The smell of soft Italian leather, lip gloss glistening

paintwork, 0 to 100 in 4.1 seconds. A Ferrari

Well, two ways you can buy this dream machine – open your fat wallet and pay for it right there and then. Or pay a deposit.

What is a Deposit?

Effectively, your ‘intention to purchase’, so that the seller knows you are not a ‘tyre kicker’ and he isn’t wasting his time.

So, does that mean that if you walk into a new car showroom, you have to pay a deposit because of your ‘intention’ to buy.

No it doesn’t. That’s why it is called a ‘showroom’. The cars there haven’t specifically been designed for you. You can touch, sit, take it for a test drive. Whatever. You might like it and you might buy it, but if you don’t, the next person will.

Seems fair enough, doesn’t it?

So why is it that Builders ask for a deposit when there is nothing to see or touch?

Absolutely nothing. Isn’t that so very unfair? Well, not quite. Here’s why.

• Houses are different. Very different. If you own a site and a specific design is done for that site, it is pretty much toilet paper for another client
• The builder will never get his money back if you decide not to continue
• But, what if I pay a deposit and the builder goes bankrupt? Well, sorry to say, but that’s just a harsh reality of life. It’s something that nobody can really predict. Just look at the collapse of the big financial institutions and the 100-year-old corporate giants!

But, fear not, there are some remedies available

1. Get a builder who is a Registered Master Builder (or member of an equivalent body in your country)
2. Check to see if a guarantee will be provided to cover for ‘Loss of Deposit’
3. Check credentials and track record of your builder. And please, a referee list is absolutely useless unless you contact some of them. Seriously, many people ask for referees, but never make contact.

Just before you drive off

1. If you’re starting a building project – be prepared to pay a deposit
2. Check to see if your deposit is protected
3. Insist on referees and make sure they check out. If in New Zealand, check out your builder here http://www.masterbuilder.org.nz/

If you don’t do the above, then be prepared to see your deposit disappear, like a red Ferrari into the horizon…in 4.1seconds.

All looking down at you with their false smiles, ready to cut you open. And then suddenly. You have this urge. An urge to stop it right there. Abort. Abort. Terminate this mission. You’ve suddenly developed a liking to your appendix. And you want to keep it, just in case. Do you think the surgeon shakes your hand with a smile and says ‘maybe next time’. Well perhaps not. And the same will apply to design contracts.

What is a Design Contract

A design contract is an ‘agreement’ you have with a designer. And this can be written or verbal. Now we all know how words can get twisted or conveniently forgotten. Especially when things get nas-tee.

So lets just say, your design contract has to be in de written form. The terms of the contract, we won’t get into here. I’m assuming you watch enough TV to know what to check for in a contract. (if not, then please email me) Today, we are focusing on a specific part of the contract called early termination.

What is Early Termination

In simple terms, an abrupt end. The reason can be anything or nothing. The cat ran away, wife ran away, you’ve decided to become a monk, whatever. A genuine reason is not even necessary. I call this the Appendix Clause.

The Appendix Clause

In contract terminology this clause could be written as a full chapter. Or as simple as this:

‘…should the contract under this agreement be terminated(for any reason whatsoever), the Designer shall advise the Client accordingly and forward a final account for the work completed. This may include additional fees for early termination. Please note a physical output may not always be available.’

So what does this mean in plain engliesh?

It means two things

One – Final Account. Ok even if you are confused, this means MONEY to be paid

Two – Output may not be available. Hmm, now this is harsh. Pay money but no output. Buy an ice-cream but just get the cone? Surely this can’t be legal. But of course.

What happens when you jump off the operating table?

The surgeon prepares a final account for early termination. It might not be for the full amount. But it is still a substantial chunk of it. And nobody had even lifted a scalpel.

Damn they hadn’t even sanitised their hands. And as for output, well he would’ve given you back your appendix, but in this case there is nothing to give.

So why is it that you pay?

You see it, don’t you? Even if I must spell it out.

-the surgeon could’ve been operating on someone else
-the anaesthetist could’ve been drugging someone else
-the nurses could’ve been stitching someone else

In simple terms you have wasted everyone’s time.

And time is money

Here, this money has a special name. It is called Loss of Income. The surgery team could’ve been earning some buckaroos had you not exited the building. This income is now lost, and it wasn’t even their fault. You decided to quit, not them.

