Protect yourself from corner-cutting builders

Plagued by uncertain house price moves, negative equity and tight finance, many people are looking to add a bit of value to their properties.

Home improvements and extensions make staying put more bearable and they can also bump up your asking price, but the recession is pushing some builders to cut corners putting you at risk. In response, legal organisations such as the Joint Contracts Tribunal (JCT) have put together contracts you can fill in and print off that protect both you and your builder.

According to the JCT, home building works are the second biggest investment consumers make after buying a home. However, it can be tempting to jump at the cheapest quote, even if you run the risk of stumbling upon a dodgy contractor. The most commonly encountered problems when using a contractor are disputes over precisely what work is to be done, how much it's going to cost and how long it will take. "The issues we encounter the most are usually less to do with the quality of work, and more about disputes over what was originally agreed, in terms of scope of work and cost for it," says Anna Stillman, a principal at commercial law firm EMW Picton Howell. "Proper rogue builders are about the quality issue but many cases are just about a failure to agree at the beginning."

The effect of the recession on the construction industry means builders are pricing more keenly, says Ms Stillman. Problems occur, however, when estimates are too low and the builder simply can't do the job for price quoted. In order to make up the deficit, contractors may try to charge the homeowner for unnecessary tasks, or alternatively, they can spin out the length of any construction by prioritising other more lucrative contracts, leaving the loss-making job unfinished. Unlike commercial building, where time is money, a delay to a residential job is not such a huge concern. But it is an inconvenience.

Issues also arise regarding how the job is paid for. The homeowner may want to pay only once the work is done; however, the builder could require payment in instalments in order to buy materials or pay labourers. If a homeowner refuses to stump up the cash, the builder can just walk away. Finally, there could be arguments over the standard of work. If you've already coughed up the cash, the builder may try to charge you for extra time and materials needed to rectify the problems, which technically shouldn't have arisen in the first place, or they can even simply pack up and go.

These problems are serious enough, but cost-cutting can affect not just the standard of work, but could mean a contractor isn't equipped with all the right insurance they need to run a building site. All builders should have public liability insurance to protect themselves and the homeowner in case any injury is caused to a member of the public as a result of building works. However, contractors looking to rein in budgets may feel this is a corner they can cut.

The first way to avoid problems is to find a good builder, sometimes easier said than done. Start out by asking someone you know who has already had work done. Andrew Skipwith, the chief executive of trade recommendation service ratedpeople.com, says: "When it comes to choosing a tradesman, word of mouth is probably the most reliable search tool. The best way to avoid rogue traders is go for one who has been recommended by someone you trust or by people in the local community." Once you've got a few possibilities you need to make sure they have the proper credentials and are a member of a trade association such as the Federation of Master Builders (FMB). This is an extra insurance policy, because if the work they complete is not up to standard, they'll have their association to answer to as well as you.

Asking for several quotes will also help you avoid a rip-off. Quotes for the same work may vary, but only slightly, so if one is significantly cheaper than the others you need to treat it with suspicion. Quotes should include the whole cost including labour, materials and any extras. Once you accept a quote, the builder cannot ask you for more money unless you decide you want more work done, or if, during the work, legitimate problems are encountered that will cost more to rectify. In this instance, the builder should explain the costs to you clearly and leave the decision up to you rather than demanding extra funds. Don't accept add-ons lightly.

Once you've chosen your builder and price, a contract is the essential protection. It doesn't have to cost you: both the FMB and JCT, in partnership with legal information provider Sweet & Maxwell, provide do-it-yourself options that are legally binding and can be filled out and printed at home. These protect you, but they are also in the the builder's interest. "If you are thinking of having major work done and the builder tries to deter you from using a contract, then alarm bells should start to ring," says Brian Berry, the director of external affairs for the FMB. "Don't allow yourself to be bullied into not using a contract. Ask yourself what they could be afraid of and why they wouldn't want to use a contract which essentially offers them as much protection as it does you."

The contract should specify exactly what work is to be done. It should also cover the type of materials, the time the project should take and whether the builder can use your facilities. It should also ensure the builder has public indemnity insurance. For extra protection, you could buy an insurance policy. The FMB provides cover costing a minimum of 1 per cent of the builder's quote.

The contract should dictate the payment schedule. "It's perfectly reasonable to pay a deposit and pay for some of the materials," says Mr Berry, "but never, never pay all the money up front." Agree to a payment schedule outlined in the contract, which should include a cooling-off period withholding the final payment until you are completely satisfied. "The key thing is to have everything agreed up front, says Ms Stillman.