Renovation Tip #6

Have Proper Contracts in Place

Having contracts in place allows both parties to comply with obligations they must up hold in the contract – this specific contract is an agreement document where you and the builder come to an agreement that things need to be done this way and how it should be done; also penalties if those obligations are not met.

It is necessary that you and the builders who are tendering for your project are very clear about what sort of contract you want.

Most builders will probably fit in with the type of service you ask for but you’ll probably find that most have a preference, i.e. some may prefer not to work under anything but a full contract so they can keep control over the renovation project process.

You have options on how you work with your builder. You may choose to work under a Full Contract or Labour-only – or a Managed Labour-only.

Full Contract can make your life easier: one price that covers the bulk of work (add-ons, such as kitchens, tiles and tiling, door furniture and tap ware may not be included) and the builder will manage subcontractors working and timing and there is one person to go to if there are any problems.

A Full Contract and the price includes:

• • All materials
• • Subcontractors and their prices
• • Getting consents
• • Liaison with the designer/architect
• • Arranging inspections
• • Managing the whole building project

A Labour-Only Contract
This contract means the builder is only responsible for the actual labour work on your project and you manage the rest of the process. The concern with this contract are that you become responsible for the project, including consents, supervising the building work, organising subcontractors and materials and the Health and Safety Plan. If you are considering this contract to save money you must keep in mind it is a very demanding job and requires a lot of time.

Managed Labour-Only Contract
Another contract is the managed labour-only contract. This is partway between a full contract and a labour-only contract. Under this agreement the builder manages the day-to-day building and you are responsible for pricing the project, getting the quotes and organising the materials and subcontractors. The builder may do some of this, depending what you’ve both agreed in the contract. People choose this option to save money by doing some of the work themselves, but it can be a huge time commitment.

Please note that you won’t essentially save by buying the materials yourself, because even though builders add a mark-up to materials they supply, they buy at trade prices so the materials are usually cheaper than what you can buy over the counter.

If you buy the materials yourself, any problems with quality or quantities will be your responsibility to sort out.

If you choose this sort of contract, you need to be confident that the communication between you and the builder and lines of responsibility are very clearly defined. Otherwise the job could stall if you are each waiting on the other.

A written contract should include the following:

• • The name and address of both you and your builder
• • A full description of the work, including materials and products to be used
• • Who pays for the building consent and other council fees
• • A statement that the building contractor is responsible for making sure that building work meets Building Code Requirements
• • Dates when the work will start and be completed
• • Warranties detailing what is covered and for how long
• • Information about how any disputes will be resolved
• • A clear payment schedule that lays out when and how much you will be charged (structure your payments so they are aligned to the cost of completing each stage of your project – avoid a large up-front payment)

What are the Warranties?

• • The building work will be done properly, proficiently, and in agreement with the plans and specifications.
• • All the materials used will be suitable and, unless otherwise stated in the contract, new.
• • The building work will be consistent with the Building Act and the Building Code.
• • The building work will be carried out with rational care and skill and completed within the time stated, or a reasonable time if no time is specified.
• • The household unit will be suitable for occupation at the end of the work.
• • If the contract states any particular outcome and the owner relies on the skill and judgment of the contractor to achieve it, the building work and the materials will be fit for purpose and be of a nature and quality suitable to achieve that result.

These warranties apply to all contracts for building work involving household units, whether written or verbal. They also apply to the sale of one or more household units by a residential property developer. It is not possible to contract out of them.

Contract Works Insurance
Arranging and applying for insurance is vital for your renovation project because without the appropriate cover in place your project can be at high risk. You wouldn’t want your project to be in jeopardy from other hazards whether it is man-made or environmental.

There are a number of things that can go wrong in your renovation project, right from the start to the completion – such as fire, flooding, strong winds, malicious damage, etc.

These exposures will result in additional costs to repair or replace the damage. In order to protect the project from these risks during the construction period a Contract Works and general liability policy will be required.

The Contract Works policy provides cover for sudden and accidental physical loss or damage that occurs to the property insured during the construction period.

It is important to note that cover will cease:

• • On any part of the Works taken over or taken into use by the Principal
• • Once a Practical Completion Certificate is issued
• • On the expiry date shown in the Policy

The cover does continue through the defect liability period – called the Maintenance Period in the insurance policy – for loss or damage revealed during this period the cause of which arises out of the Contract Works or for physical loss or damage arising whilst performing work under the requirements of Defects Liability section of the contract.

It is important to be aware of what is not covered by the Policy.

Not all eventualities are covered:

• • Construction plant, equipment and tools
• • Consequential loss, loss due to delay, penalties, liquidated damages
• • Losses discovered when an inventory is taken
• • Existing property – unless it has been specifically agreed to be included in the cover
• • Faulty design, workmanship or materials – consequential damage is covered

Take time to read the contract don’t sign it straight away, give it to your lawyer to read through before you are absolutely sure you agree to everything in the contract. You may want to negotiate changes to some of the sections.

Remember: A contract is only enforceable when both you and the contractor have signed and dated it. Remember to initial every page and keep a copy.

Continue to Renovation Tip #7:

> Use Quality sub trades who are proven and recommended