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Contractual Aspects


Introduction

If you plan to build a house and prefer to appoint an architect, it is the easy route. Your house will be custom designed, the building plans will be drawn accordingly and approved with the local authority. Your architect will advise you on finishes and related detail, compile a tender document, appoint a contractor and manage the total building process on your behalf, until completion. Hassle free! But it will add 8,5-15% to your building cost. If this is the preferred route for you, consult your local telephone directory or the Institute of SA Architects for the names of reputable architects in your area.

It is also advisable to appoint a quantity surveyor, especially on projects exceeding R1,000,000 in value. Refer to our Business Directory for a list of consultants

If you have chosen one of the inhouseplans.com architect designed houses, you will receive a full set of building plans within 5 working days. You can also order a List of Materials and Quantities of any plan that you order on the inhouseplans.com website. Then you are on your own! This website is designed to assist you to manage the building process by yourself with advice, hints and tips every step of the way

If you have decided to do it yourself, there are two options

1.

Owner Builder.

  • You act as the main contractor and appoint sub contractors for every trade and installation.
  • Although you will be saving anything from 5-30% on building cost, it is important to realise that you will spend a considerable amount of time everyday on the building works, managing sub contractors, ordering materials etc. This must be weighed against possible losses due to neglecting your business, or damage to your career if you are an employee.

Further downsides:

  • Even though inhouseplans.com will assist you along the way, nothing beats the experience, knowledge, organizational skills and infrastructure of a reputable building contractor.
  • A reputable building contractor is already registered at the NHBRC, a requirement of all banks when building with a home loan. An amount is to be paid to the NHBRC when registering. (Refer to section on the NHBRC)
  • You will most probably not be able to negotiate the same discount from suppliers as a builder with a large turnover.
  • A reputable builder normally has a long relationship with efficient, loyal and dependable sub-contractors which will result in good quality work, completed on time. Being a once off owner builder, it might be difficult to find the same level of service.

2.

Appointing a Building Contractor

  • Provided that you appoint a reputable contractor and enter into a proper written agreement, this is the easier of the two options.
  • However, you will still need to spend some time on site, making decisions, holding regular site meetings, assessing progress payments etc.
  • Even though this option will initially cost you more, the experience, knowledge, organisational skills and infrastructure of a reputable building contractor will most probably result in your house being of a good quality workmanship and completed in a shorter period of time than in the owner builder option.
  • It is important to do some homework and check the references of the contractors before making a decision. Ask people directly what their experience was of a particular contractor. (See section on Tender Document.)

Once you have made your decision, you will need a tender document, a contract document and related documentation to protect you and minimize your risks during the contract period.


Contract Management

There are a number of different types of contract documents available. (Refer to the section on Contract Documents)

One of the most important fundamentals of a building contract, is the basis on which the contractor tenders for the building work. It is important for the different tenderers to have sufficient information when tendering. Whenever there is uncertainty in the documentation, the contractor add to the cost in order to cover himself - who can blame him? It is also important to ensure that the tenderers have a uniform basis for competitive tendering, in other words to compare apples with apples when judging the tenders.

Contract without quantities with schedule of rates: The contractor tenders for the work on a lump sum basis using only the building plans to determine the tender amount. It comprises of the building work which includes the setting out, the foundations, the brickwork, plasterwork etc. as well as the various sub-contractors which goes out on separate tenders as the work progresses like for instance the roof structure, aluminium windows, kitchen fittings, carpets etc. It is advisable that the contractor provides a schedule of rates for the building items. It makes it easier and forms the basis to calculate the cost of any changes to the building work (which there always are!). As part of the tender document, there is a list of so-called "provisional amounts" for the various sub-contracts included. For instance a calculated provisional amount for carpeting is included in the tender amount, which will be finalized when quotes have been received for the carpeting. This is to ensure that the most competitive prices are paid for as many items in your house as possible.

When making changes on site during the construction period, insist on a quote for the additional work from the contractor before instructing him to go ahead. No matter how good your relationship with the builder is, this always leads to arguments at the end. It also avoids overspending on the budget. It is easier to control the costs when a schedule of rates is available.

An example of a standard Tender Document which includes a list of possible provisional amount items, is included in the documentation you receive when buying a house plan from inhouseplans.com.

Contract with quantities: A contract with quantities means that a quantity surveyor or one of various companies specializing in providing this service, is appointed to calculate and prepare the bills of quantities, listing all the work, trade by trade and in accordance with a nationally recognized system of measurement. This is a very accurate way of determining the building cost and a sound basis for the calculation of monthly payment certificates, as well as for cost analysis and cost control. There are various companies specializing in providing this service at a very competitive price. (Refer to the section - Business Directory, Bills of Quantities). Chances are good that the additional cost of this documentation will be off-set by good cost control.

Cost-Plus contract: This contract consists of an agreement between yourself and the contractor whereby the final building cost is determined by the proven costs for material and labour with a fixed amount or a percentage (normally between 8%-15%) paid to the contractor for overheads and profit. It is important to determine a ceiling amount on this type of contract. Due to the fact that amongst others, cost control on this method is very difficult and material wastage is for your account, this type of contract is not recommended.

General: It is important to communicate regularly with your building contractor and build a good relationship of trust. It is important to hold formal site meetings and record items discussed, instructions to the contractor and decisions made in a set of minutes. For this a pro forma agenda for site meetings is available when buying an architect designed house plan from inhouseplans.com. Do not hesitate to put pressure on the contractor if he falls behind on his program, or if the quality of work is not acceptable.

