Manage Expectations for Project Success
This second guest post from Sarah Fox, Author of How to Write Simple and Effective Small Works Contracts in Just 500 Words highlights key aspects in your contracts. She also signposts where you can get more information or help from her book.
Avoid Ambiguity – Be Clear with Your Contract
When a homeowner, with no experience of building, decides she can project manage the renovation of her 1970s property, what could possibly go wrong? It may initially save you money, but most of the issues Ms Wild encountered could have been skilfully and cheaply avoided by a decent project manager.
Ms Wild’s tender – drawn up by an architect – suffered from a lack of clarity: whether she was staying in the property, the contractor’s design responsibility, who was supplying specific materials, removal of her furniture during the project, unfettered access to parts of the property, demolition and clearance before works start, and so on.
The tender is critical for setting the scope of the project and managing the expectations of the builder – ambiguities can result in the price changing regularly as the misunderstandings are cleared up. The tender proposed using the RIBA Domestic Building Contract 2014, but Ms Wild forgot to send it to the contractor for signing.
What they were left with was a simple contract with some details agreed in emails – other important items did not form part of their agreement at all.
Tip 1: Clearly record your agreement in writing to avoid disputes (chapter 6)
Although the parties had agreed liquidated or delay damages of £50 per day during the tender process, their simple contract did not include any mechanism for extending the agreed 14-week work period for changes instructed by Ms Wild. As a result, that rate of liquidated damages could no longer be enforced.
When liquidated damages fall away, the court can award general damages ie a sum to compensate the homeowner and put her in the position she would have been in, assuming the builder had completed on time. These damages have no specific upper level and are determined by the court.
The court awarded Ms Wild a nominal sum (£420 for the 6-week delay) to reflect that she and her family were ‘seriously inconvenienced’ by the delays to completion – they were sleeping in a tent! For a property developer, general damages would be based on your loss of rental income and would tend to be much higher.
Tip 2: If you agree liquidated damages, you must also include an extension procedure (chapter 14)
Because the contract was so very basic, there were no termination or cancellation procedures. Contracts should normally provide for termination when a party is at fault, and can also provide a right to cancel the contract when there has been no fault eg due a change in circumstances such as the money running out, personal matters or even a pandemic.
It enhances trust if you decide at the start those acts or events which are serious enough for either party to walk away. As all contracts rely on trust and cooperation, once those have gone and it has turned into a sort of turf warfare, then it makes more sense to go your separate ways than to continue.
Tip 3: Decide what acts or event are sufficient for either party to be able to call the project off (chapters 18 and 19)
As the contract was silent, the parties had to rely on something called repudiatory breach. This is a complex legal concept which means that one of the parties must indicate by their words or actions that they are rejecting the contract – it should be clear that they refuse to carry out any further works or pay any more money.
Once that rejection has been noted, the other party must accept that future obligations under the contract are now at an end. It needs both rejection and acceptance of that rejection.
Ms Wild, the homeowner accused her builder of rejecting the contract by being 6 weeks late. The court said that delay was not enough, especially as the builder remained willing to finish the job. On the other hand, the builder accused Ms Wild of rejecting the contract by refusing to let them back on site to complete the works. The court said refusal to allow them to finish the job was a form of rejection and the builder was entitled to compensation.
Tip 4: Take advice before ending a contract as mistakes will prove costly (chapter 19)
If you don’t set your project off on the right foot, with a clear set of processes, rights and remedies, then you may spend thousands of pounds and many years waiting for a judge to decide between you. Surely the cost of a contract is worth every penny set against the cost of court proceedings?
Sarah Fox, 500 Words Ltd