A home building project can be the chance for a couple to make their dream come true. The family has grown, there has been professional success – for whatever reason, it’s time to invest hard-earned funds in a renovated kitchen, an extension or a brand-new home.
For a thriving business, a commercial construction project can also be a great moment. New or renovated premises can set the stage for further growth – providing much-needed space and a morale boost. Or, in a real estate venture, renovating an existing site or breaking ground for a new facility can provide excellent investor returns – plus solid income and big kudos to talented builders.
Whether residential or commercial, however, without proper management the excitement and optimism of any project can all-too-easily turn into a nightmare. Disputes between clients and builders are routine and can arise for many reasons. Allowed to escalate, such disputes can be calamitous for everyone involved – a project not completed; money, resources and time lost; fees escalating; no solution in sight.
Residential disputes can cause extreme distress and financial hardship for a family. Commercial disputes bring particular costs for builders, as the scale of investment is often higher, and legislation governing payments and disputes can impose significant penalties if their procedures are not followed to the letter.
With such risks for all parties, proper contract management is vital. A modest investment in legal advice from the contracting stage through variations to final completion and sign off is a wise – if not critical – investment. Think of it as essential insurance against a project falling off the rails because of a damaging, and often avoidable, dispute.
Rather than waiting – as too many do – to call on legal support until a problem has arisen, it is far more efficient, cost-effective and calming on the nerves to engage a qualified law firm right from the start. Whether a homeowner or a construction company, this is the best way to avoid disputes, and to improve chances for an early and reasonable settlement if a disagreement does arise.
Common Causes. Sajen Legal has extensive experience in navigating the contractual minefield that is any construction project. We have seen disputes arise for a range of typical reasons:
- In the excitement, or complexity, of any pending building project, it is common to find insufficient or unclear contractual language in the building contract.
- As works get under way, changes are normal, but significant misunderstandings can occur over subsequent variations, especially when such variations are not agreed in writing, stating the amount payable.
- Parties can fall out over the agreed date for project completion, especially when there have been significant delays or even abandonment of the work.
- As works progress, disagreements may arise over the quality of workmanship, whether it be defects in the materials or work, or the compliance with specifications.
- Especially in complex projects, misunderstandings often emerge in respect to what constitutes ‘practical completion’, the stage when a client takes possession of the works.
- Invariably, these issues contribute to arguments over payment claims and payment schedules, including delayed or withheld payments.
All of these problems can be anticipated. But they become especially challenging to resolve once works are under way, as both clients and builders then face considerable pressures.
Homeowners are likely to be on limited (and often already constrained) budgets. They may need to move into their property by a specified date, or have other personal concerns to manage. Commercial clients may be juggling a wide range of logistical, management and financial issues all at once, and may be answerable to company directors or other stakeholders demanding that the project be completed on time and within an agreed budget.
If a dispute escalates, construction firms and especially small building companies can face ruinous strains. Payments may be withheld or halted. New or remedial tasks may be imposed, sometimes by another, independent contractor, but within the same budget. In the worst cases, works may grind to a halt altogether, with workers dissipating while equipment hire, licensing fees and other costs escalate.
Managing the scheduling of suppliers, subcontractors and other components of any project is difficult enough. Once cashflow becomes impacted, a building dispute can become an outright crisis for a construction firm, as many will not have access to extra capital. Bankruptcy can arise quickly as a real prospect – and indeed, can become part of an owner’s strategy if the situation becomes so acrimonious (and to invoke insurance provisions).
Contracting Right. The critical first step in any project, and the key protection for both sides, is the initial contract, which must be drafted in line with appropriate legislation.
Residential and commercial contracts are governed by distinct areas of law, and it is critical to draw on extensive and current knowledge and experience of each, so that the rights and responsibilities of parties in either case are fully understood. Sajen Legal is well placed to assist in both areas:
Residential building contracts are governed by the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act), which lays out the minimum requirements for contracts and variations which builders must comply with if contractual stipulations are to be enforceable. It also requires homeowners to engage licensed builders, which helps ensure quality and professionalism, and necessitates builders to have appropriate insurance as well as statutory warranties.
To head off potential disputes later on, it is essential when drafting a contract to review the accompanying documentation and ensure that it is complete:
- Are the plans and drawings clear and detailed?
- Is the agreed contract sum precise, reasonable and inclusive?
- Are there milestones and a review process, including final sign-off?
- Are payment schedules precisely articulated, with amounts and dates?
- Is there an agreed mechanism for resolving disputes?
Parties to home construction and renovation projects often use a standard-form home building contract. These templates may seem cost-effective and time saving. However, in general they do not provide sufficient detail.
