CONTRACT ADMINISTRATION

Contract Administration Examples

We are often surprised by how many people expect to pay their builder money up front!

Design Principle Studio have administered millions of pounds worth of building contract work and a builder has never received an up-front payment on a project administered by us.

The standard position in building contracts is that the builder gets paid for completed works and certain materials on site… nothing else. If the builder ceases to trade immediately after having received your up-front payment then you lose that money and become just another creditor. If a builder demands an up-front payment, beware, because they are either trying it on, or they might have cash flow problems.

Another simple example is the apparently clever mechanism of the “penalty clause” for late completion. You, reasonably, want to make sure that the contractor finishes the job on time, so you write into the contract that, if they go over the agreed completion date, they will be subject to a nasty financial penalty, by way of money deducted directly from his payments…

However, the law’s position is that
“The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage”

In other words, if you try to enforce a penalty clause that seeks to punish a contractor, rather than accurately and transparently reflects your direct financial loss, the court may well look very unfavourably upon you.

If you understand contract law, brilliant! But if you don’t, you definitely need someone who does to help you in your dealings with the contractor so as to ensure that your building is built on time, on budget and in accordance with the contract documents.

In the terms of your building contract there will need to be a provision for every potential variable, including (but not limited to):