A building contract is, put simply, an agreement to carry out building work in return for payment. What this means in reality is that if you have agreed to pay a builder for some work and they accept the terms discussed, then both parties have entered into a legally binding contract, whether or not it is written down or recorded in any way.
Often for a larger project such as an extension or new house, an informal written agreement is used, typically an exchange of letters detailing what has been agreed in broad terms, with reference to the approved plans and drawings, possibly a specification, and the price to be paid.
Thousands of self-builders and many more homeowners besides have successfully employed builders and tradesmen on these terms for decades. So, you might ask, is it worth bothering with a formal contract?
Formal contracts: While formal contracts are often drawn up by teams of solicitors, for building work there are ready-made, easy-topurchase contracts that are well suited to homebuilding and renovating projects (SEE BELOW). The best known of these is the range of contracts offered by the Joint Contracts Tribunal (JCT). The Federation of Master Builders (FMB) offers a free downloadable contract that covers some of the same areas, while MyLawyer.co.uk also offers a detailed contract for around £150.
A formal contract, unlike a simple handshake, covers in detail the arrangements of a building project — for example, the stages at which you should pay the builder (and, of course, how much), along with procedures for how to deal with extra costs, project scheduling, potential overruns and many other things such as purchasing materials, site safety and so on.
A formal contract of this kind gives you transparency and clarity on what’s going to happen along the way, unlike an informal contract. The contract can be easily referenced as it’s comprehensive enough to cover all the details that can become sticking points with a builder. So, you effectively make all the grey areas a striking shade of black or white, and there is very little wriggle-room for a builder (or client) to sway from the agreed terms.
“When a homeowner engages a builder to carry out works in return for payment, a verbal contract will arise,” says Richard Cohen from MyLawyer.co.uk (mylawyer.co.uk), a group of solicitors who offer dispute resolution and contract documentation services. “The disadvantage of a verbal contract when compared to a written/formal contract is that there may be difficulty in identifying all its terms; but subject to that, a verbal contract is no less valid and no less binding than a written contract.”
The Different Types of Contract* Explained:
The JCT Homeowner Contract comes in several forms but this version comprehensively covers schedules, prices and work to be completed. It costs £16 to download from homeownercontracts.com
The FMB Domestic Building Contract has won an award for its lack of jargon and ease of use. It’s not as detailed as the JCT version but a great starting point. Download it at fmb.org.uk
In Scotland the legal situation is different. Anyone building north of the border should use either a Design and Build or Standard Building Contract from the Scottish Building Contracts Committee (£30.99 at sbcconline.com).
Contracts and major building work: Contracts are only really appropriate when it comes to bigger jobs and, realistically, if you can get your preferred builder to actually sign one. Many homeowners and self-builders weigh up the dilemma of binning a builder they wanted to use simply because he won’t sign a contract. “This would be a mistake,” says 13-time self-builder and author of Building Your Own Home David Snell, who has never used a contract on any of his projects. “A good builder whose work you can check is much more valuable than a piece of paper.”
You might find, however, that many medium – and the overwhelming majority of large – building firms will now insist on a contract being signed. The reason for this is that they will view working with you, the unknown homeowner, as a risk in itself.
A contract will really only help to protect you if things go wrong. The worst-case scenario for a homeowner or self-builder is that their builder will fleece them either by not completing work to a satisfactory standard, completing it months late, or by constantly demanding more money to keep going (or all three). Simply, the best way to avoid this scenario is to be as detailed with your plans at as early a stage as possible, to reduce the unknowns. This will allow the builder to accurately quote, come up with a realistic schedule and be able to plan ahead.
“Essentially, overseeing the performance of a building contract is an exercise in relationship management,” says Richard Cohen. “Some compromise may be appropriate, but homeowners should beware of compromis ing beyond their comfort level. ‘Easy life’ enthusiasts are vulnerable to being taken advantage of. The existence of a contract will level the playing field by ensuring that homeowners have another option to fall back on if all else fails.”
He continues: “There is no doubt that a well-drafted written contract is the preferred option. It provides the clarity as to the contract terms that cannot be achieved by other means. But it does more than that. It can anticipate and provide for what needs to happen if things go wrong (e.g. penalty payments for late completion, termination provisions, dispute-resolution procedures). It can provide protection against things going wrong (e.g. stage payments, retentions, insurance). All of this assists in agreements being reached between the parties that are fair to both of them, and that, in turn, facilitates an effective working relationship between homeowner and builder, which is so crucial to the successful completion of any building project.”
Contracts and smaller jobs: Working directly with a tradesman can be a pretty frightening voyage into the unknown. You’re realistically only going to get a verbal contract or simple written agreement, but as the work is likely to be more detailed with less unknowns, this should be fine. In the overwhelming majority of cases you will have no problems (assuming you pay for work promptly in arrears). You might, however, be unhappy with work carried out. In which case, you can in theory pursue a legal route that would compensate you for any additional remedial work required, but the best approach for all parties is to point out what you see as unacceptable work completed (preferably by checking as best as possible at the end of each day) and giving them a chance to rectify it. If they refuse, then it’s probably best to pay them for the work done so far and move them on to pastures new.
Our View: Formal contracts such as those offered by the JCT are good tools to help cement the relationship between builder and client. They are easy for both sides to understand and perhaps their main selling point is that they help both sides to talk about the issues that they will inevitably face along the way — and to that end could be a way of avoiding future conflict. It’s also true to say that this can help to resolve disputes further down the line — so they only really have any credence if the client is willing to take disputes all the way.
It’s fair to say, however, that they are in no way a guarantee against things going wrong. If a relationship with a builder breaks down, he’s not going to return your calls any quicker just because you have a contract in place. Formal contracts undoubtedly offer more protection than the informal contracts builder and client automatically have as soon as work starts on site; they are, however, no replacement for a happy working relationship with flexibility, pragmatism and compromise built in.
*There are a range of other detailed contracts available.