Building Contract Guide: What Homeowners Need to Know Before Signing

**What a construction contract must do**:

A properly drawn building contract performs four distinct functions:

1. *Defines the scope*: The contract specifies exactly what work is to be carried out, to what drawings and specifications, and what is excluded. Without a defined scope, both 'additional works' disputes (the contractor says it wasn't in the price; the homeowner says it was) and quality disputes (the homeowner expected a higher standard; the contractor says the price reflected what was delivered) are almost inevitable.

2. *Defines the price*: Whether fixed lump sum, schedule of rates, or cost-plus, the contract should specify the basis on which the price is calculated, what is provisional versus fixed, and how changes to the price are authorised.

3. *Defines the programme*: The contract should specify a start date, a completion date, the consequences of delay, and the contractor's entitlement to extension of time for events outside their control.

4. *Provides a dispute resolution mechanism*: When disputes arise (and they often do), the contract specifies how disputes are resolved — adjudication, mediation, or litigation. Without this, a homeowner's only remedy is county court proceedings, which are expensive, slow, and unpredictable.

**What happens without a written contract**:

• •Scope disputes: the contractor and homeowner each remember what was agreed differently; there is no document to refer to
• •Variation abuse: the contractor adds significant costs for items they claim are extras; the homeowner has no mechanism to challenge or verify
• •No clear completion date: work drags on indefinitely with no legal mechanism for the homeowner to impose a deadline
• •No defects liability: the homeowner has limited legal rights to require the contractor to return and fix defects without a contract that specifies a defects liability period
• •No retention mechanism: the homeowner has paid in full by completion and has no financial leverage to secure defect remediation

A verbal agreement or a quote email can form a contract under common law, but it is extremely difficult to enforce because the terms are disputed and poorly evidenced. A written form removes the ambiguity.

**The main standard forms used in domestic construction**:

**JCT Minor Works Building Contract 2016 (MW 2016)**:

• *Best for*: Projects with good drawings and specification, where the contractor is carrying out works designed by the client's architect; medium to larger domestic projects (£30,000–£300,000).
• *Key features*:
• •Fixed lump sum price with a defined scope
• •Formal variation mechanism: all changes must be formally instructed in writing by the 'architect/contract administrator' — an instruction is required before any extra work is carried out
• •Retention (typically 3–5%) withheld at practical completion, released half at practical completion and half after the defects liability period
• •Adjudication as the primary dispute resolution mechanism (the right to adjudicate is statutory in construction contracts — it is fast (28 days) and binding pending final resolution)
• •Programme: contractor provides a programme; extension of time mechanism for employer risk events (ground conditions, design change) and neutral events (exceptionally adverse weather)

*Limitations*: Requires a professional contract administrator (architect or project manager) to operate correctly — without one, the variation and certification mechanisms do not work. Not ideal for straightforward projects without professional oversight.

**FMB (Federation of Master Builders) Building Contract**:

• *Best for*: Standard domestic extension, refurbishment, or loft conversion projects where the homeowner is contracting directly with the contractor without a professional contract administrator.
• *Key features*:
• •Written in plain English — accessible without legal or professional knowledge
• •Consumer protection provisions aligned with the Consumer Rights Act 2015
• •Stage payment structure that can be agreed between the parties
• •Defects liability provision (contractor must return to address defects notified within a stated period)
• •Simple dispute resolution process
• *Where to get it*: Available for download from fmb.org.uk (small fee)

**HomeOwner's Contract (NBS)**:

*Best for*: Similar profile to the FMB contract; designed for domestic projects without professional oversight. *Key features*: Plain English; designed for use between homeowner and contractor; schedule of works attachable as a contract document.

**JCT Homeowner Contracts (HO/C and HO/B)**:

*Two versions*: HO/C (where the contractor designs the works) and HO/B (where the homeowner provides the design). Plain language; specifically designed for the domestic sector.

**What to always include in any written agreement, even a simple one**:

• •Full description of the works (attach the drawings and scope as contract documents)
• •The agreed price and basis (lump sum, provisional sums, what's fixed vs. what's estimated)
• •Start and completion dates
• •Payment schedule (milestones and amounts, or stage payments aligned to progress)
• •Variation procedure (all changes must be agreed in writing, with a price, before work is done)
• •Defects liability period (contractor's obligation to return and fix defects within X months of completion)
• •Termination provisions (what both parties can do if the other defaults)
• •Dispute resolution process (adjudication, mediation, or small claims court for smaller amounts)

**What NOT to sign**:

• •A contractor's own one-sided 'terms and conditions' that impose all risk on the homeowner and remove contractor liability
• •An agreement with no scope document attached — 'refer to the attached quote' is not adequate if the quote is a brief paragraph description
• •An agreement with no completion date or no mechanism to enforce one
• •An agreement with payment terms that require the homeowner to pay the full contract sum before work is complete

**Payment terms — the most important clause**:

Payment terms should be structured to protect the homeowner. Red flags:

• *Acceptable*:
• •Mobilisation deposit: 5–10% of contract value before start (covers initial material procurement and site set-up costs)
• •Stage payments aligned to visible physical progress milestones (substructure complete, first fix complete, second fix complete, practical completion)
• •Retention: 2.5–5% withheld at practical completion, released after the defects liability period (typically 6 months)

• *Unacceptable*:
• •Requests for 30–50% upfront payment before starting
• •Stage payments that significantly exceed the value of work done at that stage (paying for work that hasn't happened yet removes all financial leverage)
• •Full payment at practical completion with no retention — leaves no leverage for defect remediation

**Variations — the highest-risk area**:

• Variations (changes to the agreed scope) are the most common source of cost overrun and dispute in domestic construction. A good contract should:
• •Require all variations to be instructed in writing by the homeowner (or their professional representative) before the work is carried out
• •Require the contractor to price the variation in writing before starting (not after)
• •Specify how variations are valued (day rates, schedule of rates, or agreed lump sum)
• •Give the homeowner the right to accept or reject a variation price before proceeding

Without this mechanism, contractors may carry out additional work and present large, unchallengeable additional invoices at the end of the project.

**Defects liability period**:

• The defects liability period (DLP) is the period after practical completion during which the contractor is obliged to return and remedy defects in the works at no additional charge. Typical DLP: 3–12 months (6 months is standard for most domestic projects). During the DLP:
• •The retention (typically 2.5–5%) is held by the homeowner
• •The homeowner notifies the contractor of defects in writing
• •The contractor has a reasonable period to return and remedy

Without a DLP, the homeowner's remedy for defects is a damages claim — difficult, slow, and costly.

**Insurance obligations**:

• The contract should specify:
• •Contractor's public liability insurance (minimum £1m, ideally £2m+ for larger projects)
• •Contractor's employer's liability insurance (mandatory where they employ workers)
• •Whether the contractor holds works insurance (contractor all-risk) for the project — or whether the homeowner must notify their buildings insurer of ongoing construction works

**Practical completion**:

Practical completion is the moment the works are sufficiently complete for the homeowner to take occupation — even if there are minor snagging items outstanding. It triggers the release of half the retention (in most standard forms) and starts the DLP clock. The contract should define what constitutes practical completion and who certifies it (ideally a professional rather than the contractor themselves).