Why Contracts With Builders Are Essential
And Which Should You Use?
Over the years, I must have seen it all when it comes to contracts between property developers and their builders, from ‘belt and braced’ re-creations of “War and Peace” which the builder won’t sign, so it is useless, to a verbal agreement based on nothing more than a handshake, which is potentially equally as disastrous.
“Setting your stall out!”
In my day-job as a QS I often get called into projects to undertake a ‘fire-fighting’ role when things have gone wrong, and when this happens I can genuinely say that whilst a certain issue on site may have triggered it, 95% of the time issues arise from things not having been set up correctly at the outset.
What’s the answer then?
So long as there is ‘consideration’ (something given in exchange for something else, such as payment in return for construction work for instance) a verbal agreement remains, under English law, a legally binding contractual agreement. However, for obvious reasons this casual approach should always be avoided.
Something in writing is therefore highly recommended, and in its simplest form this could be an exchange of emails. Whilst this may be OK for very simple transactions, it is never the right approach for the procurement of construction work, where I’d always recommend one of the construction industry’s ‘standard form’ contracts, which are generally fair in their unamended form and have been tried and tested on many projects.
There are several types of construction contracts, but personally, for property development projects, I’d always go for a JCT contract, as they are the most common and are generally recognised by both developers and builders alike.
Which JCT is best?
Now, this is where it can get a bit complicated and confusing and is certainly when professional advice should be sought (but not from a solicitor!).
The answer is subject to several factors such as:
The size and value of the project and thus the likely type and size of the developer and builder
The nature of the work.
Who has responsibility for certain aspects of the project, such as design for instance.
The outcome is that one size doesn’t fit all, and careful thought is required, along with professional help to complete it, when the right contract is being considered.
That said, allow me to explain some of the options.
JCT Minor Works Contract 2024
This is undoubtedly the simplest option, both in content and in page length, and is suitable where the work is simple in nature, the design has been done by the developer’s designers (albeit there is a version where specialist design of parts of the project can be done by the contractor or his subcontractors or designers), and a Contract Administrator (I would suggest a QS) is there to administer the Contract
Whilst there is no value or timescale set for where this contract is most suitable, I would suggest that projects of up to £250,000 and lasting no more than 12 months may be a reasonable limit, so long as they are straightforward. Examples would be property refurbishments, residential extensions and small new-build projects.
JCT Intermediate Building Contract 2024
The next level up, and quite a commonly used option, particularly for projects where the work is more complex, the project is larger or is perhaps between £250,000 and £1,500,000 in value. Again, the design can be dealt with in the same way as for the Minor Works Contract. Suitable projects would be commercial to residential conversions and smaller new-build residential sites of two or three properties.
JCT Standard Building Contract 2024
For the largest and more complex contracts of unlimited value. Again, the same circumstances apply regarding design. Suitable projects might be multi-dwelling new housing developments.
JCT Design and Build Contract 2024
This option should be used where ALL the design is to be carried out by the builder, usually via specialist subcontractor’s or designers engaged by the builder.
It can be used for projects of fairly low value, up to an unlimited maximum, albeit its selection is generally based upon whether or not the developer wishes to retain the responsibility for the design or pass it to the builder, and whether the builder is able to accept that responsibility.
The next steps
Whichever contract you choose, ensure that it is suitable for the specific project, and get help where necessary to select and complete it, and whatever you do, don’t allow the lawyers to amend it!
John Johnson FRICS, Managing Director, Ashdan Consulting Ltd.
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