When NOT to sign a building contract
If you did not read or understand what you have just read - do not sign it! Please. Just don’t do it.
I have some shocking news for you. Until you sign a contract or start the works - you are still negotiating. So until you get to a point where you understand all the matters you are signing yourself into - just don’t do it.
Yes, my day job is to put you into a contract with conditions to secure (and benefit) my clients who more often than not happen to be a homeowner wanting to refurb. And I’m not a bitch (sometimes) so I don’t put people into a bad position INTENTIONALLY. But I’m also not using a crystal ball in my business so I can’t predict everything 🤷🏼♀️ hence you need to be aware of what you are getting yourself into before you do that!
I have two very recent stories to share with all of you Main Contractors out there.
Story no 1 Let’s call the main contractor Bob’s Ltd. He has been operating for a few years as a small builder. He never really had aspirations to grow because it was convenient for him to do small extensions and lofts. Low risk, not much paperwork, clients happily paying upfront - fab! And then covid happened. The pandemic has quickly fixed people to stay at home full time. So the little inconveniences they were used to ignoring suddenly became massive problems. Lack of space, same 4 walls, other reasons created huge demand for building work but limited availability. Bob who was never greedy or had a desire to grow, suddenly noticed this opportunity for bigger, better and more prestigious projects.
What he didn’t realise at the time was - bigger, better and more prestigious also means bigger risk. It’s hard to argue with maths. Small projects hardly ever require retention. If you risk 10% ie £10k in the scale of £100k work it’s not really as much of an issue that would require you to refinance your house.
But if you risk 10% on the scale of a £1M project… that may bring you to the edge of your financial capabilities. Add to that another 5% retention and potentially you have a massive cash flow issue.
That is not something Bob had considered. He signed a contract thinking it would all work out at the end but before he even got to site the problems started piling up. He quickly realised it wasn’t for him and wanted out… yeah. Guess what? It’s not that easy to get out. Bob has agreed with the clients to walk away from the project but he is still at risk of legal claim coming in at a later date.
Story no 2 Joe Bloggs Ltd was a small, reputable Mechanical and Electrical company supporting main contractors around London. They reached a regular turnover of about £2M. Similar to Bob’s Ltd the pandemic opened some doors that seemed closed before. They signed a refurbishment work contract for £2.5M where they took the role of MC.
They have been going for a year, never followed a letter of contract, never did a programme of work. Suddenly after a year of work they realised the bank account was drying quicker than it was filling up. The media were banging on about rising inflation all over the internet so they did exactly the same - tried to convince the client that they need to pay more cause the inflation is just killing the project. Guess what the response was 🙄
At that point the client went ballistic trying to fence himself (and his money) getting Joe Bloggs into real financial difficulties.
Now to conclude both stories. Would following the contract change anything? It would probably change everything.
The contract isn’t written in the way it is to make it more difficult for people. It requires notices, updates, reports at certain stages so that if there is a dispute to arise at any point - there is evidence that can be referred back to. If there isn’t - how can anything be proven?
If you don’t understand a JCT contract, if you don’t know what your obligations and rights are, if you don’t follow it DO NOT sign it. Because when the shit hits the fan, and it eventually will, you will end up in the middle of the mess having no clue what to do and how to get out of it.
Someone smart told me recently that recession can be compared to people bathing in the ocean. We are all standing in the shallow water. When the water backs off, we will see who has no pants on. Don’t be one of those people and book a contract strategy call with me today. Link here: