This article appeared in one of my local publications: Heswall Magazine and it really struck a chord with me as I have so many friends who have been adversely affected by this very subject. The author, Nick Belderbos (architects-direct), has very kindly allowed me to reproduce the article for you here and I hope it is of interest to anyone looking to undertake home improvements.
The Architect’s Column
Nick Belderbos, Chartered RIBA Architect and Director of Heswall based
architects-direct.com, answers your questions and offers advice.
MONEY TO BURN?
Q. We are about to start a building project for a two storey
extension at the rear of our property. The contractor we have
chosen has asked for a cash payment up front. He tells us this
is normal procedure for building works as they will have to
order and pay for materials. Should we make an upfront
A. The short answer to this question is No.
We are aware of a number of instances in the last month alone where customers have made payments upfront only to find that the contractor has gone into liquidation leaving little
chance of recovering the money and no work (or worse, poor work) completed on site.
Main contractors carrying out work of any significance will have accounts with the building merchants and should therefore be in a position to carry out works without paying for
There are however two sides to every story and while there are good and bad contractors there are also good and bad customers.
There are contractors that will have had experiences of customers unreasonably holding back payment for works completed correctly. As a result they may ask for a deposit as a form of security.
In order to protect the interests of both parties there are a number of steps that should be taken and there is no need for upfront payments.
Use a contract
We have said this before but we cannot emphasise it enough.
Whether you are using a professional consultant to oversee your works or not you should always have a contract between yourself, as the customer, and the contractor. There
are a number of standard JCT contracts that are appropriate for building projects. We commonly use one of the following for domestic projects depending on the project value:
• JCT Building Contract for Home Owner Occupier
• JCT Minor Works Contract
• JCT Intermediate form of Contract.
These contracts will have provision for stage payments and are designed to protect the interests of both the customer and the contractor in the event that either party fails to adhere to
the contract conditions.
Prior to commencement of works a schedule of stage payments should be agreed. The form of payment schedule will depend on the nature, complexity and value of the building project:
• Payment on completion. For very short and low value projects one payment on completion may be appropriate.
• Agreed Instalments. A schedule of payments can be agreed that will allow for payments when the project hits certain milestones. This can be monitored in line with a contractors programme.
• Monthly Payments. Payments are made to the contractor monthly based on the actual quantified works completed on site.
Whichever method of payment is used we would recommend holding a retention from each payment. If the work is paid in stages a 5% retention form each payment would be usual. A
retention of 2.5% of the total contract sum is then held back on completion of the works for either 6 or 12 months depending on the contract. (For very small projects or projects where one single payment is to be made a 5 % retention held for 3 months may be appropriate).
Timescales for payments are set out in the contract. The contractor will provide an invoice / valuation at each stage. If a consultant is involved to administer the contract they will
confirm that the invoice is correct and the work has reached the stage required. The customer then has to pay the invoice within the time period specified in the contract. Failure of either party to comply with the contract conditions results in a breach of contract ensuring that both the contractor and the customer are protected.
Use a professional
If you use a professional, such as an Architect or Quantity Surveyor, to administer the contract they will ensure that the contract is drawn up and run correctly. This will reduce the
chances of conflict between the parties and the inevitable problems that this causes.
Don’t be tempted by cash payments
Given the nature and cost of building work and materials it is likely that most contractors for anything other than very small works will be registered for VAT.
The HMRC website states the following:
‘If a trader doing work for you offers to accept a cash payment to save you the VAT on a job, then they’re probably acting unlawfully. What’s more, they’re most unlikely to give you a receipt or any other paperwork, so if anything needs putting right you’ll have no comeback’
We have worked on two projects where the clients were happy to make upfront payments despite our advice to the contrary. The payments were legitimate and included VAT however both projects experienced difficulties with the contractors on site.
Requests for upfront payments or payments in cash should set alarm bells ringing. Don’t be tempted.
For more advice visit the blog page of our website
www.architects-direct.com, send your queries to
firstname.lastname@example.org or phone 0151 342 5455