Contracts with Building Contractors in London: What to Check Before You Sign

Many residential building projects in London proceed on the basis of a written quotation and a handshake — particularly for smaller works. This is a significant risk for both the homeowner and the contractor.

Without a written contract, disputes about what was included in the price, what constitutes a variation, what the payment terms are, and when the project is complete can only be resolved by reference to email exchanges, verbal conversations, and inference from the quotation document — all of which are open to interpretation and dispute.

A written contract that is agreed and signed before work starts: Defines the scope of the project (what is included). Establishes the contract sum (how much the contractor will be paid for the agreed scope). Sets the payment terms (how and when the contractor will be paid, and in what amounts). Defines the process for variations (changes to the agreed scope). Establishes the programme (when the contractor expects to start and complete). Defines the defects liability period and retention provisions (how defective work will be remedied after completion). Provides a dispute resolution process (how disagreements will be resolved if they cannot be agreed between the parties). Identifies the contractor's insurance obligations.

A contract does not guarantee that a project will go smoothly — but it dramatically improves the chances of resolving problems quickly and fairly when they arise.

Which form of contract to use: standard form contracts developed by the JCT (Joint Contracts Tribunal) are the most widely used in the UK residential sector. The JCT Home Owner Contract (for homeowners dealing directly with a builder without professional consultants) and the JCT Minor Works Building Contract (for projects with a contract administrator, typically an architect or project manager) are the most appropriate for residential extensions and refurbishments. Both are available from the JCT website and are balanced between the interests of employer (client) and contractor.

If the contractor proposes their own bespoke contract terms, read them carefully — particularly the payment terms, variation provisions, and dispute resolution clauses. Bespoke contractor terms frequently favour the contractor in ways that standard JCT terms do not.

The scope of works (or works specification) defines exactly what the contractor is being engaged to build. It is the document that determines whether a particular item of work is included in the contract price or is an "extra" (variation).

A well-written scope of works will: Describe every element of the project in sufficient detail to allow the work to be carried out and checked. Specify the materials to be used (brand, type, specification, colour, finish — not just "good quality"). Specify the standards to which the work must be carried out (Building Regulations Part L compliance, for example; or a specific surface finish standard for plastering). Identify items that are client-supplied (materials or fittings that the client will procure and the contractor will install — known as "client-supplied items" or "free-issue" items). Identify items that are specifically excluded (work that the contractor is not responsible for — for example, decoration after the extension is built, if the client intends to decorate themselves). Identify items that are "provisional sums" (elements of the work where the scope or cost is not yet certain at the time of contracting — for example, foundation depth pending a site investigation, or kitchen appliances not yet selected). Provisional sums are estimates that will be replaced with actual costs as the project progresses.

Vague scope descriptions are the most common source of disputes: "new kitchen extension including all works" is not a scope description. "New single-storey rear extension approximately 4m x 5m as shown on drawing X Rev B, constructed in brick to match existing to rear elevation and timber-framed to side elevation, with reinforced concrete slab to engineer's design (drawing Y), structural steel frame to engineer's specification (drawing Z), flat GRP roof with proprietary rooflight, bi-fold doors to rear elevation (make/model/specification as specified), all to Building Regulations compliance" is closer to an adequate scope.

Payment terms are the most frequently contested element of building contracts. Understanding what is reasonable — and what represents an unacceptable risk — protects the homeowner.

Stage payments (the standard approach): payments linked to the completion of defined stages of the work (for example: 10% on mobilisation; 20% on completion of groundworks; 20% on completion of external structure; 20% on first fix; 20% on second fix; 10% on practical completion, minus retention). Stage payments link money to progress — the contractor earns each stage payment by completing the relevant stage of work.

Time-based payments (higher risk): some contractors request weekly or monthly payments regardless of progress. These arrangements give the contractor less incentive to progress the work and give the homeowner less protection if progress stalls.

Advance payments (use with caution): paying a large advance (deposit) before work starts is normal and reasonable to a limited extent — typically 10–15% to cover mobilisation, material orders, and initial costs. Paying more than this upfront is a significant financial risk. If the contractor fails to start or abandons the project, recovering an advance payment is difficult and expensive.

