I’ve heard more than a few builder horror stories in my time and I can imagine how stressful it would be to end up in a bitter feud with your builder. But I have to confess, sometimes I think these disputes could have been avoided by spending more time up front on your building contract.
As a property developer or investor, there can be significant time and cost impacts to your project if your contract is vague, incomplete or contains errors.
It’s super-important to flesh out the details with your builder from the get-go, so that you’re both on the same page, working together to deliver a successful build.
And when you do come across a hurdle, you’ll need to weigh up your options and understand the impact of your decisions. Perhaps you’ll end up taking a small financial hit in order to maintain good relations with your builder. Maybe you can work with your builder to solve a problem they’ve inadvertently created rather than threaten legal action. You’ve got to make a judgement call on what’s most important to you, and in my opinion, you’re unlikely to end up with a good result if your builder hates you.
So what are the most common building and construction disputes and how can you avoid them?
1. Delays
Lots of disputes relate to delays and let’s face it, sometimes delays are impossible to avoid. But you can avoid a dispute by putting a little more effort into this section of the building contract.
For example, most contracts will note the number of days the build will run, but might not define what constitutes day one. Is it the day they knock the old house down? The day they put protective fencing around the development site? The day they break earth and put foundations in? You need to agree with your builder when the build will actually start. My guidance would be to define a date.
Rain delays can also cause conflict, so it pays to make sure you understand the builder’s definition of a rain delay. I’ve found most contracts don’t actually define a rain delay: is it 1mm on site or 1mm at the nearest weather station? If it’s 5mm of rain when you’ve got earth exposed because you’re digging foundations, then it turns the whole site into mud. And even if the sun shines the next day, the builders may not be able to work until the mud dries.
If it’s 50mm of rain when the roof is on and everyone is working inside it shouldn’t really slow the builders down at all. It’s a good idea to get a special clause written with a sliding scale for wet weather. Your building contract may also need to address other weather events that could prevent work from being safely carried out such as high winds, poor air quality and extreme heat.
2. Liquidated Damages
Your building contract should include a clause for liquidated damages. This will specify an amount payable to you, usually per day or per week, if the building work is not completed within the agreed timeframe. It might cover extra interest you have to pay on borrowed funds or additional equipment hire fees for the extended build.
If you don’t include a proper liquidated damages clause and amount in the contract there’s no incentive for the builder to finish on time and on budget.
So work out a genuine estimate of the loss you’re likely to incur if the build runs overtime and make provisions for liquidated damages of this amount in your building contract.
3. Detailed Scope of Work
So many people fail to provide a detailed scope of work with clear specifications for their project and this frequently leads to arguments with your builder. We’re fortunate in Australia that builders have to adhere to a prescribed set of building standards. These differ from state to state but define the minimum standards that must be met in each and every build.
But to avoid any misunderstandings, you’ll need to provide a list of the deliverables at each stage of the project and the materials and finishes you want used on the project. This not only allows the builder to provide an informed quote so that you can keep variations to a minimum, it also prevents confusion over the extent and quality of build you expect.
You can specify everything from the type and style of your windows to the brand, colour and edge finish of your benchtops. If you fail to specify the type of tapware you want, the builder may not consult you but instead work within the constraints of your budget and if you don’t like their choice, you’ve created an unnecessary complication in the build process.
4. Defects
What would you do if you can see your builder has made a mistake? Let’s say he’s built framework for a wall and it clearly isn’t straight. Do you confront him complaining about defective work? Well, you can’t actually call it a defect, because he hasn’t completed the build. You can’t technically call it a defect until he hands you the Occupation Certificate. So there needs to be a mechanism to allow you to identify potential defects.
This is where a good relationship with your builder and regular meetings are a must.
If you turn up weekly like clockwork and do your inspections, your builder will expect to hear your feedback or questions on a weekly basis. Bring coffees, Gatorades and muffins for everyone and they’re even more likely to listen! It’s important to always respect the occupation health and safety requirements of the site and do everything you can to respect the builder and their team. It’s when they think you’re taking a lend of them that they get offside.
Point out any perceived problems at your weekly meeting and work with your builder to find a solution.
When the build is complete it can be a good idea to get an independent person to do a building defects list that you and your builder can sit down and discuss.
Mediation
You really don’t want to go down the legal route unless you absolutely have to, so if a problem can’t be resolved between you and your builder, your next step is to talk with an independent mediator. Within your contract you want to stipulate who that mediator will be. It should be somebody independent of the build who has good industry knowledge. If you’re not sure where to start, check out the list of mediators on the HIA website, or call Fair Trading in your state for advice.
In my opinion the best contract is one that you never need to pull out of the top drawer.
If you’ve gone to the effort of documenting all the likely issues and challenges and you’ve kept your relationship with your builder alive and healthy no one is going to start quoting sub-clauses.
As soon as you reach for the top drawer, it’s guns at 20 paces and it can escalate very quickly. So resist the temptation to pull out the contract too early. Instead, aim to rely on good human relations.
You do need to know your rights, but if you call foul too early on you’ll destroy the human element which leads to a loss of trust and faith and any future problem is instantly dealt with at this escalated level.
