My uncle was in dilemma on contracting the building his house. Of course he had the land at Lekki and enough money to take the 4 units of terrace houses to 80% completion, yet he sagged his head, wrinkles of worry defacing his forehead. When asked what the problem was, he answered.
“What is the guarantee that the contractor will deliver if I give him this N120m? Those people are dangerous! What if he defaults on the contract?”
Just like my uncle, many people still do not know how to go about their real estate development with minimal risk of default. Hence they nurse the fear of the unknown due to the wrong notion that they have no leverage on the contract whatsoever, especially if the client is abroad.
This is not so. There are ways by which you can secure what ever deposit or advanced payment you make to your contractor. You don’t have to rely solely on ‘trust’. Neither do you have to resign your job to sit in a recliner on site all in the name of supervising your construction project!
But here’s a number of steps to take before you can actually award your building contract and go to sleep with both eyes closed:
- Define what you want clearly. In order to avoid ambiguity in the contract, as the client, you must make available all drawings and specifications that accompany the project to be executed. This avails the contractor a clear instruction on what to do and how to do it. These documents and blueprints are of the equal importance as baseline against which the finished building (product) will be measured.
- Call prospective contractors to submit their tenders for the project and select your choice contractor. However, you might want to have a second choice in case the contract does not fly with the first contractor.
- Get your selected contractor to provide you with a Performance Bond from his bank or insurance company as a security that the issuer (contractor’s bank or insurance company) will refund you (the developer) in case the contractor becomes insolvent or fails to deliver. This performance bond usually comes with terms and conditions, into which you can embed clauses to further secure your investment in case you are not satisfied with the standard of job delivered by the contractor. However, there must be a clear statement of the assessment criteria .
- Request for an APG (Advanced Payment Guarantee) from your contract’s banker as security against your deposit. This APG is payable upon demand and it is accompanied by clauses on how the value of the guarantee reduces as installments are payed under the contract. The APG is a kind of escrow to ensure that your contractor spends your money on your project without diverting it into other ventures that have nothing to do with your work. It also ensures that the contractor completes a stage of the work satisfactorily before he is entitled to another installment.
- Mobilize your contractor (under the terms and conditions of the APG through a common bank) once all conditions have been satisfied.
- Go to sleep until it’s time for the next End of Stage Scope Verification!
These six steps taken, you no longer need to quit your job to inhale cement on site just because you are afraid your contractor will cheat you!
Cheers.