Practical completion: the point at which the works are substantially complete (all specified works done, only minor snagging items outstanding). On practical completion, the main contract sum is paid, less any retention.

Retention: a small percentage of each interim payment (typically 2.5–5% of the contract value) is withheld by the client throughout the contract and for a defined period after practical completion (the defects liability period, typically 6–12 months). At the end of the defects liability period, the contractor returns to make good any defects that have emerged after completion, and the retention is then released. Retention protects the client's ability to fund rectification of defects if the contractor fails to return.

Red flags in payment terms: Request for more than 15–20% advance payment before work starts. No defined stages — payment linked only to time (weekly or monthly) regardless of progress. No retention provision. Payment terms that require the client to pay before inspecting completed work at each stage.

Variations (or change orders) are changes to the agreed scope of works — additional work outside the original scope, or changes to the specification. Variations are one of the most common sources of dispute in construction contracts.

The essential principle: every variation must be agreed in writing, with a price, before it is carried out. "Verbal agreement to change orders" is a disputed territory — if not documented, there will almost always be a dispute about whether the change was agreed, what the agreed price was, and whether the additional cost was authorised.

What a good variation clause should include: A requirement for all variations to be instructed in writing by the client. A requirement for the contractor to price the variation before carrying it out (or, for urgent variations, as soon as practicable after). A requirement for the client to approve the variation price in writing before the contractor proceeds. A mechanism for valuing variations that cannot be priced in advance (using the contract rates, or on a daywork basis at agreed rates).

Common variation problems: Scope creep: the project grows incrementally as the client adds small additional items ("while you're there, can you also..."). Each individual item seems trivial, but cumulatively they add significant cost and time. Good practice: formally instruct and price every change, however small. Omissions: where the contractor omits work from the original scope, the contract sum should be reduced accordingly. Contractors sometimes resist this — the contract should make clear that omissions are also variations. Unforeseen conditions: conditions discovered on site that were not anticipated when the contract was priced (hidden structural defects, unexpected ground conditions, asbestos) — these are typically variations, but the contract should be clear about who bears the risk of unforeseen conditions.

Three further areas that every building contract should address clearly:

Insurance obligations: the contract should specify the insurance that the contractor is required to maintain: Public liability insurance: covers the contractor's liability for injury to third parties and damage to third party property arising from the works. Minimum £2 million — typically £5 million or more for domestic projects. Employers' liability insurance: required by law if the contractor employs anyone (even subcontractors). £10 million minimum. Contract works (all risks) insurance: covers loss or damage to the works themselves while under construction (fire, flood, theft, accidental damage). Either the contractor or the client should take out this policy — the contract should specify which party is responsible. Check your home buildings insurance policy — most home policies exclude works under construction above a certain value. Professional indemnity insurance: relevant where the contractor is also providing design services (design-and-build). Covers defects in the design rather than defects in the physical construction.

The homeowner should request certificates of insurance from the contractor before work commences and at each renewal date.

Defects liability period (DLP): a period (typically 6–12 months after practical completion) during which the contractor is obliged to return to site to make good any defects that emerge after completion. During the DLP, the client should maintain a running "snagging list" and issue it to the contractor formally at the end of the period. The DLP is not a warranty against all defects — it is a specific contractual obligation for the contractor to remedy defects arising from the contractor's workmanship or materials within the DLP. Latent defects (defects that were not discoverable on reasonable inspection at the time) may give rise to claims under law for longer periods (typically up to 6 years in contract, or 12 years if the contract is executed as a deed).

Dispute resolution: building contracts should specify how disputes will be resolved: Adjudication: a quick and relatively cheap dispute resolution process available under the Housing Grants, Construction and Regeneration Act 1996 for most construction contracts. An adjudicator makes a binding (but not final) decision within 28 days. Adjudication decisions are enforceable in court. Mediation: a non-binding process where an independent mediator helps the parties reach a negotiated settlement. Faster and cheaper than litigation. Arbitration or litigation: for disputes that cannot be resolved by adjudication or mediation, arbitration (using an arbitrator) or litigation (through the courts) provides a final binding determination.

A standard JCT contract will include appropriate dispute resolution provisions. A homeowner's bespoke contract should also include these.