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In its simplest form, a building contract is an agreement about what each party will do for the other, and what each can expect the other to do in exchange.
Unless the parties have made their terms, the common-law terms will govern the contract, generally asking what would be reasonable or common practice in similar circumstances.
For an agreement to come into effect, there must have been an offer by one party, which has been accepted by the other. Acceptance of the offer will conclude the agreement and bring the contract into existence.
A contract must always be interpreted as a whole.
You are free to accept any offer, not necessarily the lowest, and you may reject all offers tendered, but an offer may only be accepted by the person to whom it was addressed.
When you enter into a contract with a juristic person (not a natural person) it is prudent to ask for proof that the person representing such a juristic person, is indeed authorised to do so.
A verbal/oral (shake of the hand) contract is perfectly legal and binding, but its terms and conditions may be difficult to prove should a dispute arise. Therefore, any written contract will be preferable, even if it is a one-page document.
In legal disputes, words written by hand will always take precedence over typewritten words, and later written words, take precedence over earlier written words. That is why a dated contract is so important, and all subsequent addendums should be properly dated and initialled.
If any dispute arises, the meaning of a word or sentence will be interpreted to be that which is less favourable to the author of the words.
If a contractor is not told in specific terms and conditions (by contract) how and when he should perform certain tasks to get the job done, he is free to perform it in his manner and time. Conversely, if there is no special agreement (contract) he is not entitled to any payment until he has completed the work. Drawings as visual instructions and specifications on such drawings, will all form part of the contract documents.
There are different types of building contracts in South Africa:
The lump-sum contract
The employer must pay the agreed contract price when the builder completes the building in accordance with drawings and specifications. The drawings and specifications should give the builder a precise idea of the building to be erected, while the employer will know exactly how much he will have to pay for it.
The lump-sum contract with bills of quantities
The most sophisticated technique for estimating building costs is by calculating the material to be used and the amount of work to be done, known as a bill of quantities, compiled by a Quantity Surveyor.
This has several advantages, because it is much more accurate, and “apples can be compared with apples” as all tenderers tender on the same basis, yielding more accurate results. This comes in handy when there are deviations, as the bill of quantities will form the basis of pricing these variations. It can also be used to measure and value work in progress.
Cost-plus contract
The contractor is reimbursed for all material and labour, plus an agreed fee for his management and profit.
Labour-only contract
In the less sophisticated market, or where the contractor is undercapitalised, a labour-only contract may be negotiated. If he gets paid by the hour/week/month, instead of an agreed amount on completion, he becomes an employee and not an independent contractor.
This becomes significant when claiming to be an “owner builder” in the NHBRC definition.
This is not all you should know, so ask your architect to explain it in more detail.
