Labour Contract Vs Material Contract
When we are planning to construct a building or house, the first question that comes in our mind is we have to give a material contractor or labour contract. So in this article, we will discuss the differences between these two.
so let’s start
In a labour contract, all the materials are supplied by the owner and contractor is responsible for providing labour including supplying tools and plans, equipment, shuttering, scaffolding etc.
Whereas in the material contract all materials and labour required for the construction are supplied by the contractor.
Benefits and Reasons
The benefits and reasons to go for a labour contract – The owner can buy all materials of his choice that is brand, quality and price. While the contractor may or may not do that.
The owner has a fear that the contractor will use cheap materials of substandard brands or of lower quality as they may be costlier.
Material cost is almost 60 to 70 % of the house and when you give a material contract the contractor will add his profit on all material cost which may be between 7 to 15 % and it will increase the cost of the house by almost 5 to 10 %.
If the owner buys material by himself then he can save profit on material that is charged by the contractor.
Whereas the reason to go for a material contract is one who does not have time and energy to run after the purchase of materials and also to coordinate with different labour contractors who always prefer to contract work to a single agency of repute who will do everything for the owner.
The owner then has to just control the work’s quality of materials as well as workmanship.
Check and Quality
Assurance of quality of materials – In case of a labour contract the owner buys all materials by himself so he feels sure of the brand and quality of materials used in the construction. Quantity might be out of your control.
You yourself will have to stand and count three thousand numbers of bricks in each truckload or say during the supply of 5 cubic meter of aggregate or sand you will have to measure it.
Many suppliers sometimes are not fair about the quantity. The rate may be cheaper but the supplier will supply less quantity which you will never be able to check and control.
Quality of works -The materials supplied by the owner are of good quality but if the contractor does not deploy skilled labour or try to engage cheaper or insufficient labour for getting more profit then the quality of work may suffer.
Assurance of quality of materials – In the case of a material contract there is a good chance of using second quality material for construction wherever is possible.
This is one of the areas all the owners will have a major concern with this method. To mitigate this problem one needs to have proper quotations from the contractor for each item or owner can engage the professional architect or engineer or project management consultant.
Quantity Check – As the materials are purchased by the contractor the verification of quantity either in terms of weight or number is done by the contractor hence the owner is free from all the hassles.
It is very important because the house involves more than 100 items and for all such items you have to undergo a similar process.
Workmanship – Both workmanship and quality materials are the responsibility of the contractor and hence in case of poor workmanship the owner can reject the work without any compensation.
Involvement of The Owner
In a labour contract, high involvement is required from homeowners. The owner will be involved in every step of the construction process and can decide on the cost and quality of the materials used.
Whereas in case of material contract purchase of materials including a check on its quality and quantity is done by the contractor hence owner has to spend less time at the construction site.
In the case of a labour contract, the delay in the material arrangement or shortage in quantity is the responsibility of the house owner.
Purchasing all materials also involves a lot of steps like the search for the right supplier, right quality, right price negotiation, Material delivery at site, quantity and quality verification of material delivered at site, checking bills of the materials delivered and ultimately payments and settling accounts. This is time-consuming and demanding and not so easy as one may think.
Whereas in the case of material contract all materials are arranged by the contractor. He cannot blame the house owner for the delay in the material arrangement.
Generally, on account of contractors technical knowledge and long-term relations with suppliers, the contractor can manage the materials timely on-site and the contractor also supplies the materials timely to save himself from rising prices of material.
The owner has to keep the fund ready in case of a labour contract the owner buys all the materials for the construction. Hence he has to manage and plan the fund from the beginning that is day one the cash flow has to be strong.
Whereas in case of the material contract initially, the contractor has to invest money for procurement of material and labour as the owner gets some time to manage the funds for the project thereby saving interest to some extent.
Wastage of Material
In the case of a labour contract if the owner is not properly helped by the contractor there is a possibility of wastage of materials on site.
Because the contractor is not providing materials hence there is a chance he may use materials carelessly. For example, a contractor may cut the steel extravagantly for he may not recollect the wastage of cement or mortar or sand for some other use.
Further, the owner may buy a truckload of sand and 10% sand remains unused. It will be difficult for the owner to sell it or use it in another place. While the contractor can use it at other sites this will increase the cost of the owner.
In some cases, contractors will not assume responsibility of damages or defects and can claim them on faulty materials provided.
Whereas if the materials are supplied by the contractor he uses it carefully with minimum wastage. The contractor can always reuse waste materials either at your site or on his other sites and hence the burden of wastage will not be added to the cost.
Knowledge about Material
In the case of a labour contract, most of the owners are not aware of how to check and judge the quality of materials. So he might get cheated.
Also, there is a possibility the owner might be cheated even in rates though he purchases materials in bulk. You may be buying a good brand but still, you would be in the dark regarding its quality for which you don’t have any control or knowledge or expertise.
Whereas in the case of a material contract as the contractor buys all the materials, the owner is not supposed to have expertise in purchase or bargaining for materials.
In the case of a labour contract the owner can save on the account of profit considered by the contractor on all material costs but this is tricky and not always true and sometimes it may prove costly also.
Because the suppliers give a discount if you buy material in large quantity so the owner on account of lack of knowledge and expertise will not be able to bargain and further he will never get advantages of bulk buying or bulk discount which the contractor generally gets. Also, the price variation in materials as per market fluctuation affects the owner.
In the case of material, contract contractor can buy the material at a lower cost due to the following reasons:
- A long-standing relationship with the suppliers.
- Bulk buying and his capacity on account of technical knowledge to bargain with the suppliers.
- Escalation to contractors accounts – For the price variation in material cost as per market.
Fluctuation does not affect the owner if the escalation clause is not included in the agreement or basic rates are not provided in the contract. Many people believe that although the contractor procures the materials at a competitive price he will not pass on the savings to the owner.
In the case of a labour contract, there is a rare chance of dispute unless you are going to do some specialized work.
Whereas in case of material contract generally it is seen that many disputes arise for changing the drawing, scope of work, specifications, material quality, quantity etc.
In the case of a labour contract contractor has lower risk as the contractor will only be supplying labour.
Whereas in case of material contract owner has lower risk as all the scope including engineering licensing procurement and construction work is done by the contractor.
It is advisable to go with a material contract if you do not have time to involve yourself in the construction process.
If you have a lot of time and knowledge of construction and are willing to take care of the project every single day then choose a labour contract.
And if you want to save time and money but have no knowledge of construction then hire a project manager and go for a labour contract. The project manager will have a knowledge of construction he will coordinate between benders, manage material supply and check the quality of construction.
I hope this article will be helpful for you to decide which contract would be suitable for you to construct your house.
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Finally Thanks! For reading the article.