Contract and Payment Schedule for Flat Renovation

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Hi,

I'm about to sign a contract with a builder for my flat renovation project. It is a relatively big project (£80k + VAT, 16 weeks). I have a few questions regarding contract and payment schedule. All suggestions are welcome!

a) My builder prepared a FMB contract. Is FMB contract ok or should I insist a JCT contract?

b) For this 16-week project, the payment schedule proposed by my builder is:
  • 25% on week 1
  • 25% on week 5
  • 25% on week 9
  • 22.5% on week 13
  • 2.5% after snagging.

I feel a 25% upfront payment is a bit too much, and also the payment schedule is like I'm paying for the work to be done, rather than the work done.
  • I was wondering whether I should ask my builder to provide a list of key project milestones and tie the payment schedule to each milestone, something like
    • On commencement £X
    • On finishing demolition £X
    • On finishing joist work £X
    • ...
    • On completion £X
Does that sound reasonable?​

  • While the payment schedule allows for 2.5% after snagging, the contract says 0% retention. Should I ask the contract to be modified to allow for a 2.5% - 5% retention, to be paid by the end of a 6 or 12 month defects liability period?

Any suggestions are welcome. Thank you so much!

thanks
Patrick
 
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Retention is something nobody will agree to, unless they overcharge by the same amount or more.
Your proposal to have milestones is more in line with my style.
In fact, saying 25% on week 5 means that even if they haven't done anything they get paid (i can hear the excuses already: coronavirus, dead relatives, national shortage of material, other jobs for vulnerable people , etc, etc.)
Then there's the 20k for week 1.
That's a big problem.
Imagine this: you employ 2 labourers to demolish, dig, smah, make dust, etc for a week= £1000 (£100/day each)
Rent a skip = £260/£300
A couple of hammers, some hand tools and I'm gonna throw in a brand new sds =£500 at most.
Total expenses = £1800
You pay £20000
Total profit = 18200
Not bad for organising a week long show.

Before you part with such large sum of money, do you know this person?
Do you know his real address?
Does he own his house? (You can find out from land registry for £6)
Is he running a newly established limited company aka no liability after I have scammmed you?
Have you checked his reviews on social media? If you don't find any, it could be a good sign because usually people complain of bad work rather than praise good jobs.
Personally, as I liked to be trusted, I always asked for money just to cover what was done and purchased in day 1 and showed a breakdown to the customers.
No job in a flat justifies 20k in week 1.
Be careful.
 
In principle, never pay a greater amount than the work done on site, or materials ordered and delivered. So a percentage payment schedule is not always appropriate - you could pay 75% of the contract sum, but only have 50% of the work done by value for instance.

25% up-front is way too much. There is no way a contractor will have incurred those costs in one week. By all means help out with a deposit for ordering materials, but it needs to be realistic and true to what costs have been incurred.

Any decent contractor should be prepared for a retention. Even if its not for 12 months to cover any defects, it should be at least from the start of the contract and payable on completion. That way, its not only for any defects that arise early on in the work, but it's an incentive to actually stay and finish the contract, and not do one once they have had the bulk of the money but the work remains unfinished.

The thing to consider is how likely are defects to occur post-completion and what cost may these be to put right - and how likely is the builder to return or continue trading? £2k /2.5% is not a lot for a builder to wait for.

Much more important for renovations is how you are to price extras and additions. This should be formalised into any contract.

What contract you choose is up to you. FMB or JCT Homeowner are simple, but JCT minor works may be too complex for the inexperienced. It does not matter what standard form you use, but remember that you are both free to amend, add or delete clauses as you see fit and as long as you both agree.

I would contract on an "application for payment" basis, which is in turn based on monthly valuations of the work done - i.e. every month the builder submits an application for payment based on what he has done (he itemises the works) and you agree or disagree the application and then pay him. This way you have a regular record of payments or work done, of variations (up or down) and its very easy to manage without costs spiralling or being hidden. But you do need to be mindful of what has been paid for, so that for instance the contractor does not add any surprises in week 16 for work done in week one.
 
Thanks for the detailed suggestions!

The guy is unlikely to be a cowboy builder in my opinion:
  • Company House data shows his company has been there for 10 years. Company account over the years look ok. I actually went to his company's registered office in person earlier this year.
  • Among the builders I've spoken to, he gave me the best impression in the sense that he has excellent attention to detail. His quote for the project is detailed and looks reasonable to me.
  • I'm satisfied with his references, past project photos, etc.