It is important to hold some sort of guarantee from the contractor to ensure that the contractor will complete the work, either in the form of a so-called construction guarantee, or a retention amount which is held back on the progress payments. This normally amounts to a total of 5% of the tender amount. One word of advice - do not spend this money on the final finishes, and go looking for all sorts of excuses not to pay the contractor even if he has performed reasonably well. The purpose of the guarantee or retention is to cover the owner in case the contractor fails to complete the work satisfactorily and another contractor needs to be appointed to complete the work. Remember the contractor needs to be given reasonable time to perform and the contract makes provision for the process to manage matters in this event


Tender Document

If your tender process is handled properly and correctly, it will be a good start for a successful building project. With your sets of building plans when buying an architect designed house plan from inhouseplans.com, you will receive a pro forma tender document with a list of possible provisional amounts as well as a tender form. The contractor must complete the tender form and submit it to you on the stipulated time.

Where do I find a good building contractor to tender? Ask around. Word of mouth is always the best reference. Drive around in your area of town, check out the building work and find out the details of the contractors. Lastly refer to the section on Building Contractors (Regional) in the inhouseplans.com' Business Directory section. We cannot guarantee the quality of the contractors in our directory, but we have a system in place whereby we omit the name of a contractor from the list when we receive a legitimate complaint from our inhouseplans.com clients. Please assist us, by letting us know of a bad experience with a contractor.

Useful hints on the tender process

Tenders should be submitted in a sealed envelope and opened on a pre-determined date, time and location. The tenderers can be present at the opening of tenders. Late tenders can only be accepted if other tenderers agree to it. Tenders received by fax or e-mail can be accepted with prior arrangement, although this could lead to complications.
Ensure that the tenderers have completed the tender form correctly and provided all the information requested.
It is common law, unless otherwise agreed, that the lowest or any tender need not be accepted.
Check all the references of previous projects of the lowest tenderer by phoning the architect and/or the owners. Enquire about the contractor's level of service, quality of work etc. and whether the contractor could be recommended. Remember, all the good references is still no guarantee that your building process will run smoothly, but at least it minimizes the risk.
Contact the references provided for the bank, suppliers and sub-contractors. This should indicate whether the contractor is financially sound and will not go bankrupt whilst building your house. The suppliers and sub-contractors will indicate the contractor's ability for financial and contract management. If he has worked with his suppliers and sub-contractors over a period of time and have built a good relationship, paying them promptly etc. chances are good that he is a reliable contractor.
If you want to negotiate with a tenderer for any reason, it is good ethics to choose a contractor and start negotiations. Do not negotiate with two or more at a time. Rather go on to the next one when negotiations fail with the first.

Contract Document

There are a number of different types of contract documents available. The document recommended by inhouseplans.com, is the Joint Building Contracts Committee (JBCC) 2000 Minor Works form of contract. This contract document can be ordered with the set of building plans on inhouseplans.com.

This document is supported, amongst others by the following constituent bodies:

South African Institute of Architects
Building Industries Federation of South Africa
Association of South African Quantity Surveyors
South African Property Owners Association

Also published by the Association of South African Quantity Surveyors is the Housing and Minor Works Contract intended for small building work.

Progress Payments

Progress payments are a very important part of managing the building process. Although it is advisable to appoint a quantity surveyor to assist you especially on contract values exceeding R1,000,000, it is possible to do this yourself with the help of inhouseplans. If you finance your building work with a home loan, the bank will send their valuator to the site and determine the amount of progress payments to the contractor. That is a great help, as the banks tend to be very conservative. However, they expect you to spend your own contribution to the total building cost first. The golden rule here is to never overpay your contractor, as that puts you at risk. The other side of the coin is that it is important not to underpay your contractor either. Contractors specializing in house building projects are very often small companies. They do not have a big capital base and rely on the cash flow provided by the progress payments to keep going. By underpaying him could slow down progress on site and start a chain reaction which causes all sorts of other delays and potential problems. On the other hand, you don't pay for work that is not done to specification.

To assist you in this crucial part of the building process, a pro forma schedule is included in the documentation you receive when buying a set of building plans of one of our architect designed houses from inhouseplans.com. This schedule provides a list of all the building trades and an easy- to-use formula to calculate the value of work done on site. If you order the List of Materials and Quantities, with any set of building plans, you will have a schedule of building items with unit prices to further assist you in the calculation of progress payments, as well as the cost of any revisions.

Dispute Resolution

What is building a house without a little dispute with the builder? The secret is to accept that there will be differences and to resolve it as soon as possible. It is also here that building a good relationship with your contractor will be to your advantage. Remember, in settling a dispute it is almost inevitable that both parties need to make concessions. If you cannot reach an agreement on the dispute, most contracts make provision for either mediation or arbitration or both. In both instances, a third and independent person is involved to act as a broker to assist in settling the dispute. Mediation is quicker and an informal process while the ruling of the mediator is not binding on the parties. Arbitration is governed by the Arbitration Act, with the arbitrator, a qualified person, recommended by the Association of Arbitrators. Due to the fact that attorneys and advocates are normally not involved, the process is significantly less expensive than going to the Court, but equally binding

The best advice is to settle your disputes before it becomes major issues and thereby jeopardize achieving your goal to build your dream house



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