Does this seem like a reasonable schedule of payment?

[indus]

Hi

I'm putting together a contract for a side extension which is part single storey and part double storey. The builder is fitting/tiling the bathrooms but is not responsible for the heating or windows.

I've put together a payment schedule which I hope is fair to him and allows him adequate cash flow. However I also need to make sure that I'm never in a position where I've paid a lot more in excess of the work I've had done. (Just in case he goes bust or somebody else has to be paid to rectify something)

This is what I've come up with.


1) Day of arrival on site = 5%
2) Completion of footings =10%
3) Completion of brickwork to ground floor. =15%
4) Completion of brickwork to roof plate of first floor =20%
5) Completion of roof structure =10%
6) Completion of first fix electrical installation = 10%
7) Completion of plastering = 5%
Second fix inc bathrooms, tiling = 5%
9) Completion inc site clearance, external painting =15%
10) Snagging deposit of 5% to be retained for three months, or until building regs sign off/electrical certificate supplied (whichever is later)


Also, there will be significant knock throughs into the existing house needing lots of steel. Where should I position this in the schedule?

Many thanks for your help

 

[noseall]

Why should the builder wait until the electrics have been certificated, is he responsible?

 

[indus]

Why should the builder wait until the electrics have been certificated, is he responsible?

Yes he is. His subbies are going to do the electrics and I am paying him so he is responsible isn't he?

Thanks

 

[Porque223]

I suppose these ratios should track his cost ratios but the contract should also say "time is of the essence" and have penalties for time overruns.

For incentives of this type Game Theory has frameworks. Nalebuff and Avinash have written some on this subject for the layperson.

 

[indus]

I suppose these ratios should track his cost ratios but the contract should also say "time is of the essence" and have penalties for time overruns.

For incentives of this type Game Theory has frameworks. Nalebuff and Avinash have written some on this subject for the layperson.

That's exactly what I want to know from the experts on here, does my proposed schedule track his cost? (whilst still providing me with a little buffer)

As for time penalties, that's not something I want to get into. I actually really like this builder and we get on well together. He affords me a lot of flexibility and so I need to reciprocate, within reason of course.

If parts of my build are slightly delayed because he needs to take on another job to make a decent living then I will not begrudge him that. It takes a bit of give and take to establish a good working relationship with your builder.

 

[^woody^]

It's way too complex. Reduce it to four payments

 

[indus]

It's way too complex. Reduce it to four payments

Thanks Woody.

Could you suggest how these four payments could be broken up such that they are fair to the builder and also give me some protection?

Thanks again

 

[Porque223]

You need to figure out some way of figuring out how much risk the builder is taking on and is willing to take on, in exchange for waiting for a payment.
How volatile are the prices of the materials he's using? How dependable are his workers? How many does he have? Is he mortgaged to the hilt?

 

[limerockconstruction]

You need to figure out some way of figuring out how much risk the builder is taking on and is willing to take on, in exchange for waiting for a payment.
How volatile are the prices of the materials he's using? How dependable are his workers? How many does he have? Is he mortgaged to the hilt?

Personally, I don't think these factors come into the equation - a decent reputable builder who runs jobs of this nature should be able to cope with a lesser amount of payments without a problem. Although I would suggest some of the payment boundaries can be a little bit grey in colour as other parts of the job may need to be started before others can be finished.

We usually work with something like this.

Demolitions & Groundworks (to DPC)
Build of shell
Internal Works
Peripherals

Internal relates to skimming and second fix carpentry, floors etc
Peripherals relates to Windows, Elecs, waste, scaff etc.

Sometimes if its a much bigger build we may split down to first lift, second lift & roof - but the payment plan above should be workable on a standard size job.

Often we sign contracts with a 5% retention for 3 months - again, I don't see this as unreasonable, however, he shouldn't be penalised if the Council don't get their certification out in time.....

 

[indus]

Thanks.

Limey, what would you classify as a large job? I ask because as far as domestic stuff is concerned this is quite a big job. So I'm not sure the four stages you've mentioned would be suitable.

Thanks for your help

 

[^woody^]

As limerock really, or variations.

DPC
Wallplate
Roof on (shell watertight)
Internal fit out

You could add one stage for first floor joists, or one more for internal fit out - eg first and second fix.

You could also additionally pay for materials delivered/ordered at version stages to help out with costs.

Or use the building control inspection stages for payment.

It is important to negotiate payment stages with the builder and not prescribe them. Builders will have different constraints and financial means. Larger contacts will have a system of application for payments to help cashflow, but this requires a means of valuing the work in stages set into the contact, which may not be appropriate for a job like this

 

[limerockconstruction]

Thanks.

Limey, what would you classify as a large job? I ask because as far as domestic stuff is concerned this is quite a big job. So I'm not sure the four stages you've mentioned would be suitable.

Thanks for your help

It's a bit tricky to say without knowing more. One of the projects I'm doing at the moment is a 75m2 double extension, as its in blockwork I've stuck with the payments above, but if it had been decorative stone or brickwork I'd be looking for an interim payment on the build payment.

Can I ask what the contract value is? Also what size build is it (and maybe materials)?

 

[luisdesign]

You should hold back about 5% of each payment as a retention to ensure snagging items are incentivised or you have a store of money in case you need to get somone else to finish some items.

Also, what provision are you making for contract variations, their pricing and their payment? Not many people realise that a fixed price quote does not mean a fixed price spend. There will often be additional or unforeseen work that may be needed. You neef to be clear in your contract the process by which these variations will be handled and managed.

 

[indus]

Thanks Woody. I agree about not being prescriptive, that's why I'm trying to come up with something that is fair for all parties. Would all the internal steels for knock through come at the 'internal stage'?

Lime, mine is similar to your current project ie about 90m2, part single (about a third) and part double. The contract price is £105,000 but this excludes windows and heating. It does include a couple of other things though ie knocking out an internal load bearing wall.

It's pitched roof, front elevation all brick but the side and rear extensions are block for ground but brick for first floor.

Luis, I've read that a contract should make a provision for variance. But how on earth does one agree on a price for things that are an unknown??

Thanks again.

 

[Porque223]

The contract price is £105,000
But how on earth does one agree on a price for things that are an unknown??

http://www.google.com/search?client...in+the+face+of+uncertainty"&ie=UTF-8&oe=UTF-8

First agree about probabilities for different costs, as in a 5% chance of an unforeseen £10,000 cost ('expected value' = .05 x 10,000 = 500) and 50% chance of a £5000 cost (expected value = .5 x 5000 = 2500), etc.
Agree on how to share these gambles.

When I did bids, I had data on how much time a task took me in the past, e.g., 1, 1, 3, 0.5 hour.
If I bid the average of these numbers I'd lose money half the time but if I bid for 3 hours I probably wouldn't get the job.

For sure your builder has data like this from past jobs and hopefully he will share these likelihoods with you.

http://statistics.about.com/od/Formulas/a/What-Is-The-Formula-For-Expected-Value.htm

And if you're familiar with PERT charts there may be ways to arrange the sequence of tasks to minimize the chance and value of cost overruns.