing the appropriate JCT contract.
If you have any queries on small building projects, contact firstname.lastname@example.org, 020 8872 3035, who will be very happy to have an initial chat with you.