Recurring issues in Building Contracts

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Few years back, a client had bumped into my office one early morning and dropped a parcel right on my laptop. Before I could ask what it was or what it was meant for, he opened the cellophane bag and said; “Take, this is N2.5 million and mobilize to site today.” “But we have not signed any agreement,” I had reminded him, to which he replied: “That can wait for now, just make sure you start work on the site today.” “Okay,” I had submitted.

That was the beginning of another N40 million-worth of building project, which lasted for almost a year, and the scenario is typical of most projects I have seen around or directly involved in. Projects running into several millions of Naira without any signed agreement between the owner and the contractor. In fact, not many property owners would bother themselves about building contract documents, which this piece sets-out to explain.

The general notion is that only corporate or government projects with complex details and complicated conditions require the “stress” of contract agreement between two parties, as private projects are done with verbal or “scanty” paper endorsement. Most first-time property owners believe that once a building contractor submits his estimate and you look at where he can reduce some money, the next thing is for you to give him some money to start your project “as soon as possible.” But there is a lot more to this in order to forestall misunderstanding, and possibly litigation.

When you have scrutinized a contractor and you are convinced that he is the right person or company suitable for your project, the next thing is to assemble all the contract documents before mobilizing him for the commencement of work on site. The first and perhaps, the most important of the contract documents is the set of drawings specifying the type of house you want to build. This includes architectural, structural, mechanical and electrical (M&E) drawings.

The architectural drawings are compulsory for all categories of buildings, even if it is a two-bedroom bungalow; however, structural and M&E drawings are required for storey-buildings and other architectural designs with complex details. Since they form the basis for all further discussions, you and the contractor need to have a set each of these drawings with graphical information about the site location, foundation, floor, roof, elevations, and sections with appropriate dimensions.

Another document for any building contract is the Specification. These are a written descriptions of the work to be performed and consist of product identification, types of finishes, and standards for performance. They explain the work to be performed in a way that could not be easily displayed in graphical form. Most specifications are included on the drawings where it could be read in conjunction with the necessary drawings but, in some instances, additional sheet containing all the specifications is often added to the drawings; however, in a written form.

The main advantage of Specification is that it leaves both parties with clear understanding of what to do, how to do it and the type of materials to use. For example:  150mm by 150mm ceramic floor and wall tiles in toilets and bathrooms; concrete mix at ratio 1:3:6; screed entire floors of walk-ways; install Jacuzzi in  all executive bathrooms; aluminum curtain wall to architect’s details; and some other written information.

Before the commencement of the project, it is ideal that the property owner and the contractor come to a consensus and both signed an Agreement, which is another vital document in any building contract. This document identifies the parties to the agreement; the start and end date of the contract; payment schedule for the work by the owner and the fundamental commitment of the contractor to construct the described project, in accordance with the Drawings and Specifications. Although, the owner may hire a property lawyer to draft the Agreement, but both parties may require separate lawyers for its interpretation before final endorsement.

The Agreement is usually fraught with Conditions, and they also form part of the contract documents; even though the complexity of the project will determine various conditions that is operative in any contract. Conditions, or contractual terms, further clarify, in details, the rights and obligations of the owner and the contractor; and a host of activities, which will be shared by mutual agreement. No matter how small or big a project is, certain conditions that are considered fundamental and appear in most Agreements are discussed below:

Bill of quantities

The Bill of Quantities, (BOQ) is the list of materials, equipment and labour required to complete to complete the project as clearly defined in all the drawings. It also contain the cost of each items and labour charges indicating if they are bulk, provisional or lump sums. The BOQ, prepared by Quantity Surveyors, (QS) is helpful in evaluation and preparation of payment voucher.

Scope of Work

To a very large extent, the Scope of Work (SOW) give deeper insight into the work to be carried-out, much more than could be understood from both the Drawings and Specifications. SOW is direct instructions to the contractor about how to execute every aspect of the work and affords the owner opportunity to follow-up on what is being done and the stage work has gone to on site.

Variations

Variations, also called Change Order, are visible changes made on the scope of work and need to be agreed upon at what level or what type of alterations would be paid for by the owner or deducted from the contract sum, if not eventually not carried-out, in course of the project. Normally, the contractor cannot carry-out any variation, no matter how small, without the signed written consent of the owner; except he is doing it at his own cost.

Delays and extensions of time

Building contracts must specify the start and finish date; even though most contracts allow the contractor to claim an extension to the finish date when site work is delayed, but such extensions of time is permitted only in certain circumstances that are beyond his control; yet the owner should carefully scrutinise a builder’s claims for extensions of time to ensure they are allowed by the contract. Most building contracts provide for liquidated damages if building work is not completed by the agreed finish date.

The issue of contract documents is inexhaustible, but both the property owner and the contractor can save themselves a lot of hassles if they have a clear understanding of each other’s rights and obligations on any project. A duly signed one-page document could be sufficed for this.

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