What to do when constructors are overcharging and underdelivering

Constructing in a foreign country

When you are building in a foreign country and haven’t got experience of construction, or project management, you are vulnerable to unscrupulous contractors exploiting your inexperience.

There are many excellent constructors in Spain and many transparent and ethical people working in the industry. But as with any industry and in any country, people are money motivated and will take the opportunity to make more profit, if they can see that the client doesn’t know what they are doing, or how they should be managing the project- or even if the appointed technical people have a “laissez-faire” position.

There are many reasons why construction projects go over budget or over time and many key points where you need guidance from an expert. One of those potential flash points is choosing the contractor and establishing a strong contract and payment terms which do not leave you vulnerable, or out of pocket – at any time.  A common issue is that constructors sometimes request high downpayments to start work and inflate cashflow disbursements (so that they are “ahead of the game”), or quote inaccurately, in order to give them improved profit margins.  If you choose not to bid out the works, then there is scant “market generated competition” for them to “sharpen their pencils” when compiling their offer.

In this article, we will give you a real-life example of how things can go wrong. We’ll also share how you can come back from this position, or even better, manage it in such a way that you are not exposed to the risk of being overcharged and not getting what you have paid for. With 24 years in the project management business, MDCI have seen it all before and are here to help you avoid these issues. Contact us if you need project management support in Spain.

The woes of a luxury Villa build in Marbella

MDCI were called in by a foreign client who undertaking a luxury villa development in Spain. He was building his own villa in one of Marbella’s most prestigious urbanisations and was concerned that they had already paid a big downpayment and costs were spiralling. This client had already contracted a constructor who had been recommended to him by his estate agent. He had agreed to work with this constructor, without putting the project out to tender, therefore was not able to compare their terms and conditions with any other valid candidates.

The builder requested a 20% downpayment on the total costs quoted for, which the client paid to start the project. However, the client neglected to ask the builder to repay in tranches during the period of the contract by deducting from the monthly bill, nor to provide a Bank guarantee. You can imagine that the builder could not believe his good fortune! This issue was compounded when the client decided to upgrade the specifications of his project and request a revised quotation. The builder, sensing an opportunity, provided a revised quote for the whole remaining works, rather than just the requested change. This was in contravention of the terms of the contract and it was this unexpected price increase, across the whole project, that led the client to call in the project management experts at MDCI for help.

When coming into a project rescue situation such as this, we start by taking stock of the situation and reviewing all the contracts and documentation. We quickly identified certain defects in the Project documentation prepared by the architect, which enabled the builder to present higher than necessary quotes. We requested that the architect corrects these issues and that the builder requote. However, he refused to do so, or to return the 20% advanced payments, which he claimed he had “spent”.

At this point we recommended that the Constructor be ejected and his contract be rescinded and this was duly done. We also advised the client to start a legal claim against the construction company for the non-return of the money and the non-compliance with the terms of the signed contract.

To get the project back on track, we needed to get back to basics and start from solid ground. We corrected the technical documentation and circulated these to three alternative constructors for quotation. The specification document was sent together with our secret weapon, a copy of our tried and tested construction contract which we have used since our Marriott Resort times and offers unbeatable protection and peace of mind. Once the quotes were submitted, we helped our client to make the decision on the new constructor and ensure that the contracts are signed and the payment terms were correct. We were then able to leave our temporary project monitoring assignment, knowing the client is in safe and capable hands.

Lessons learnt

We hope you found it useful to read a real case and see where things can go wrong. Here are the main lessons to learn from this client’s misfortune:

  • Be aware that to allow an estate agent to intervene in the selection of professional services – that they will likely receive a commission for that recommendation, therefore it is no guarantee of quality and it’s likely that the commission will come out of your project.
  • Ensure that you have a project manager onboard and working to your ultimate objectives and interests, including budget limits and timescales for occupation. This is crucial, as he is the overall manager and coordinator of the team effort.
  • Always ensure you receive bids from 3 -5 constructors for the majority of construction works. This bidding process should follow a “terms and conditions” sheet that is shared with the bidders detailing the expectation of the bid and the conditions offered for the works.
  • Do not pay advances of any type to a constructor, unless you received the necessary guarantees of repayments or organise partial payments within the first months of the contract. Constructors get paid for what they have executed correctly in the previous month – not in advance and these amounts are part of the responsibility of the technical architect to “certify” once a month.

MDCI are here to help

As you can see from this example, the services of a professional and fully independent project manager really delivers value and removes the jeopardy from building projects in Spain. We offer a full range of project management services in Spain.

We can be with you every step of the way, to ensure there are no nasty surprises, or you can bring us in from time to time to check in on progress, or get you out of a sticky situation and get the project back on track.

Please contact us to find out how we can help you complete your project on time and on budget and take away the stress from building in Spain.

MDCI – on budget, on time, every time!

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