That said, 25% up-front do make me feel uncomfortable. I think I can pay 10% up-front to help with the cash flow and order materials etc, but for the rest I shall do stage-by-stage after completing each project milestone.

I hope he can accept this reasonable request. Otherwise, ahhhh, the 'second best' builder I've spoken to is surely interested in this project as well...
 
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Maybe 5% up front, then payment at key completion points, like others have said.

An established builder will have credit lines with their preferred merchants, so money to cover material costs should never be a concern.

Good luck approaching him with your proposal.... how he reacts to it will also help you decide if you want to sign a contract with him.
 
I would contract on an "application for payment" basis, which is in turn based on monthly valuations of the work done - i.e. every month the builder submits an application for payment based on what he has done (he itemises the works) and you agree or disagree the application and then pay him. This way you have a regular record of payments or work done, of variations (up or down) and its very easy to manage without costs spiralling or being hidden. But you do need to be mindful of what has been paid for, so that for instance the contractor does not add any surprises in week 16 for work done in week one.

This is the way to go.

On the Insurance work I undertake, for various Companies this formula works, but keep deadly accurate records.

if you are working from a Bill Of Quantities then a simple spread sheet will do the accounting for you?

Ken.
 
FMB contract prob not worth paper it's written on.

The federation is funded by subscription, so they act for the builder not you.


The payment schedule rather depends on the project, big material prices say new timber windows would mean builder paying out big deposits.

Have a friendly chat to your builder, say you his professional detailed quotation etc but explain your concerns and see if he will alter it a bit.
 
The federation is funded by subscription, so they act for the builder not you.
Whsts that got to do with the contract terms? How are the terms biased? Do you have some examples to share?
 
Hey guys, it has been almost a month!

So that's how the drama unfolded since my last post:

I don't feel very comfortable with discussing these potentially awkward questions over the phone. For me it's better in person or via email. I decided to do it via email first.

I brought him the question of payment schedule on my email, he initially tried to dodge that question by replying that he does have project milestones and he would provide a detailed weekly schedule after signing the contract. I wasn't massively impressed so I just frankly replied that 25% payment on week 1 was unacceptable for me. He didn't reply my email for the next couple of weeks.

To break the impasse, I emailed him saying maybe we should discuss over the phone, he didn't reply. Eventually I called him in early November. He told me over the phone that the 25% first instalment can be delayed to the end of week 2 and I said ok and he said he would send over the contract. But he didn't. I sent him a follow up email one week later and he didn't reply.

My temper was about to explode this week. I emailed him the ultimate question - do you still want this project or not. I also began contacting the 'second best' builder in my mind.

Today he replied to my ultimatum, apologised for the delay, explained a bit, and sent me the contract to be signed.

I don't feel massively excited about what happened in the past few weeks. For me 25% at the end of week 2 is within the acceptable range, but I don't really like his attitude dealing with this matter. For him I might appear as a difficult and risky client as the reference he provided told me she paid 25% upfront for her project.

At the same time, the second best builder I contacted wanted to discuss some project details and then provide a quotation.

Personally, I'm more inclined to wait for the quotation and payment schedule of my second best builder, and decide. What do you think?

Any comments or suggestion are welcome. Thank you!
 
Warning bells usually ring true. On an 80k project definitely only work with payments for work done to date. with the only proviso being perhaps 5% down payment on order to show willing and possibly partial down payments on order (perhaps 30-50% of item cost) for large items that the builder has to order in, like e.g. expensive windows as suggested.

The no1 most important contract document is the scope of work that describes in detail what is to be done - it could be your specification, builders quote, or a combination, but whatever it is it should be defined in the contract. no2 is the programme - or at least a start/end date. Final payment on building control sign off. These should define the payment schedule. Remember, the contract is always what the contract says, so do read it!

As an aside, if I was contracting an 80K job I would use the latest NEC4 Engineering and construction short contract. (ECSC) I much prefer NEC contracts because they are easy to read and understand. You can buy this for about £45, and if you did you could as the employer set everything out in the NEC form ready to present to your chosen builder. It's a very fair form of contract so no professional builder should object.
 
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