So to stitch this up

-check for the Appendix Clause in any contract
-be aware you could be charged a hefty sum for loss of income
-this can be charged even if no real work is performed

Review any work underway

Are there termination fees applicable? Are you comfortable with what this means? If you decide to terminate the contract for any reason, be sure to pay the early termination fee if its charged. Or the next time the scalpel might slip and you could lose your liver… instead of the appendix.

“NO.”

“Pleease.”

“NO. Ok, but only if you go upstairs and wear your socks.”

One minute later, socks and warm clothing on, open palm outstretched. Thanks Dad.

Three year olds are master negotiators. They always get their way. Well almost always.

Even as toddlers, they understand that to get something, you have to give up something. In the case above, give up the resistance to warm clothing; and get to play on the phone. Oh, isn’t that just so insanely simple?

So Why Do We As Adults Always Want But Seldom Give?

Well let’s get into building contract negotiation, shall we?

When it comes to building contracts, there actually aren’t that many things to negotiate on! But before we get into WHAT to negotiate. I’ve gotta ask…

Why do we need to negotiate?

Is there a reason? Do we even need a reason? Or is our brain hard wired to negotiate, no-matter-what? If yes, then why not negotiate with the little girl selling ice-blocks at the street corner. Surely, the ice-blocks don’t cost three dollars to make?

But we don’t, do we? Why not? Because we know ice-blocks usually sell for a few dollars.

Aha! That’s it.

We know the cost of ice-blocks

And that, my friends, is the key to any negotiation. No, not ice-blocks, but knowing the cost. And that brings me to the two most important steps of building contract negotiation.

The first step

Where are you going to negotiate to? Do you actually know what your house should cost? Seriously, do you? Because if you don’t, then when will you stop? And how will you know if you’ve already got a great deal?

And if it’s a discount that you’re really after? Is it a 5% discount, 10% or 50%?

Or are you happy with any discount, so long as it is a discount. Makes us feel good, doesn’t it. We feel like a winner. We feel superior.

But hangonaminute, have you checked the contract to find out if this superfluous discount can be charged back via other areas of the contract? And you’ll be back to square one in no time at all.

Got you thinking, didn’t I? Well, I’ll look into that a bit later on, but for now…

The second step

What are you going to negotiate on? For most people it’s cost, right? Well, cost isn’t the only thing that can be negotiated. Can you think of anything else?

How about:

1. Risk?
2. Or cost of variations?
3. Or time to completion?
4. Or flexibility of selections?
5. Or provisional sum allowances?^[1]

These are just some of the other things that can be used to negotiate a contract, other than price.

Let’s face it, what if you negotiated with the poor girl above to make you an ice-block for 70cents. You’d say you got a good deal. Wouldn’t you? But what if it tasted absolutely horrid. And you had to throw it away. Would it be much of a good deal after all?

Well The Same Applies To Building Contracts

The owner tries to negotiate the lowest price possible, with no idea as to what constitutes a fair price (or a great product).

The builder does whatever he can to win the contract, whilst scrounging around to ensure he recoups the discount somehow.

Who’s the winner?

Well, if I must spell it out. No-One! Would you rather contract a reputable builder at a fair price or a rogue builder at the cheapest price.

I know which one I’d pick.

Ok, So Let’s Ponder This Over An Ice-Block

By all means, if you can save a dollar by negotiating your contract. Don’t let me hold you up. However, consider these points, carefully:

1. Never negotiate aimlessly without a clear, well defined goal. You could end up with a sour inedible ice-block.
2. If you have no benchmark on pricing, it is quite counter-productive to negotiate on price. Builders are not silly. I’m generalising ok
3. Your builder may already have given you a very competitive price and doesn’t have much room to move. If pushed too hard, may withdraw his tender, you could easily lose a great builder and be left with the plebs.
4. If you are warming up to a builder and you have some idea of where the pricing should be at (but please be realistic with the limitations of your own expertise). Then be up-front with him. Perhaps he could offer some of the other benefits mentioned above?

Bottom line is, if the risks associated with the contract can be shared, then perhaps the contract could indeed be negotiated to where both parties are happy. But there has to be some give and take.

Remember my three year old above, wear warm clothing…then get to play games on the phone.

^[1] Please see articles on Risk and Provisional Sums