This column is brought to you by Peter Allsopp, former MD of the National Home Builders Registration Council and member of the Estate Agents Board 1996-2000, who is now in private practice providing trouble shooting and consumer protection services to Home Owners who are in difficulties with their homes.
This weeks article covers another of the most prevalent predicaments Home Buyers find themselves in, paying too much too soon on a building project. For more information Visit Baobab's website on www.baocon.co.za
I can count the number of times on one hand when I have been involved in a building dispute that did NOT involve the builder being paid for more than he has produced.
At the extreme of this scale has been a project to extend a home in the Northern suburbs of Jo'burg where the highly educated and qualified home owner had paid his contractor R156 000 of the R214 000 contract value. Then the builder, with whom he has had a reasonable relationship with until that time, disappears and refuses to respond to his client's cell phone calls.
Now the home owner happens to be a Business Day reader and has been following with interest our building advice articles. He contacts Baobab Consultants on the website and asks me to help him out. When I visit the property I am first expected to explain why does the builder does what he does, then I must explain what course of actions the home owner may wish to take, but what I must also do is quantify the "state of play" so that we know what our financial loss is at that point. In this particular case I valued the amount of completed work AND the materials on site as just over R54 000!
This means that my client has overpaid by more than R100 000!
Why does this sort of thing happen so often?
Well I have been pondering this phenomenon for quite some time now and this article is aimed at helping you become more aware of the pitfalls that so many of my less well prepared clients have been suckered into.
It all starts with the budget.
You know how much you have to spend on that new house or extension and when eventually get a quote that comes in that meets your budget you believe it's all do-able.
When the Builder asks for money for materials up front, you are concerned but you understand that he must get his bricks and cement etc as quickly as possible so that he can get going on site. So you pay up. Some stuff does arrive but not as much as you expected and before you know it you are being asked for some more. This time it is for labour. OK you say, after all his "boys" do have to be paid. Then there is another request, this time it is for the deposit on the concrete first floor, "Oh and also the roof trusses" he says, "because materials are all in such short supply you have to put down a cash deposit to secure your supply in a month's time".
"Well OK", you sigh as you write out another cheque to cash.
And so it goes on over the first month, labour payments every two weeks and material payments and deposits almost once a week.
"Don't worry", he says, "I'll give you all the receipts next week, once my book keeper comes back from leave".
You can see the signs, but for some reason you feel that you must keep feeding the machine or you will not get Grannies flat finished before she come up for Christmas. You want to make sure YOU are not the reason for delays on site. YOU are being fair and reasonable aren't you?
Then suddenly he's gone. The "boys" turn up on Monday, late as usual, but at least they are here. They tend to be sitting around more than usual, so after lunch, which seamed to start at 11 and continue till 2.30, you ask what's up.
"Got no materials" they say, "No boss since Thursday" (the day you gave him the last big cheque). "No pay this week, can you lend them money to get home? The Boss has said you haven't been paying him and you are a miserable so-and-so."
Firstly one must realise most if not all the money you are giving to the kind of contractors we deal with on a daily basis, is not going to your project, but to feed the last sucker's project that has already run out of money. Alternatively if you are entering into a deal after the end of October, you are paying for the guy's Xmas holiday.
This is a simple guide how to prevent this happening to you, but ensure that you get the builder's buy-in to these processes before you give him the job start.
To get over the up-front payment problem agree rather to a deal where you are told all the various suppliers that Mr Suntan is going to use for your project. Agree to pay X amount into an account opened in your mutual names at the various suppliers. All supplies to the builder paid for from this account must be invoiced and delivered onto your stand number.
Make direct payments to suppliers for pre-delivery deposits. We are afraid that in this respect the builder was correct, it is getting increasingly difficult to secure certain materials during this building boom, especially if your builder is not credit worthy, as some suppliers are holding us to ransom.
This way at least you know where most of your money is being spent. It is easier for you to assess what materials are being delivered to site when you have corresponding invoices to reconcile against.
When it comes to making labour payments, get a breakdown of expected wages before you start. Then when it comes to writing out the cheque, do so in an open environment where the workers can see you paying. So often this is done outside of the workers purview, and now you know why.
When things go pear shaped, STOP. Do not compound an already broken contract by simply throwing more money at it, otherwise you will end up R100 000 down the pan like my client.
It must be said that a lot of home owners purposefully delay or refuse payment, when they have no legitimate reason to do so. This in turn fuels the "must get paid up-front" cycle that causes so many traumas from both sides and this is also one of the reasons why you could be paying for someone else's project.
At Baobab we compile a list of milestones where the builder knows he will get paid, but only once production has satisfied that milestone. Yes we will authorise payments to go directly to suppliers, but we will not allow cash cheques or payments into the builders wife's/children's account. Many builders are operating outside of the law as far as VAT and income tax payments are concerned. Furthermore we have seen many cases where our client's cheques have simply been absorbed by the bank in settling the builder's overdraft. It is therefore a worthwhile exercise in running a credit check on the builder if you have a substantial project.
If you are intent on taking on this responsibility, here are a few milestones that indicate how much should be paid at certain stages of construction.
Floor slab complete, 15%: Brickwork complete, 30%: Roof on and covered, plastered walls, 50%, Internal and external plumbing and electrical completed 75%. Remember the job is only 100% when all the relevant certificates are handed over. These ball-park figures are based upon a single storey 2 bedroom, one bathroom Granny flat. They will differ significantly from one project to another depending upon the scope of the works and the amount of plumbing and electrical components.
If all of this seems too much PT then employ a professional project manager to handle all of this hassle for you. Yes, would you believe some of us enjoy doing this for a living!
Visit Baobab's website on www.baocon.co.za