Building Contracts and Payment Protection

A building contract might seem like paperwork you'd rather skip, but it's the single most important document in your extension or renovation project. When things go well, you'll barely look at it. When things go wrong - and in construction, something always goes wrong - it's the difference between a manageable problem and a financial disaster.

Why You Need a Written Contract

A written contract protects both you and your builder by clearly defining:

• What work is included (and what isn't)
• The total price and how it's broken down
• Payment schedule tied to completed milestones
• Start date and completion date
• What happens if the design changes (variations)
• What happens if there are delays (extensions of time)
• Defects liability period (the builder's obligation to fix problems)
• How disputes are resolved (mediation, adjudication, or court)

Without a contract, you're relying on trust alone. The Federation of Master Builders reports that the majority of building disputes they mediate involve projects with no written contract.

Contract Types for Homeowners

JCT Homeowner Contract (Recommended)

The JCT (Joint Contracts Tribunal) is the UK construction industry's standard contract body. Their Building Contract for a Homeowner is specifically designed for domestic projects.

• Cost: Around £30 from JCT
• Suitable for: Any domestic extension, conversion, or renovation
• Key features: Fixed price or cost-plus options, stage payments, variations process, defects liability, adjudication for disputes
• Versions: With or without a contract administrator (your architect)

With a contract administrator (your architect manages payments and quality): Best for projects over £30,000 where you've appointed an architect for the full service.

Without a contract administrator (you manage directly): Suitable for smaller projects or where the architect's role is design-only.

FMB Contract

The FMB offers its own homeowner contract, available free to homeowners using FMB member builders.

• Cost: Free (when using an FMB member)
• Suitable for: Projects using FMB-vetted builders
• Key features: Plain English, milestone payments, warranty provisions, dispute resolution through FMB mediation

Bespoke / Builder's Own Contract

Some builders use their own contract documents. These vary widely in quality and fairness.

Caution: Builder-written contracts often favour the builder - with vague completion dates, limited defects obligations, and payment terms that front-load cash. If your builder insists on their own contract, have it reviewed by a solicitor (£200-£500) before signing.

Payment Schedules

The Golden Rule

Never pay ahead of the work completed. Stage payments should be tied to verifiable milestones, not calendar dates.

Recommended Payment Schedule

What to Avoid

• Large upfront deposit (over 15%) - legitimate builders don't need your cash to start
• 50/50 split (half at start, half at end) - you're massively exposed if the builder defaults after receiving 50%
• Weekly payments unrelated to progress - you're paying for time, not results
• Cash payments with no receipt - no paper trail, no protection, no recourse
• Final payment before snagging - always withhold the last 5-10% until all defects are resolved

Protecting Your Money

Insurance-Backed Guarantees (IBGs)

An IBG protects you if your builder goes out of business during or after the project. It covers:

• The cost of completing unfinished work with another builder
• Rectifying defective work for a specified period (typically 10 years)
• Deposits paid but not yet earned by work completed

Providers: Build-Zone, QANW (Quality Assured National Warranties), Premier Guarantee, ICW (Insurance Consultancy & Warranty)

Cost: 1-2% of the build cost (£300-£1,200 for a typical extension)

How to get one: Either the builder arranges it (check this is included in their quote) or you purchase independently. FMB members include IBG cover as standard on many projects.

Warranty Schemes

For new-build extensions and conversions, structural warranty schemes provide 10-year protection:

A structural warranty isn't legally required for a domestic extension but is increasingly requested by mortgage lenders and is valuable for resale.

Section 75 Protection

If you pay any part of the project cost by credit card (between £100 and £30,000), Section 75 of the Consumer Credit Act makes the credit card company jointly liable with the builder. This provides an additional layer of protection if the builder fails to deliver.

Practical tip: Pay your deposit by credit card. Even a small payment by credit card on a larger contract triggers Section 75 protection on the entire amount.

Variations (Changes During the Build)

Changes during construction are the number one cause of budget overruns. Your contract should include a clear variations process:

1. Request in writing - describe the change you want
2. Builder provides a price - before the work is done, not after
3. Written agreement - both parties sign off on the cost and any timeline impact
4. Adjusted in the payment schedule - the variation cost is added to the relevant stage payment

Never agree to verbal variations. "We'll sort out the price later" always ends badly. Every change, no matter how small, should be documented and priced before it happens.

Dispute Resolution

Contract Routes

Most standard contracts include a dispute resolution ladder:

1. Direct negotiation - talk to the builder and try to resolve informally
2. Mediation - a neutral mediator helps both parties reach agreement (£500-£1,500 shared cost)
3. Adjudication - a construction adjudicator makes a binding decision within 28 days (£2,000-£5,000)
4. Court - litigation as a last resort (£5,000-£30,000+, takes months to years)

Without a Contract

If you have no written contract, your options are limited to:

• Citizens Advice for initial guidance
• County Court small claims (under £10,000) or County Court (over £10,000)
• Trading Standards if the builder has acted dishonestly

This is why a written contract matters - it gives you faster, cheaper dispute resolution through adjudication rather than expensive court proceedings.

Checklist: Before Signing

Before signing any building contract, verify:

• The scope of work is clearly described (attach drawings and specification)
• The total price is stated (fixed price or schedule of rates)
• Payment stages are tied to completion milestones
• Start and completion dates are included
• The variations process is defined
• Defects liability period is specified (minimum 6 months)
• Insurance requirements are stated (public liability, employer's liability)
• The builder's company details are correct (check Companies House)
• An IBG is in place or available
• Dispute resolution mechanism is included

Builder Verification

Before signing a contract, verify your builder:

Next Steps

1. Choose a contract type - JCT Homeowner (£30) or FMB contract (free with FMB builders)
2. Negotiate the payment schedule - milestone-based, never time-based
3. Arrange an IBG - 1-2% of build cost for peace of mind
4. Pay deposit by credit card - triggers Section 75 protection
5. Get quotes attached to the contract - see our guide to builder quotes
6. Get a cost estimate - use our free calculator to benchmark quotes
7. Factor contract costs into your budget - IBG, warranty, and potential solicitor review