When the builder works for you on a labour-only contract you manage the whole process and the builder is only responsible for building. People take this option in the belief that they will have better control over the building process or because they want to save money. With this type of contract you either pay your builder by the hour, by the week, or a set price. Paying a set price will be incentive for the builder to work steadily to finish the job in a reasonable timeframe as the job would have been priced on a set number of hours.
THE DRAWBACKS OF THE LABOUR-ONLY CONTRACT ARE:
You become the main contractor which means you are responsible for the work meeting Building Code requirements and for any defects in construction. Just how much you are responsible for the builder’s work would depend on the facts in each case.
The responsibility for coordinating the whole project, i.e. making sure everything happens when it should, rests with you. It will probably take a huge amount of your time and energy to hire contractors, buy materials and manage the project, and at times it could be inconvenient to you, your family and your employer.
You are responsible for health and safety on the building site.
For everyone’s protection, make sure the duties of each party are very clearly spelt out in the building contract.
Under a labour-only contract the builder still has a contractual obligation to perform the work to the standard in the contract. And a legal obligation under theBuilding Act 2004 to meet the Building Code and under the Consumer Guarantees Act to work with reasonable skill and care. The Consumer Guarantees Act does not cover houses, although it does cover materials and services provided.
Some builders are reluctant, or even refuse to take on work on a labour-only contract. Building processes have to be managed very precisely and if you are not on the ball to organise the subcontractors, materials and building inspectors, the builder will be held up. Waiting will not only cost the builder time but also loss of earnings while they are waiting (in the case of a set fee contract).
The builder can end up chasing around after the subcontractors, materials and inspectors even though they did not include management of the project in their quote.