Find out why you, as a residential builder, should never overlook the power of contracts in the building industry.

Learn how contracts can serve as your project rule book and protect your business.

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Duayne

It is unbelievable how having a basic understanding of your contract can just make you feel more empowered. 

Amelia

Running a building business can be challenging at times, and builders can experience many day-to-day problems that cause them to tear their hair out, really struggle, and can’t understand why these things keep happening. 

They’re causing themselves lots of drama, extra costs, wasted time, and energy. What’s a really simple way for builders to avoid the issues that may be happening in their business and projects every day? 

The Contract: A Builder’s Rule Book

Duayne

Builders probably won’t think of it like this, but they all have access to a great rule book that will help set expectations. It outlines what they need to do to execute their projects and deal with their clients. And it’s called the contract. 

But they all just look over it. Looking back on my personal experience, I didn’t think of the contract as a rule book. To be honest, I looked at the contract as something that I was scared of because I thought I didn’t have the education to understand it. I didn’t think I had the education to execute it. 

But it’s there, and it’s something that we have in place. If you don’t have one in place, you’re in big trouble. Ultimately, builders have a contract on every project they do. 

If we take the time to read through it, you don’t have to know it back to back, but just get a basic understanding of it, it is a rule book for your business. 

Amelia

I remember hearing in legal circles that the best contract is one that you sign and then put away in the drawer. You never look at it again because you haven’t had any problems and have to refer back to it. 

But I think that’s a big mistake when it comes to building homes and renovations. The contract for a home renovation or build becomes a fantastic rule book and a great way for you as a builder to understand how to execute things. You can also show the client who’s signing that contract with you, who is your partner in that contract, and what they can expect from the project. 

When you both have that document, and you’ve read it and understood what’s in it, it can be amazing in terms of simplifying a lot of the problems that many builders have. 

Duayne

It is unbelievable how having a basic understanding of your contract can just make you feel more empowered. The contract will change the way you communicate with your clients on-site and through the early stages of any design process because of it, especially when you get to the back of it. You start reading through the clauses and definitions; it sets out how you are supposed to deal with time extensions, variations, delay costs, and latent conditions. 

Builders will be getting all these things on their sites and having difficult situations with clients. A lot of builders will let these things drag on until it gets to a point where it’s the end of the job, they’re struggling for cash, and the client’s now in a position where they do not want to pay because they haven’t been sent the appropriate paperwork, they haven’t been informed of variations, and they haven’t signed any paperwork. 

And yet, these days, with all the associations and what we have, a lot of this stuff is online. So it’s far easier to use and it’s very simple.

 When you start running your projects by the contract, you are seen as a professional. 

Clients are looking at you, and they’re seeing you as, “This is a business.” I’ve signed a contract with him, and we need to follow this contract to execute our project. 

And it does take so much of that time. Skirting around the edges away because you’re executing your job as per your rule book. The client’s been informed of the rule book, and now they’re aware of what’s going to happen. 

One thing that we do in our business is what we say to our clients right off the bat when we sign the contract, “Look, don’t get taken aback a bit if you receive emails from us. And it refers to clauses in the contract because we’re running our business, we’re following through.” 

So we have that conversation upfront, inform them about what we’re going to do, and if things do come up throughout the job, we simply refer back to clauses and definitions and execute our jobs as per our rule book. 

Read and Understand Your Contract

Amelia

I think I’ve seen it so often. Unfortunately, builders get themselves into so much trouble because when a client hires a builder, they often forget that they’re hiring a business and entering a legal arrangement because they’re doing something that’s personal to them. 

They’re building their long-term family home. And there’s a lot of personal ambition and aspiration and money wrapped up in that. And they’re dealing with a person. And so it becomes this very personal thing. 

If you’re having conversations regularly and all of that kind of stuff, then you can see builders start to handle things informally. The client also handles things informally. 

So that can mean that they might change their mind about something and say, “Oh, look, I saw this on the weekend. Could we instead do this? Could we look at changing that light fitting or the electrical, or can I speak to you about doing this?” 

Far too often, builders forget that, or they are not aware that there’s a contractual procedure. And if they’re not taking that to the client and saying to the client, well, this is when this contractual procedure comes in. 

So, for example, a variation. And in the definitions of the variation it does give a step-by-step process of how you’re supposed to execute a variation, and then they just handle that informally. 

Then they get into so much trouble because, when a builder suddenly struggles with their cash flow, they realise that they’ve not been running their job well, that they’re running out of money, and that they’re not getting paid. They get to the end, and they suddenly go, “Oh, gosh, I better actually look at the contract.” 

Or a lawyer, they’ve got a lawyer involved or got some legal advice, and the lawyer’s saying, have a look at the contract, and they go back and say, “Oh, I haven’t been giving any notice of these variations in writing. I haven’t been doing quotes before proceeding with these variations.” 

You’ve got very little to stand on in trying to decide how to turn the situation around. 

And, once a client understands that they’ve signed a legal agreement that sets out that rule book for them, then you can set and manage their expectations, and you completely depersonalise why you have to do things the way that they are. 

Even though it might initially come across as harsh, a client will understand, okay, well, this is the way the contract needs to work. So therefore, that’s what I can come to expect. And it actually gives them some certainty and some confidence because they can then say, “okay, well, this is professional, and I can look at what these definitions are and understand what I can come to expect.” 

Duayne

It’s really important for builders to realise that they need to get themselves in a position where if the contract is something that they struggle with, they need to employ someone to help them with that. Whether that’s a full-time employee, you get it reviewed by a lawyer, or you take advantage of your association. All of our associations offer advice on this sort of stuff. 

The contract is a rule book to execute your projects. 

And one thing that I am sick and tired of hearing is builders that blame the industry. They get to the end of a job. They haven’t done any paperwork for variations. It’s not like the old days, and they haven’t even had a handshake. It’s all just been verbal on-site. 

And again, they’re stuck in that cycle. They’re too busy, you feel you don’t have enough time, you’ve had a site meeting, you’ve had a discussion, the client said, “Yeah, no worries, that’s fine, go ahead and do that.” 

You might not have even given them any cost for the extra work. And then you get to the next drawer or the end of the job, and you wonder why they’re not paying. 

And it drives me insane when you’ve actually got a rule book in your business, that’s available to you. You’re not stepping up, you’re not owning it, you’re not taking responsibility and reading through it so that you can run your projects by the rules already in place. 

Amelia

So, read through the contract you signed with your clients. Think of it as the rule book for simplifying your projects so that you can avoid a lot of the everyday issues that you might be experiencing.

To further understand the importance of contracts, read our blog, Why You Should Read Your Custom Residential Contracts, to learn more about custom residential contracts and how they can protect your building projects.