Payments

An explanation of the payments you make to contractors when undertaking a building project including the stages, final payment, and the terms regarding extras.

 

Before you enter into a contract ensure your funds are available when you need to pay your contractor(s). Make sure you pay contractors and professionals in a timely manner, not only is it a breach of contract but you may also see a drop in productivity

For small jobs only pay on completion or the value of the work that has been completed to your satisfaction. Any overpayment up front may be difficult to claw back. Avoid paying up front or a deposit. Contractors should have adequate cash available for the staged payments of materials and labour up front. Be aware that some fraudulent contractors may look to take a deposit from you either at the start or part way through the work then disappear, never to be seen again.

For larger jobs the best arrangement is to divide the payments in stages. If you are financing through a bank they will usually advise on a stage payment arrangement. Determine clear benchmarks for the completion for the works before you pay. The payment will relate to the value of the work completed at that stage.

Work with the contractor to determine the stages and payments. It is advisable to value the work independently to ensure you are not overpaying for a certain stage, i.e. work out how much of the total project is completed and the payment should reflect this percentage. Do not make the final payment until the work has been completed, to your satisfaction and to the agreed timeline. Ensure the final payment is substantial enough that it will provide an incentive for the contractor to complete the work.
 

Final Payments

 

Cross check contractor’s accounts with your own record of the running costs including any costs for additional work. Ask for supplier invoices, check labour and profit margin to ensure they are fair. Make sure you communicate this to the contractor backed up with your calculations.

 

Extras

 

Aim to agree on the price of any additional work carried outside of the original spec. The best way to avoid extras is to invest in a professionally written specification. The cost of a detailed specification document will be tiny compared to the cost you may pay for extras incurred as a result of a poor specification. Spend time covering all the options in the initial spec.

One issue with additions to the spec is the contract you have with the builder. It’s not like you can hire another to do the additional work, If you’ve been aggressive with time penalties and retentions form the start, the builder may look to increase profit on these additional works. Now that you’ve included extras the contractor now has an excuse to avoid time penalties.

Inform the contractor prior to the work starting that any extras need to be authorised by you. Not only will you determine what extras are actually required but it will also provide you with some control of your project costs.

PC Sums (Prime Cost Sums) – are placeholder costs put into the specification which can be agreed at a later date. It give you flexibility to choose what product you want when a decision is required, e.g. deciding on kitchen units. As mentioned previously it is better to agree the spec form the start. It will avoid any disagreement on cost and the mark up to the contractor.

Provisional Sums – Where provisional sums may be placed on a contract due to uncertainties around the work that is required, e.g. underground works, the contractor can’t place a cost on it until the full extent of the work is identified. It is worth agreeing to provisional sums as the contractor may price the worst case scenario, costing your more.

 

 

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