Retention a % of building costs

[str]

We're planning on having an extension built, probably around £40,000 or so and am just waiting on the warrant coming through before I get some quotes, mainly from a couple of builders who have already given me ballpark estimates.

Questions is - is it reasonable to ask that a % of the total contract cost is retained to cover potential defects?

If so, what would be the acceptable amount (10%) and for how long (6 months)?

I don't want to muck the builders about by suggesting something that is completely out of the normal and whilst I have faith in the guys who are going to price, I would prefer to have some leverage to get them to come back to fix any issues

 

[Alastairreid]

10% of total build cost until completion certificate is issued from la.
this is the norm in my part of the world.
of course it would be down to you and your builder to sort out a reasonable retention before work begins.

 

[^woody^]

2.5% of the final amount (ie job cost) is normal, but it depends on if a specific contract is used - which may allow for more. This is for 12 months from the completion date (not when you pay the invoice)

10% is way too much for small work and small builders.

Its only really intended to cover small inconvenient remedial works. You would have made sure that the bulk of the work was done to the required standard as work progressed and before paying the final invoice

 

[str]

thanks for the prompt response guys.

I would only take it to assume to cover the smaller bits that may arise duiring the course of time once the work has been completed - obviously I wouldn't pay the final amount until the work and any issues have been completed.

Other questions is the staged payments suring the course of the works - have read a couple of posts here suggesting that it may be better paying for the materials as they come on site, just in case the builder goes bust, at least I would own the materials - appreciate that any decent builder will have trade accounts so should not be looking for up front material costs - but is there any benefit in doing this?

Is is also reasonable to assume a staged payment basis on stages of progress ie X paid when the walls are up, X when the roof is on and the space is wind and water tight, X on internal finishes, etc?

I know this will be down to agreement with the builder when we agree the price etc but would like to knwo what is regarded as reasonable?

thanks again

 

[jeds]

Not as easy as you might think.

A 5% retention is normal for JCT standard forms of contract. 2.5% of that should be handed over at practical completion and the balance retained until the end of the rectification period. (what used to be called the defect liability period) None of this is a problem for commercial or commercial/domestic contracts where everybody knows what they are doing.

If you do hold a retention you must specify your intention at the pricing stage so the contractor can allow for it. It would be wrong to just decide to do it at the payment stage. You will also need a fairly detailed agreement covering when and in what circumstances the retention can be used and when it will be repaid etc. In standard form contracts these things are normally decided by the architect or surveyor - i.e. somebody other than the employer who has an obvious conflict of interest.

Therefore, if I was a contractor, I would be happy for there to be a retention but only under a contract which was administered by an independent professional.

 

[gday2uk]

Questions is - is it reasonable to ask that a % of the total contract cost is retained to cover potential defects?

If so, what would be the acceptable amount (10%) and for how long (6 months)?

If you bought a brand new car would you hold back 10% of payment in case it broke down within 6 months? Would they let you?

£40k is not a massive amount in the grand scheme of things and as 5% is the norm for retentions we're only talking £2k.
Most builders will also want to add a small percentage to the cost of materials to cover administration costs and the cost of having and managing a trade account so would probably not let you buy materials unless you project managed that side of things.
I would expect 4 stage payments, three of £10k and one of £5k with the balance to be paid when customer happy everything finished and signed off. If the builders are so small they do not have trade accounts and ask for material money up front, alarm bells would be ringing.
This of course is all my in my opinion...

 

[str]

If you bought a brand new car would you hold back 10% of payment in case it broke down within 6 months? Would they let you?

- no but I have a contract by way of a warranty to cover this - and a much larger firm to hold up the warranty (maybe not in the current climate though - or always back to the government )

This is the reason I am asking, as I do not want to p*@s off a builder that I like but asking for something unreasonable - I am involved in commercial construction contracts where we hold a retention - but the scale is completey different here, in terms of contract value.

on the materials point, wasnt suggesting that I pay the suppliers direct but pay the builders for the specific items when they are on site so they become my property, just in case the worst happens to the builder - that way they still recoup their admin costs, etc - I quess that this can also help cashflow, given that my builder is likely to be a fairly small firm.

Prehaps best course of action will be to discuss it with the builder I am likely to go with and we can agree an amount between 2.5 to 5% as a rentention for say 6 months - that would mean its not too large an amount of cash that shoudl cause issues for the builder, but enugh money to make them want to rectify any small issues during the 6 month period.

 

[^woody^]

For payments, stages would typically be

work up to DPC level (including floor slab)
work up to eaves level
roof complete
internal first fix (option)
internal second fix (option)
work complete

If a lot of materials are to be bought onto site e.g all the bricks and blocks, then you may want to pay for these prior to or right after delivery to help out, but it may just be unnecessary if the builder is buying on account.

You need to balance not having paid too much too soon for the work completed, with paying the builder regularly to help his cash flow.

Be wary of large 'up front' payments, but at the same time it may be that the builder works on tight budgets and needs helping out in order to give you a competitive price.

 

[noseall]

the best thing to do is gain some kind of understanding with your builder.

we like to have available a bridging payment or interim payment that can deal with the 'cash rich' parts of the job. this money can be paid directly to the various work groups without us seeing a penny.

however, once a stage has been passed by b.c. then a certain value of the job is complete and a payment is due.

woody has already outlined the obvious stages.

large commercial developments obviously will suffer detrimental effects due to time delays so it is prudent to have some kind of penalty clause in place.

snagging retainers need to be agreed well in advance of digging foundations and have to be a sensible percentage.

 

[Jasonb]

That value of work would come under a Minor Works contract, which has a 3% retention upto practical completion after which 1.5% is held until a final completion cert is issued normally 3mths.

If you do enter into a JCT contract it will also apply to you, for example you will have to pay within 7days of agreed certificate for payment.

The only thing with these contracts is nthat you really need to have an architect or surveyor who an issue certificates etc.

Jason