Have you read your building contract?
Learn WHY as a builder you are responsible for understanding your contract, and HOW it can help you have better client relationships, and fewer project problems.
Watch the video now, or read the transcript below.
Contracts 101
Duayne
Alright, so this one’s going to be a little bit boring for some people, but it’s about your custom residential contract. It took me a long, long time to realise how important my residential building contract was, but tell us what builders could do better with their contracts to have better experiences with their clients?
Amelia
As a builder, I think the very first thing that you need to do to get yourself sorted, is actually to read through your building contract in detail.
I think this is really interesting because when you and I first started working together in Live Life Build, the very first thing that we did was present a workshop in person to a group of 30 to 40 builders on behalf of James Hardy and Brett’s Trade. And one of the questions we asked was, how many builders here have actually read their contracts? And I think only maybe a third of the room put up their hand and it was really eye-opening.
And I think that’s one of the biggest problems to begin with, is just how the contract is perceived by both the builder and by the homeowner.
So it ends up being this legal agreement between both parties, yet the builder’s not reading it, and the client is thinking about it a certain way. As a builder I think the very first thing that you need to do, to get yourself sorted, is actually to read through your contract in detail and whatever you don’t understand to be able to get some advice on, so that you know how to work with it far better.
The Builder’s Rule Book
Duayne
It’s far more than a contract. It’s a rule book.
I feel for me, I kept making excuses, because that’s all it was. I was making excuses and I just thought if you get into trouble, you put your hand up, it all goes away. But at the end of the day, you’re signing a legal document, and once you’ve signed it, it’s up to you to execute it.
What advice can you give builders that are hesitant, or maybe think that like I do, but they don’t have the education to understand their contracts?
Amelia
I think they get themselves into trouble because they don’t read it. Then they start handling contractual procedures, like variations, extensions of time, all of those kinds of things quite informally. And particularly if you’re building long term family homes, where you are in a personal relationship with clients, and everything starts to get a bit loose and informal, you can get yourself into a lot of trouble because things start to become more “can you do me this favour? Can you do this whilst you’re here? You know, we’ll just get you to do this.”
Whereas, all of those are all contractual procedures that need to be executed and if you’ve not been doing them correctly, then if something does go pear shaped on the job, you’ve got very little ground to stand on if you need to start doing things properly. I think as a builder, first you need to obviously read your contract, as we said. Get yourself educated about it. That might mean actually getting some help from a lawyer, to understand what all these various things mean.
Most contracts have a fantastic definition section in them that you can read through.
It actually becomes a process for these various contractual procedures, so that you can execute them according to that.
Educating Your Client on Your Building Contract
And then you need to take the time to educate your client, why this contract exists, what’s in this contract, and help them understand why things need to happen the way that they do. And one really great thing that we see happen is then that completely depersonalises “why do you need to get a permission before you execute a variation. Why can’t you do things, ‘just whilst you’re here’. Why are you putting in paperwork for extensions of time?”
All of a sudden, that’s because of the legal agreement that you have between the two of you, not just because you as a builder think that it’s something that you have to do.
Duayne
It really does. It actually becomes your rule book. It’s setting out an expectation of how you’re going to manage the project and I think so many builders are scared of it. And look, I definitely was. But it actually helps you. And at the end of the day you don’t have to understand every single part of it, you just need to have a general idea of it. And as you said, if you don’t, then get some extra advice and all those types of things.
Do you recommend that builders get their clients to get someone else outside to do a review? Or that even the builder sits down with the client and does a review of them prior to signing it?
Amelia
Most definitely. You know, in the work that I do with homeowners one piece of advice is that definitely you should get a lawyer to have a look over it.
A lot of clients just assume it’s a standard document. And they don’t understand there might be amendments in there, special clauses and things like that, that could actually be problematic for them. And it’s a big investment for a homeowner, so it is worth them getting legal advice.
I think you as a builder, encouraging them to do that then sets up a really good trust base in your relationship. It’s important too as a builder that you actually give them the time in the process. I find so many people that build a client relationship, coming to a crunch time of getting that contract signed, builders are chasing cash flow, clients want to start on-site. And so all of that legal review is being crunched into a really short timeframe.
If you don’t give space and opportunity, then you can get people signing contracts they’re not aware of.
We’ve seen this happen for some builders, haven’t we? Having issues that a client hasn’t understood that they will still get charged an admin fee for a variation, even if they don’t go ahead with the variation, those kinds of things. How do you see that working? When do you give a client time to get that contract reviewed and to get a better outcome of that process?
Duayne
We have incredible jobs. We build great relationships that we’ve become friends, because they treat us as a business. I do think it’s a bit of a trap that a lot of builders fall into. They use the excuse that they don’t understand, that they didn’t know, and all these types of things, and they don’t want to upset the situation on site.
So they do. They’re “Oh, yeah, I’ll do that. I’ll do that. I’ll do that.” And before you know it, without them knowing, they’re not pricing the job correctly anyway, so they’re not making money to begin with. They’ve given away all these freebies because they’re not following their contract, and they’ve just lost even more money on the job. For me, a contract really is a rule book, you execute your project as per your rule book, and that sets you up as a professional.
Whilst you are thinking about your contract, why not check out The 5 Steps of Contract Preparation (https://www.livelifebuild.com/blog/processes-building-contract-preparation/) and How to Get it Right When Finalising Your Contract Documents (https://www.livelifebuild.com/blog/processes-finalising-contract-documents/).