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JGM, Solicitor
Category: UK Law
Satisfied Customers: 11135
Experience:  30 years as a practising solicitor.
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I have a loose contract with a builder which prescribes

Customer Question

I have a loose contract with a builder which prescribes total contract cost and stage payments but doesn't detail specification of works or timeframe for completion. The work is supported however with planning/engineers drawings and indicative elevations.The builder -a Ltd company in Scotland, informed me that he has run out of money and can't continue. I estimate 24k to complete the job independently and 17k left to pay in stage payments. He wants me to pay extra to cover unforeseen costs incurred by him but with no agreement from me. I want to extricate myself from this contract and finish the job with others and swallow the 7k deficit which is probably unrecoverable anyway. What would you advise?
Submitted: 1 year ago.
Category: UK Law
Expert:  JGM replied 1 year ago.

I am a solicitor in Scotland with experience in building contracts. What kind of contract is it and for what? The builder appears to have run out of money at an early stage? What stage is the contact at and what are the unforeseen costs? What provision has been made in the contract for contingencies?

Customer: replied 1 year ago.
The contract is for the construction of two outbuildings for a contract price of 113k. One is nearing completion, the other has a roof but no slates and no internal finishes. 17k remains due for payment, none of which is due as key stages have not been met and no demand has been made for further payment as a result. The estimated cost to complete is 30k (his estimate) 24k (mine). Deadlines have been consistently missed due to cashflow issues impacting materials supply.
Ours is one of few projects with the builder and the highest value. He needs settlement on ours to have any chance of survival. He cites unforeseen costs as requirement to lay a new foundation on a small outbuilding rather than use the existing base of the demolished pre-existing outbuilding; his failure to correctly survey the site meant that he missed the fact that the existing base was sloping and unusable. Secondly he cites the need for a retaining wall around the foundation of the large outbuilding as an 'extra' as again he didn't notice the difference in ground levels. Neither of these factors was mentioned during the quote and at no time was there any agreement written or verbal, to contribute to these oversights during the build. The contract is a simple purchase agreement with stage payments and does not detail a specification beyond planning/engineer drawings. I estimate these demands to have a materiality of c.5k but he quotes losses on the project of 20k because he is adding (excessive) corporate overheads into the build. He is a small Ltd company with few tangible assets and debts to suppliers/overdraft etc
Prospect of recovering cost not great. How to engineer a clean break?
Customer: replied 1 year ago.
ps there is no provision for contingencies. In fact there is no contract save for a schedule of stage payments. It is a purchase agreement.
Expert:  JGM replied 1 year ago.

If he is in material breach you can determine that contract and pay him for work to date less costs to complete which would appear to be more, therefore would not result in any further payment to him. Material breach would be constituted by failure to complete in accordance with the contract. Can you confirm that would be the case?

Customer: replied 1 year ago.
He has run out of money to complete the contract. What is the procedure to terminate and what to avoid to resist counter claims of breach and damages?
Expert:  JGM replied 1 year ago.

You have to send a letter saying that you are determining the contract because of his failure to continue and complete it. You will have to get an alternative contractor to work out the costs to complete in order to determine what, if anything remains due to the first contractor. From what you say there won't be if it will cost more to complete than the original budget.

Customer: replied 1 year ago.
Do I need to give him a final deadline 'time is of the essence...etc'? Or is his admittance of no cash to continue sufficient?
Appreciate your response will be general given you haven't sight of all the detail
Customer: replied 1 year ago.
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Expert:  JGM replied 1 year ago.

Time is not of the essence unless specifically stated. The time would be what is reasonable otherwise. However, it would not be unreasonable to specify a date whereby the works should be carried out or restarted failing which the contract would have to be determined.