In the field of property development, it’s a delicate balance of human relationships and legal obligations. Just because you can win the fight doesn’t mean you should. Sometimes that means compromising when you might be legally right – you might choose to lose the fight to win the war.
As a property developer or investor, there can be significant time and cost impacts to your project if your contract is vague, incomplete or contains errors.
It’s super-important to flesh out the details with your builder from the get-go, so that you’re both on the same page, working together to deliver a successful build.
And when you do come across a hurdle, you’ll need to weigh up your options and understand the impact of your decisions. Perhaps you’ll end up taking a small financial hit in order to maintain good relations with your builder. Maybe you can work with your builder to solve a problem they’ve inadvertently created rather than threaten legal action. You’ve got to make a judgement call on what’s most important to you, and in my opinion, you’re unlikely to end up with a good result if your builder hates you.
So what are the most common building and construction disputes and how can you avoid them?
1. Delays
Lots of disputes relate to delays and let’s face it, sometimes delays are impossible to avoid. But you can avoid a dispute by putting a little more effort into this section of the building contract.
For example, most contracts will note the number of days the build will run, but might not define what constitutes day one. Is it the day they knock the old house down? The day they put protective fencing around the development site? The day they break earth and put foundations in? You need to agree with your builder when the build will actually start. My guidance would be to define a date.
Rain delays can also cause conflict, so it pays to make sure you understand the builder’s definition of a rain delay. I’ve found most contracts don’t actually define a rain delay: is it 1mm on site or 1mm at the nearest weather station? If it’s 5mm of rain when you’ve got earth exposed because you’re digging foundations, then it turns the whole site into mud. And even if the sun shines the next day, the builders may not be able to work until the mud dries.
If it’s 50mm of rain when the roof is on and everyone is working inside it shouldn’t really slow the builders down at all. It’s a good idea to get a special clause written with a sliding scale for wet weather. Your building contract may also need to address other weather events that could prevent work from being safely carried out such as high winds, poor air quality and extreme heat.
2. Liquidated Damages
Your building contract should include a clause for liquidated damages. This will specify an amount payable to you, usually per day or per week, if the building work is not completed within the agreed timeframe. It might cover extra interest you have to pay on borrowed funds or additional equipment hire fees for the extended build.
If you don’t include a proper liquidated damages clause and amount in the contract there’s no incentive for the builder to finish on time and on budget.
So work out a genuine estimate of the loss you’re likely to incur if the build runs overtime and make provisions for liquidated damages of this amount in your building contract.
3. Detailed Scope of Work
So many people fail to provide a detailed scope of work with clear specifications for their project and this frequently leads to arguments with your builder. We’re fortunate in Australia that builders have to adhere to a prescribed set of building standards. These differ from state to state but define the minimum standards that must be met in each and every build.
But to avoid any misunderstandings, you’ll need to provide a list of the deliverables at each stage of the project and the materials and finishes you want used on the project. This not only allows the builder to provide an informed quote so that you can keep variations to a minimum, it also prevents confusion over the extent and quality of build you expect.
You can specify everything from the type and style of your windows to the brand, colour and edge finish of your benchtops. If you fail to specify the type of tapware you want, the builder may not consult you but instead work within the constraints of your budget and if you don’t like their choice, you’ve created an unnecessary complication in the build process.
4. Defects
What would you do if you can see your builder has made a mistake? Let’s say he’s built framework for a wall and it clearly isn’t straight. Do you confront him complaining about defective work? Well, you can’t actually call it a defect, because he hasn’t completed the build. You can’t technically call it a defect until he hands you the Occupation Certificate. So there needs to be a mechanism to allow you to identify potential defects.
This is where a good relationship with your builder and regular meetings are a must.
If you turn up weekly like clockwork and do your inspections, your builder will expect to hear your feedback or questions on a weekly basis. Bring coffees, Gatorades and muffins for everyone and they’re even more likely to listen! It’s important to always respect the occupation health and safety requirements of the site and do everything you can to respect the builder and their team. It’s when they think you’re taking a lend of them that they get offside.Point out any perceived problems at your weekly meeting and work with your builder to find a solution.
When the build is complete it can be a good idea to get an independent person to do a building defects list that you and your builder can sit down and discuss.
Mediation
You really don’t want to go down the legal route unless you absolutely have to, so if a problem can’t be resolved between you and your builder, your next step is to talk with an independent mediator. Within your contract you want to stipulate who that mediator will be. It should be somebody independent of the build who has good industry knowledge. If you’re not sure where to start, check out the list of mediators on the HIA website, or call Fair Trading in your state for advice.
In my opinion the best contract is one that you never need to pull out of the top drawer.
If you’ve gone to the effort of documenting all the likely issues and challenges and you’ve kept your relationship with your builder alive and healthy no one is going to start quoting sub-clauses.
As soon as you reach for the top drawer, it’s guns at 20 paces and it can escalate very quickly. So resist the temptation to pull out the contract too early. Instead, aim to rely on good human relations.
You do need to know your rights, but if you call foul too early on you’ll destroy the human element which leads to a loss of trust and faith and any future problem is instantly dealt with at this escalated level.
In the field of property development, it’s a delicate balance of human relationships and legal obligations. Just because you can win the fight doesn’t mean you should. Sometimes that means compromising when you might be legally right – you might choose to lose the fight to win the war.
