Valuation Of Work Completed

If you are financing the project yourself, it is advisable not to pay money up front if you can help it. You need to make any potential builder/contractor aware of your estimated budget and that you will be making stage payments (see below).

When there is plenty of building work available, or if a builder/contractor has had a bad experience whereby he did not receive full payment from a previous client, he may ask for money up front. However, it is not advisable to pay any money in advance as you will not have any control over the project if you do.

If a contractor comes recommended to you and fulfils all of the criteria for being able to carry out the work but is asking for money up front, you would be advised to explain that, due to constraints on your financial arrangements for financing the work, you can only pay for work carried out.

We mentioned in Chapter 6 that terms of payment should be agreed in the contract, or at the very least confirmed in writing.

Valuations For Stage Payments

A mortgage company may finance a project on the condition that payments are made on completion of certain stages, and may have a surveyor/inspector visit the property to ascertain the value of work carried out.

These stages are the basis on which the valuations are made and include the amount of labour and material that has been put into the project. You need to be certain that the contractor understands these requirements and is prepared to finance the project up to these stages.

Contingency Plans

It is advisable to have a contingency plan in place to cover any unforeseen financial circumstances, as highlighted in Chapter 2. The construction industry is one which can sometimes throw up a problem that requires a complete reassessment of a project.

One example of this often occurs with the foundations of buildings. Engineers design the foundations in relation to the weight that the building will produce and the ground conditions locally. Unfortunately ground conditions do not always prove to be what was expected, and when foundations need to be considerably deeper than anticipated, this can involve more excavating or piling.

This in turn leads to more spoil being removed and more concrete put in its place.

In more extreme cases, thousands of pounds extra may have to be found to cover the cost. Strict monitoring of these elements will help to avoid the uncertainty of additional costs.

There are many other unforeseen circumstances that can occur as discussed in previous chapters. For this reason you are advised to hold back some of your original budget.

If you find that you are out of the ground and have been fortunate not to have incurred extra costs, the likelihood of further unforeseen circumstances arising is slim. You can then think about upgrading your specification or having extra work carried out.

Making Payments

Once the valuation has been agreed based on the amount of work that has been carried out and assuming standards are satisfactory, payment can be made.

It is advisable to have an agreement to pay within seven days of the valuation so that the contractor will have carried out a further week’s work rather than be paid up to date. This is merely a safeguard, and will be in keeping with business transactions generally. Always get a signed receipt for any money that is paid out.

The Final Payment

Once the building works are complete and you are satisfied that your standards have been achieved, you need to ensure that you have all test certificates and warranties in place before you make the final payment.

Items such as central heating components and new boilers will have warranties and guarantees, and will require certification before they are handed over as complete. This also applies to new electrical installations, and full tests and test results need to be produced for possible inspection by the building control officer.

When building regulation applications are made, the client can request a ‘completion certificate’ from the building inspector to certify that the main works are completed to his specification.

Lending institutions often require this. If this is the case, you need to ensure that the builder/contractor provides these certificates in order for the money to be released to him.

Bonus/Incentive Schemes

Such schemes could be put in place where a client stands to lose out financially if the project overruns. With mutual agreement you could introduce an incentive bonus arrangement based on the project being completed on or within the agreed time.

The bonus would be worked out on the number of weeks or days under the agreed period. You need to be mindful of two things if you enter into such a scheme: any additional work can affect the finishing date, and your specification needs to be very comprehensive.

The likelihood of the project being complete way ahead of schedule is slim, whereas projects overrunning are common. If you do enter into such an agreement and you find that the project has overrun the programmed dates, there may be justifiable reasons for this which would have been covered in the site meetings.

Bonus/incentive schemes are used in large commercial projects in conjunction with penalty clauses if the project does overrun. The amount of bonus or penalties is worked out on a percentage of costs that the client stands to gain or lose through early or late completion of the project.

These schemes are rarely used in the domestic side of the industry, and should only be considered where both parties fully understand the consequences. It is advisable to contact your legal representative before drawing up such an agreement.