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The building contract | Why it’s important to have one BEFORE you build.

So you’ve decided that you’re going the building instead of buying route for your new home. You have your designs done and you’ve found a good contractor to execute your design. Now it’s time to make sure you have a proper contract in place. A building contract serves to outline the obligations of every party in the contract. It also offers protection for both you and your builder, in the event that either party fails to fulfil their obligations.

Why it’s important to have a building contract.

Having a handshake or verbal agreement is very risky. There is nothing tangible to refer back to in terms of determining what’s included and what’s not included, which can result in either party taking advantage of this. Without a written contract, there’s no way to manage expectations of how and when payments will be made and in what proportions. Lastly there’s no outlined remedy for dispute resolution. Construction projects can come into many problems and disputes will certainly arise at some point. An effective building contract will stipulate how to address various disputes as well as the remedy in the event of a breach of contract.

When a contract has been breached by one of the parties, the other party will have important legal remedies to consider. According to Timothy Nichols “ The non-breaching party may be able to seek compensatory damages for the financial harm suffered; rescind, or cancel, the contract; or request specific performance of the contract, requiring the breaching party to perform their obligations under the contract” All of this becomes difficult to prove without a contract.

Elements of the building contract

While having a contract is important, there’s no point having a contract which you don’t clearly understand either. Be sure you understand your contract BEFORE you sign it. Ensure that everything you’ll require of the builder is explicitly stated. The contract needs to detail every step of the project. It should include a requirement that the general contractor obtain lien releases (which are basically receipts) from all subcontractors and suppliers. This will protect you if the contractor does not pay his bills. Below are a few other important elements of a building contract:

  • The company name, address phone number, the name of the builder
  • A detailed project description including the full scope of works
  • How the changes in the original scope of works will be handled (change orders)
  • The products and materials list.
  • A statement that all necessary permits and inspections are the responsibility of the contractor.
  • Starting and completion dates (duration)
  • Warranties of workmanship, the length of the warranty, and specifically what’s covered and what’s not
  • The contractor must guarantee he carries liability insurance and worker’s compensation coverage.
  • A clean-up statement that explicitly states that the cleaning will be done by the contractor once the project is completed.
  • Total price and the payment schedule.
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Different kinds of building contracts

There are various institutions that offer building contracts for different purposes. We will look at them in terms of smaller projects and larger projects. For the purpose of this article we will define small as being less than 5 million for total contract value and larger being above this. We will also look at two countries, South Africa and Botswana, to identify resources available in both countries for the purpose of finding a suitable contract for your specific application.

South Africa

According to their website, Master Builders South Africa has developed a number of useful model agreements for a variety of applications. The use of Master Builders South Africa contract document is not restricted to members of Master Builders Associations and the documents are available to members of the public.  The different contracts available for smaller projects are as follows:

  • House Building & Small Contracts Agreement, March 2005 Edition
    Suitable for use with or without an Agent
  • Domestic Subcontract Agreement, March 2014 Edition
    Intended for use in conjunction with the JBCC Principal Building Agreement Edition 6.1 – March 2014
  • Labour Only Subcontract, February 2006 Edition
    Intended for use in cases where the Contractor supplies all materials to the Labour Only Subcontractor
  • Agreement for Renovation and Refurbishment Work to Existing Premises, February 2006 Edition
    Recommended for use where an existing building is to be repaired, renovated or refurbished

Many forms of contracts exist in construction, but In South Africa, the CIDB recommends the use of only four forms of contract for construction procurement in the public sector.  This promotes standardization and uniformity of documentation.

The institutions which provide contracts and standards for larger projects are as follows:

www.jbcc.co.za offers a range of contracts focusing on the equitable distribution of risk between principle agents, engineers, generalised and specialist contractors, building owners as well as developers.

www.fidic.org.za FIDIC offers an international model of contract conditions that is supposed to strike a fair balance between the parties and that offers harmonised contract management processes

Botswana

The BIDP offers a range of contracts specific to the Botswana building industry. BIDP was established to provide advice and support to all key players in the construction industry.

The following are just some of the contracts available:

Agreement for minor building works:  The contract is between you, the employer and your selected contractor for minor building works not exceeding 200m2 floor area or Maintenance Works.

Contract: Private edition with quantities 2006 revision: This type of contract is between the employer and contractor to cover an unlimited value of construction works which requires the use of a bill of quantities for cost control. This contract is usually administered by a principal-agent (architect) and has provisions for bonds and insurance.

Which contract will work for you?

Explore some of these building contract options and have a discussion with your chosen contractor about which one will be relevant for your project. They should be knowledgeable especially if they use building contracts often. Alternatively, have a lawyer oversee the draft contract. It can be intimidating if you’ve never completed a building project with a contract before. Having an experienced project administrator who will explain the content of the contract and manage the project on your behalf will relieve some of the headaches involved with construction projects. This is one of the roles that your architect can play if you decide to sign them on as your project manager.

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