Building Contract - Retention Fund

[Ebbie]

I assume most building contracts state the final progress payment must be paid to the builder on 'practical completion'. I think the contract I've seen is the standard contract from the Master Builders Association or similar. To make things clear, the definition of practical completion has been inserted by the builder as "practical completion is when the council issues an occupation certificate".

After seeing the slackness of council building inspectors first hand, I know occupation certificates are sometimes issued without all the work 100% completed. This would entitle the builder to his final payment without finishing the job properly, for example there may be unfinished paintwork, landscaping, paving etc.

I've heard of a retention fund where you keep part of the final payment until all work has been satisfactorily completed by the builder. How does this clause work and how easy is it to implement this into standard building contracts? Do builders try to resist these sort of clauses?

 

[rossv]

hi Ebbie,

Quite commonly a retention of 5% of the contract value is held for say two weeks while the major minor (hope that makes sense) defects are fixed and then reduced to 2.5% for 12 months.

Very much open to negotiation...

Occupation certificates have very little relevance to completion, they are more aimed at the health and safety asspect of an occupant moving in.


rossv

 

[Ebbie]

Thanks for your response RossV, that sounds like a much better way of doing business. Have you done this yourself? If so how did you word the clause in the contract and is it generally accepted by most builders?

 

[Peter 14.7]

Another option is Bank Guarantee for the 12 months. Some Builders will prefer this so as not to kill cashflow.

Peter 147

 

[Ebbie]

Thanks Peter 147 for the bank guarantee idea. I could negotiate this as a compromise if the builder rejects the retention clause.

If I did use a retention fund can someone please give me an example of how it worked for them and how they actually worded it in the contract.

Thanks in advance, Ebbie.

 

[nutsa.1]

I'm not up with the MBA contract, but the old commercial contract used to have this retention written into it and it went something like this.

A 5% cash retention of each progress payment will be held at each progress payment reduced to 2.5% at practical completion and will be released in full at expiration of the defect liability period provided that the builder has fullfilled their obligation under (clause pertaining to defect liability clause)

Retentions, in my experience, are standard practise for commercial construction but not that standard for cottage construction. The builders I have worked for (3) wouldn't accept a retention clause for house construction. Once your in your in. It can be costly to recover this money.

You need to thouroughly read the contract and make sure there is a defect liability clause and check out the wording of the practical completion clause. The HIA contract has a page long clause devoted to Practical Completion and I'd assume that the MBA conctract would be similar. In particular a sub clause for the owner who believes that the works are not to practical completion stage.

There is a system in place called a practical completion form. All items that are not completed are listed on this form. (It's a standard HIA form) But! don't rely on this form as peace of mind. Once the money is in the bank it can be awfully hard to get the outstanding work completed.

Selection of the builder by references and reputation is a good tool if you are looking at a couple of builders. You'll soon find how who was slack about clearing up those minor defects.

Could go on forever, but I believe find a builder with a good reputation and that you feel you can trust. Don't let the builder rush through the end and make sure you have the time to go through at completion or just prior to detect any outstanding works. Don't have expectations that the work will finish on time (they rarely do, rain etc). Build in a contingency time period.

Hope this helps.