What should be in the Building Contract?

Here are some matters you need to consider when negotiating a building contract -

• Make sure the Contract Price is fixed - if it is an hourly rate, an owner may need to reconsider the whole deal. The same also applies to 'cost plus' contracts unless a mechanism exists for keeping a lid and checks on the 'cost';

• Do the progress payments meet the needs of the builder and the resources of the owner - a builder will want frequent payments because of the need for cash flow. On the other hand the owner will want to ensure that he does not pay more to the builder than the value of the construction.

• Do the builder's progress payments accord with what the owner's lender is prepared to pay?

• When will the work commence - are plans still to be approved or are they already approved and work can start straight away? What is to happen if you enter into a contract and the plans are not approved by the Building Authorities? When will the work be completed?

• Has the owner's money for the project been approved by a lender?

• Is the owner to pay interest if progress payments are late?

• What is to happen if there are delays due to bad weather, strikes or lock-outs or delays in delivery of materials or manufacturers being subjected to strikes?

• What if it is found the plan is incorrect and extra work is required? What if rock or 'fill' is struck in the construction of foundations? Who will pay?

• Who is to have access to the building site during construction? Would an owner wish to have subcontractors passing through the main bedroom at 6.00 am ?

• What if the builder goes into liquidation and it has materials left on site? Who owns the materials? What happens if the supplier demands the return of materials?

• Is the work to be covered by a 'maintenance clause' of say 3 months from the time the work is completed? Is the equipment installed covered by the builder's maintenance clause and / or the manufacturer's warranty?

• Does the builder or the owner wish to exclude particular items of work that may be covered by the approved plans. Even an owner may wish to undertake certain work and this should be mentioned in the contract.

• What happens if there is a dispute about money and the builder wants to put a 'caveat' on the title of your home. If that happens you will not be able to sell your home without the builder 'lifting' the caveat and payment to the builder. You could be captive to the builder for a long time.

• Building a home can be a wonderful experience provided you have a good builder and the owner acts reasonably. The problem however is that a building takes months to build and this will test your relationship. If the arrangement is too loose, then you will surely have problems and you need to very carefully choose your builder and builders your owners!

A form of building contract with an inclusions list is available for your consideration at your request.