Labour vs Material Contract: Choose Wisely while Building your House

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LABOUR CONTRACT |
MATERIAL CONTRACT |
01. Definition |
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A labour contract is an agreement with specific terms & conditions between two or more persons or entities or between the owner & the contractor in which there is a promise to execute or do some work wherein all materials required for the construction are supplied by the owner. The contractor is responsible for providing adequate labours and carrying out and completing the particular scope of work as agreed between them including supplying tools, plants, equipments, shuttering, scaffolding etc. only. | A Material contract is an agreement with specific terms & conditions between two or more persons or entities or between owner & contractor in which there is a promise to execute or do some work wherein all materials required for the construction are supplied by the contractor. The contractor is also responsible for providing adequate labours for completing the particular scope of work including tools, plants, equipments, shuttering, scaffolding etc. |
02. Why |
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There is a popular belief particularly among owners of small and medium house that labour contract is always better and preferable on account of following reasons:
01. The owner can buy all materials of his choice (i.e. brand, quality & price) while the contractors may or may not do that. The owner has a fear that contractor will use cheap materials of substandard brands and or of poor quality. 02. Owner feels that he will always buy materials of good quality and will not try to save cost, while the contractor with a view to cover profit would not buy standard materials as they may be costlier. 03. Material cost is almost 60 to 70% cost of the house and when you give a material contract, the contractor will add his profit on all materials’ cost which may be between 7 to 15% of material’s cost. This will increase the cost of the house by almost 5 to 10% of the house. While buying the materials on his own, the owner can save, profit on materials charged by the contractor. 04. You may have to run after 4 to 6 different labour contractors and co-ordinating them would be your botheration and headache. |
01. One who doesn’t have time and energy to run after purchase of materials and also to co-ordinate different labour contractor would 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 works i.e. quality of materials as well as workmanship i.e. labour through architect / engineer / PMC or by deploying a site engineer.
02. The contractor considers profit on materials as well as labour, so the ultimate cost increases to that extent, which ultimately is the financial cost of the contractor. This is the general nation of a common man but may not be true always. 03. Here also there may be more than one agency for different works like civil work, electrical work, plumbing work etc. unless you entrust everything to one party. |
03. Types of Contracts |
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It can again be either of the following
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It can again be either of the following
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04. Cost |
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01. Saving in Cost due to Saving on Profit on Material’s Cost:
02. No Discount on Bulk Buying:
03. Escalation to your Account:
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01. Saving due to Bulk Buying:
02. Escalation to Contractor’s Account:
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05. Check on Quality |
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01. Assurance of Quality of Materials:
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01. Assurance of Quality of Materials:
02. Knowledge to Check Quality:
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06. Time – Efforts |
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01. Owner has to give time:
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01. No time by Owner:
02. No Delay:
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07. Finance |
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01. Owner has to Keep Fund Ready:
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01. Fund Management:
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08. Check on Quality |
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01. Quantity Might be Out of Your Control:
02. Quality of Works:
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01. Quantity – No check required:
02. Workmanship:
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09. Technical know How of Materials |
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01. No Knowledge to Check Quality:
02. Expertise:
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01. Expertise:
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10. Wastage of Materials |
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01. If the owner is not properly helped by the contractor, there is a possibility of wastage of materials on site. The contractor is not providing materials hence, he may also use materials carelessly.
02. Again when the owner supplies the materials, the contractor always remain negligent for use of materials. He may cut the steel extravagantly or he may not recollect the wastage of cement or mortar or sand for some other use, which he would do it in his own work. 03. Further in all the materials, there is considerable wastage during construction. However, when the owner supplies the material you will not know what to do with the wasted materials. Further, you may buy a truck load of sand and 10% sand remains unused. It will be difficult for you to sell it or use it at the other place, while the contractor can use it at other sites. This will increase your cost. |
01. If the materials are supplied by the contractor, he uses it carefully with minimum wastage.
02. The contractor can always reuse waste materials either at your site or on his other sites and hence the burden of wastage will not add to cost or will get it minimised. |
11. Project Cost |
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01. The owner can know final project cost only after completing the scope of work by adding all material cost and labour cost. | 01. The owner can know final project cost on completion of the project. The final project cost depends upon the works carried out to complete the scope of work. |
12. Conclusion |
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01. Hence sometimes it may happen that owner may not get expected return/benefit and spend much time for completing the work. The owner may spend much time & effort for saving a small amount on purchase of materials. Therefore it is a value of time which matters the most.
02. Thus on the face of it, the owner seems to save on profit on materials by the contractor, in reality, it may or may not happen. Your ultimate cost may even increase due to all above reasons over and above the loss due to the spending of time and energy by the owner. |
01. If you are able to close the contract at a fair and competitive rate with the help of your architect/engineer, the material contract would always be beneficial. As it would not only save the cost but time, labour and energy of the owner. But please keep in mind the biggest “IF” that you must have a good contractor of integrity and at a fair price with fair and just conditions. |
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