Construction Contracting in Belize

Building in Belize
Construction Contracting

Vance C. Titus, P.Eng./APEB, P.Arch./APAB

“Oh! You mean you wanted to have stairs going from the ground up to the roof deck of the carport? That will cost extra.” This is exactly what a local contractor told the owner during the construction of the owner’s home in northern Belize. The owner paid extra to have the stairs built.

I know of a lot of homes and commercial buildings that have been built in northern Belize without the benefit of comprehensive construction drawings or a construction contract. In all instances with which I am familiar where building was accomplished without proper construction documents, the ultimate costs of construction turned out to be more, often a lot more, than the contractor’s initial estimate.

The contractor that is building without a clear idea of what is to be built and which has no contractual control over its performance has been issued a “license to steal”. This type of practice is neither unique to Belize nor is this statement intended to be an accusation of dishonesty on the part of Belizean contractors. It is a simple recognition of the reality that if the building owner does not provide the contractor with a clear understanding of what is to be built and if the owner does not require the execution of a contract that gives each party a clear understanding of their respective responsibilities, then it should not come as a surprise to the owner when construction costs escalate.

Let’s go back to the case of the stairs for a moment. The contractor knew he had to build a carport with a flat concrete roof. At the time construction started, it was apparently not clear to the contractor that the owner wanted to use the roof of the carport as a patio deck. As such, when the owner asked the contractor “when he was going to build the stairs?”, the contractor responded, “what stairs?” Why did this happen? The owner did not have a comprehensive set of drawings for the house they wanted built and they did not have a contract with the builder defining what the contractor was to provide.

What is “construction documentation”? In general, the typical set of construction documents includes: the construction contract; detailed drawings prepared for the specific purpose of constructing the building; building material and material installation specifications; the Contractor’s Itemized Pricing Schedule; and the Contractor’s Construction Schedule. Construction documents for buildings to be built in Belize should be prepared by professionals licensed to perform such services in Belize.

The best construction contract is the one which after it has been signed by all parties is put in a desk drawer and forgotten. While a bit of an exaggeration, the point is that all parties know what needs to be done, how it is to be done, when it is to be done, how much it is going to cost and, most importantly, all agree.

Because it doesn’t always work this way, some of the more important clauses in a construction contract include, but are not limited to, the following requirements:

Advance Payment Bond: If the owner is required to provide advance funds to the contractor for the purpose of purchasing materials to start the work and to mobilize the contractor’s equipment and personnel, the repayment of the funds advanced must be protected by an advance payment bond issued in the amount of one-hundred percent (100%) of the value of the funds advanced.

Performance Bond: In the event that the contractor arbitrarily abandons the project prior to its completion, the performance bond provides the owner with funds to secure another contractor to complete the works. Typically, the value of the performance bond is between five and twenty percent (5 to 20%) of the total value of the constructed works.

Invoice Retention: The owner is further protected from the financial impacts of the contractor abandoning the project through invoice retention. An amount between five and ten percent (5 and 10%) of the value of each of the contractor’s progress payment invoices is retained from the payment to the contractor. In the event that the contractor arbitrarily abandons the project the amount retained may be added to the value of the performance bond to provide funds with which the owner may secure another contractor to complete the work. However, in order not to penalize the contractor that is performing in accordance with the contract terms, the money retained from invoice payments is placed into an interest bearing escrow or savings account and the interest accrued on these retained funds is paid to the contractor at the completion of the works.

Contractor’s Responsibilities: Among the array of contractor’s responsibilities to be itemized in the contract, it is important that it be clearly stated that the contractor shall be responsible for complying with all applicable laws and regulations imposed by all applicable authorities for the duration of the works, and shall indemnify the owner from any liabilities arising from the contractor’s failure to do so. Among other circumstances protected, this clause shields the owner from becoming arbitrarily liable for the income tax and social security withholdings and other contractor employee benefits associated with the contractor’s payroll obligations.

A friend of mine recently built a house in northern Belize. Near the building’s completion, my friend refused to pay the contractor’s final invoice until the contractor completed the works to the owner’s satisfaction. The contractor filed a court action demanding payment. My friend engaged an attorney to help him resolve the dispute. The first question the lawyer asked was, “do you have a contract”? When my friend responded that he did not, the lawyer stated that my friend “didn’t have a leg to stand on”. With the attorney’s assistance, the two parties were able to negotiate a mutually satisfactory resolution, but much of the stress generated between the owner and contractor, throughout the construction process, could have been avoided had there been a contract.