Ensuring the quality of the build process
Turnkey projects
Most of what is set out below will not apply if a contractor is simply
supplying the CLT with completed homes. You should however still have regard to
the need to a handover inspection and agree what arrangements there will be for
returning to deal with contract defects for a period of 6-12 months.
If the homes are not yet built, you could also require some involvement in
inspecting the work as it proceeds.
Managing the contract on site
Once you have your professional team in place they will draw up the building
contract. This is usually the role of the quantity surveyor or the employer’s
agent but the architect will in both cases contribute the drawings and
specification which you will need to have examined and agreed carefully,
possibly by a subgroup of the CLT. The contract determines the build quality
either by specifying a standard or by specifying particular suppliers although
the latter may have problems for cost or potential delay.
Once the contract is signed, your professional advisers will organise a
monthly meeting on site to monitor progress, agree the proportion of the
contract due for payment, answer any queries, help the builder overcome
difficulties such as supply problems and also observe and check on the build
quality. In agreeing the “certificate”, the sum of money due, your team are also
accepting that the building is going up in accordance with the contract so this
is also the time when, if the build quality is inadequate, they will refuse
payment for poor work and require it to be re-done or repaired. With a
conventional contract, the architect deals with design issues, build quality and
variations and the QS certifies the value of the work. With a design and build
contract, the employer’s agent fulfils all the functions but the architect
employed by the contractor will also be there and has a professional
responsibility to ensure quality.
Building regulations inspections will also be taking place which are a
statutory requirement to ensure minimum build quality.
It is usual for payment to be demanded within 2 weeks after the certificate
is issued and it is very important to smaller contractors that this is paid
promptly as they in turn will be on a tight cash flow, probably with an
overdraft arrangement, to pay suppliers, subcontractors and direct employees.
You should make absolutely sure you have set up arrangements with your
development finance provider so you can pay these monthly certificates on time.
Contract management nearly always demands both firmness and tact from the
professionals as “build quality” is not an absolute. The monthly site visits and
meetings are important for several reasons therefore and the CLT may itself want
to be represented.
On large contracts, clients may employ a clerk of works to provide a
permanent presence on site and ensure build quality. This will not normally be
necessary - or cost-effective - on a small scheme.
If progress on site falls behind the forecast rate of build, the professional
team will issue warnings and in extreme cases have the right to “determine” the
contract. The same thing happens if the contractor goes bankrupt. Either is
costly as the retention is rarely enough to cover the extra cost of completion
with a new contractor. A performance bond, providing, say, up to 10% of the
contract sum in these circumstances is a form of insurance you could take out
against this eventuality.
The contractor should have liability to insure the site and the building work
under the contract. From the start date any site liability insurance you have
taken out could be suspended but you may need to consult your insurance broker
to check there are no gaps in cover.
Handover
When the scheme is nearing completion, the contractor will arrange to meet
with the professional team to agree whether it meets the required build standard
and generally to agree a list of the works that must be completed (“snagging”)
for a handover of the building to be agreed. A date is then set for a handover
by which date these works should have been completed. Your professional team
will attend this visit and carry out an inspection of the building and it would
be usual for you as client to attend this inspection as well, asking your
professional adviser about any aspects of the build you are unsure about which
either he/she will then raise with the contractor or (try to) explain to you why
the item is acceptable. The snagging list will be checked for completion.
Under a normal contract a “certificate of practical completion” is then
issued or under a design and build contract there is a less formal but
equivalent procedure. In either case you take possession of the building.
From this date the building becomes your insurance liability again.
Defects liability
There is a period of time after practical completion in which the client (the
CLT) is able to require the contractor to return to site to correct any
omissions or defective works contained in the original works contract. The
contractor will not be liable for any defects incurred which are not related to
the contract. A typical defects liability period is12 months or it may be 6
months on all items except mechanical and electrical plant which should always
have 12 months liability.
A “retention” is kept back from the monthly certificated payments which is
held by the CLT as client against the requirement to remedy defects. When each
defects liability period comes to an end, a final inspection will be held with
the professional team, contractor and CLT walking through all the homes to agree
that all defects have been dealt with. Upon correction of the defects, the
contractor administrator or Employer’s Agent will issue a further statement
confirming the defects have been satisfactorily dealt with and saying that the
retention should be released by the CLT to the contractor.
Your cash flow forecast will show this retention held and then released at
the end of the defects period when the homes are already occupied. You will need
to agree with your funders how this is to be dealt with: they either advance
these funds at the end of the defects liability period or, more simply, advance
to the CLT the sum due to the contractor including the retention which the CLT
will hold until it is certified for release.
It is usual also to have a 10 year guarantee on the home issued by National
House Building Council, Zurich, Premium or BuildZone. This of course also
relates to defects, not maintenance.
Claims and delays
Under a conventional building contract, the contractor will have the right to
claim for extra costs which were not properly or fully specified in the tender
documents or which arise from instructions given by the contract manager. With a
design and build contract this can be avoided as the architect is employed by
the contractor and any omissions or incomplete descriptions are the design and
build contractor’s responsibility. The exception would be where the CLT as
client has made a new request after the contract is signed – something you
should avoid doing by making sure you have specified in he contract documents
all those aspects of the scheme where you wish to control the equipment or
materials used or the method of building.
Where delays arise because of additional instructions or because equipment
specified in the contract cannot be obtained in a timely fashion, the contractor
may ask for extensions of time to complete the work. These in turn give rise to
costs which he/she can claim.
On the CLT’s side, the contract will contain a sum for “liquidated and
ascertained damages” which are the actual weekly costs the CLT will incur from
any delay in completion (normally the weekly interest cost or it could be the
weekly loss of rent if this is more). These are deducted from the certificates
due if the contract completion has been delayed.
Some larger contractors have special legal departments who appear to be there
solely to look for opportunities to make claims. When selecting and obtaining
references for your contractors, you might ask the referees if any claims were
made under the contract. Generally your aspiration will be to find and work with
contractors who see themselves as partners so that both sides work to resolve
any disputes and problems jointly as they arise.