Disputes between builders and owners about domestic building works are common and can often be time-consuming, stressful and expensive to resolve for both parties. If a matter cannot be resolved, it could proceed to conciliation at the DBDRV and then to VCAT – a process which is likely to take at least 12 months to finalise, if not longer.
Any simple steps that can be taken to avoid these circumstances are worthwhile – ideally to avoid a dispute or prevent it from escalating, but otherwise at least to provide you with some protection in the event of a dispute arising.
See below some key steps you can take to achieve these goals:
1. Communicate with the owner
Keeping the owner apprised on progress and any issues that may arise, along with proposed solutions to any issues, can provide the owner with security and confidence in your services. It also provides an avenue where the owner can raise any concerns they may have early, so that they can be discussed and resolved as soon as possible.
Above all, it is important to maintain a good relationship with the owner. This will not only help to ensure that the owner remains satisfied with your services, but also that, should a dispute arise, they are more likely to be willing and able to engage in informal negotiations to resolve any disputes.
2. Know your rights and obligations
It is important that you understand your rights and obligations under the building contract. Not only can this assist you to comply with the terms of the contract, it can also ensure that you are prepared to deal with any disputes or issues that may arise in a manner that best protects your interests. This is relevant in particular to requirements in the contract regarding variations, delays, and notices, each of which are discussed further below.
If you have any doubts about your rights and obligations under a building contract, it is worthwhile to seek legal advice prior to entering into the contract. This will provide you with certainty and security going forward, and reduce the likelihood of you breaching your obligations.
3. Do not request payments prior to completion of the relevant progress stage
The progress stages of the building works will be set out in the domestic building contract. The contract may either adopt the schedule set out in the Domestic Building Contracts Act (‘the Act’) or the builders and owners may choose to deviate from the schedule by agreement. Builders are not legally allowed to make requests for payment of the progress stage or a portion of this prior to completion of that stage.
In order to ensure there is no confusion as to when a stage has reached completion, you should make sure that the owner understands what work is included in each relevant stage prior to commencing the building works. This can potentially head off any disputes regarding requests for payment before they develop. Overall, communication and clarity are key to avoiding any issues or disputes.
4. All variations should be in writing
Most domestic building contracts will stipulate that any variations to the building works or contract terms are required to be in writing, and will provide specifications regarding how variation requests are to be made by either the owner or the builder. Despite this, parties frequently request and/or agree to variations outside of these specifications. This often leads to disputes regarding the cost, or details of the variations at a later date.
In order to avoid such disputes, you should ensure that all variation requests – whether made by you or the owner – are made in writing and in accordance with any contractual requirements. This should be done, where possible, before the varied works are undertaken.
5. Calculate the time expected for completion carefully, and make extension of time requests in accordance with the contract where appropriate
Common disputes that arise are those regarding the delayed completion of building works. Where the completion date has passed and the works have not been completed, most building contracts will provide that the owner is entitled to liquidated damages for the amount specified in the contract. Beyond the incentive to ensure the build is completed on time, however, is the effect that the delay may have on your relationship with the owner. Where the reasons for delay are without reasonable excuse and/or have not been properly communicated to the owner, significant delay can escalate any dissatisfaction the owner may feel and could potentially lead to a dispute.
In order to avoid these situations, builders should be careful when calculating the expected time-frame for completion and should ensure that the times provided for the build itself and for any delays are reasonable estimates. Where additional delays occur, any requests or notifications regarding extension of time should be made in accordance with the provisions of the contract.
As previously mentioned, you should ensure that you are aware of your rights and obligations under the contract.
6. Take care when calculating prime cost and provisional cost items
Where the building contract contains prime cost or provisional sum items, it is important that the actual cost of these does not significantly exceed the costs provided for in the contract. Owners, quite understandably, are more likely to dispute the cost of any item where there is a significant difference between the quoted price and the invoiced amount.
Two ways you can avoid such disputes are by:
- Ensuring that the amount provided for in the contract is determined carefully and with regard to all relevant factors; and
- After the fact, where estimates differ significantly from the actual cost, communicating clearly to the owner the reasons why:
- the estimate was appropriate;
- the actual cost was so different from the estimate; and
- you could not reasonably have expected that the estimate was not appropriate, or that the further cost would be necessary.
7. Follow contractual notice and termination procedures
Finally, in the event that a dispute arises between you and the owner where you feel it is necessary to terminate the contract, it is imperative that the contract is terminated in accordance with the contract terms. Incorrect termination of the contract may amount to a repudiation of the contract, which, if it is accepted by the owner, can potentially give rise to a claim against you for damages. For these reasons, it is important to read the contract carefully and, if possible, seek legal advice prior to issuing any notice of default or termination under the contract.
How can Sharrock Pitman Legal help?
If you require advice on a Domestic Building Contract or a dispute with an owner, please feel free to contact Simon Matters on (03) 8561 3324. As Accredited Commercial Litigation Specialists experienced in construction law, we are able to provide you with advice regarding your options in addition to guiding you through the steps that are appropriate for your circumstances.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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Simon is a Senior Associate of Sharrock Pitman Legal.
He is an Accredited Commercial Litigation Specialist (accredited by the Law Institute of Victoria) and deals with Litigation, Mediation of Disputes, and Law for Charities & Not for Profits. For further information, contact Simon Matters on his direct line (03) 8561 3324.