Do you know what is included in your contract?

Know in detail what kind of contract you are signing before you embark on your project

We have recently been supporting our project management clients by reviewing the contracts from potential architects, builders and design and build contractors, before they sign on the dotted line. They have been shocked by the number of revisions we have been suggesting to make the contract in order to switch the control and power from the provider to the client.

Remember that the businesses supplying these contracts are mainly thinking of their own interests and protecting themselves. That is why changes are usually needed to protect the clients, find some “balance” and avoid many of the pitfalls that novice house builders regularly fall into.

When you are not a developer, or a lawyer and have not built a house before, it’s hard to really understand a contract and what the many clauses really mean. That’s why we’re regularly asked to review contracts with a fine-tooth comb and liaise directly with the companies to make the changes, as part of our strategic analysis service. This review and negotiation step is expected, therefore if it doesn’t happen, the companies involved feel like they have “won” and this does not start the relationship off in the right way.

In this article, we want to give you some issues to look out for when you review a contract, to make sure you understand what level of protection it is, or isn’t giving you. Don’t be afraid to bring in a professional project manager or an expert in property law to check documents before you sign them. These contracts are so important and set the tone for the whole way of working and should offer protection against cost and time overrun.

Some companies will be happy to work with a project manager in this way and are flexible about making modifications to their contracts, others are not.

Ask yourself why this would be the case before signing and making a commitment that is very difficult to break.

Let’s look at the key areas for concern.

Can suppliers revise their fees?

When reading through the contract, look at what they specify when it comes to their fees or charges. Many contracts will allow the architect or builder to revise their fees at different stages of the construction period. However, this is very difficult to manage if you are on a fixed budget, and it also removes a lot of control from you, the client.

Check whether the architect or technical architect are responsible for negotiating and approving the costs and invoices from contractors. It’s important that a contract specifies that you must sign off on additional expenses from a builder before they are agreed. If the onus of negotiation is on the architect and technical architect to deal with the builder and his bills, some may be more sympathetic to the builder’s claims than others and may not check with you before authorising the additional expense.

When we are negotiating and modifying contracts, we look to limit this uncertainty as much as possible. We aim for a fixed price, unless circumstances merit alternatives to be negotiated between the parties. However, you should note that this can slow down the process. Agreeing to a fixed price, means that the project documentation must be well studied and clear. This sometimes takes a little longer to prepare before a bidding process is launched. But in our experience, it is well worth the time required.

Who is responsible for signing off the works?

It’s crucial that each stage of the build is signed off and payment is withheld until it has been approved by a professional. Check your contract for the approvals process and see what input you get into this. Also check who should be checking each stage and reporting back to you, so you know that you can pay the next staged payment and that you feel confident that the project is progressing as it should be.

Ideally you want to have an independent professional checking the works and ensuring the architect and technical architect also have checks and balances and are supervising in the correct way. This is where a fully independent project manager is worth their weight in gold.

What is and is not included in the contract?

You’ll see a list of all the things which are included in the agreement and it can look very impressive. However, we’d advise you to look out for the items which are extra to the agreed amount and not included.

Some companies will ask for additional payment for things that really should be included as standard, such as the First Occupancy Licence or the Colegial stamps of the Colegio de Arquitectos. So, make sure you know what should be included, question exclusions and ask for estimates on these excluded items or services.

What are the payment terms? 

Withholding payment until completion and signing off of works by the architect, technical architect or Project Manager is a good way to protect the client.

However, many companies will try to get more money in advance, by asking for a large downpayment, monthly payments, or 50% on commencement of the different stages, then the balance being paid when they finish.

You need to make sure you’re not agreeing to pay too much at this initial stage. Also, it should be stated in the contract that the second payment for any activity would equate to when you have the work signed off and approved, rather than simply when it is finished.

Does it include a timeline and deliverables?

Beware of any contract that does not include a timeline and overall planning with key deliverable milestones indicated. Without this, you don’t really know what you are signing up to and this can cause you issues moving forwards.

Find out more about the importance of a good contract.

What happens when something goes wrong with your Project?

One of the most important parts of a contract is what happens in the case that things go wrong, which sadly is quite normal during a construction project, especially if there isn’t an independent project manager on your side.

Look out for any clause which references litigation in the case of disputes. It’s good to avoid the courts if possible and add in a clause about an arbitration process, which can save a lot of time and money.

Also look into the penalties that the contractor or the client would have in the case of non-compliance of the contract, to make sure you understand what you are signing up to and that they are sufficiently incentivized to finish as per the agreed schedule and budget.

How MDCI can help you

MDCI Project Developer is here to help you from the very start of your project and can review and modify contracts on your behalf, so you are confident that what you are signing gives you the very best chance of success.

We understand these documents are complicated and that for a first-time house builder they can seem baffling. However, with nearly 25 years of experience, and a rock-solid contract template in our library, we can easily pick holes in any contract and make recommendations on how to improve it from your point of view.

You can trust us to be your advocate and negotiate on your behalf and know that architects, builders and tradespeople will not be able to pull the wool over our eyes and sneak in a clause that will put your investment and project at risk. Having an independent project manager in Spain makes it easier to make the big decisions, like choosing your team, and knowing that you have the highest level of protection possible, at every stage of the project. To date we have delivered all of our projects on time and more than half under budget!

Contact us to ask for our help with maximising the success of your project.

MDCI – the value of 25+ years or experience!

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