The most important provisions are the description of works and the attached documentation. This may include architectural drawings; the list of specifications, finishes and fixtures, etc.All of these must be precise, adequately detailed and cover every aspect of the works to ensure both sides have the same ideas of the contracted job and how it will proceed.
Any of these components may be filled out incorrectly, imprecisely or incompletely, laying the groundwork for misunderstanding, confusion and ultimately a costly and stressful building dispute. Under the QBCC Act, if builders have not taken care to ensure that complete and appropriate information is provided, they may be unable to enforce contractual terms, and can therefore miss out payments.
The challenges and risks with commercial contracts are similar to their residential counterparts in terms of the requirements for precision, accuracy and completeness in the contractual terms, works descriptions and documentation. However, generally these contracts will be larger, with larger budgets, far more complex works diagrams and documentation, and more subcontractors, with interrelated completion deadlines.
Commercial contracts are subject to the robust guidelines of the Building Industry Fairness Act (Qld) 2017 (BIF Act) which imposes deadlines on both clients and their contractors, and severe consequences if these are not met.
The purpose of the BIF Act is to ensure that large projects can continue apace through progress payments even when small disputes arise along the way. If clients cannot make agreed payments, or if they withhold funds because they are unsatisfied with the work, builders have the right to suspend work and/or refer the dispute to adjudication. However, the requirements for complying with the terms of the BIF Act – particularly the detailed payments and disputes mechanism, which generally requires responses within a two-week period – can be a real problem if deadlines and other requirements for compliance are not met.
Project Management. Once contracts are in place and a project is under way, owners may be excited but are also anxious about the timing, expenditure and quality of the results. Builders are under pressure as they have to oversee numerous teams, ensure results and quality control, shepherd a wide range of procurements, suppliers and subcontractors, and manage cash flow to keep payments current and the works on track.
Personal relations and trust can help a lot, and good communication is key. It is worth putting in the effort to speak with the other party regularly and develop a positive and professional rapport. Nevertheless, it is essential to know both your rights and your responsibilities, under the agreed contract as well as the relevant law.
The main components of managing a building project include:
- Making payments according to the agreed schedule (owner)
- Achieving building milestones in a timely manner (builder)
- Reviewing work and providing sign off on interim phases (owner)
- Discussing, agreeing and documenting variations (owner & builder)
- Bringing the project to an agreed final completion, with all details resolved and final payment released (owner & builder)
As the project progresses through these stages, a well-crafted contract can help ensure that both parties follow an agreed process, and that everything stays on track. Nevertheless, as with any building project, problems are inevitable, whether small or large.
So, the real question is how the parties respond. This is particularly the case regarding i) variations, ii) work assessments and iii) payments.
Variations. Variations are inevitable, as issues emerge in the construction process, obstacles present themselves or new ideas come to the client or builder. All of this is perfectly normal, but it is essential to follow a professional procedure in handling any variations that may arise. Are these discussed adequately? Are they put fully and plainly in writing, with cost and scheduling implications clearly indicated? Are they agreed formally and in writing between the parties?
Variations are a classic reason for building disputes, as vague agreements – perhaps reached verbally during a cordial site walkabout – can lead to a major misunderstanding. Classically, the construction firm may be asked to undertake further works at a cost the owner does not fully appreciate. When the owner is then presented with a significant additional invoice, and especially in the absence of clear documentation, that is a recipe for a dispute. Builders must take particular care under the QBCC and BIF Acts, as failure to provide full documentation – including the cost – could leave them unable to recover any additional expenditure and even subject them to regulatory penalties.
Work Assessments. Disputes can also arise over assessing the quality of work, either during or at the end of a job. An owner may judge that the work completed is not up to standard and in this case may demand that the builder make repairs and improvements on any defects. Appropriate certifications may also not have been obtained. In extreme cases, the owner may assert the right to bring in an independent firm to make a repair or complete a task – and may expect to recover the cost from the builder. A builder, for his part, may feel the owner is being incorrect, or does not understand the works, and therefore that any requests are unnecessary or unreasonable.
Payments. Finally, there is the question of payments, often the crux of any dispute. If an owner delays or cannot make a payment, does the builder have the right to compel payment or to slow down or cease working? Alternatively, where any works are deemed unsatisfactory – either because of defects, delays or spiralling costs – does the owner have the right to withhold payments to compel improvement? Detailed provisions for managing these issues within the contract are essential. However, once parties begin to argue over payments, the matter is often on course to escalate into a building dispute.
Resolving Residential Disputes. As stressful as residential construction disputes may be, the good news is that the majority of them are settled through dispute resolution mechanisms, without recourse to the courts – and all the cost, time and uncertainty that entails.
Yet it is imperative to take advantage of these non-judicial mechanisms in an effective and professional manner, to maximize the prospect of achieving a satisfactory outcome, otherwise
matters can escalate, lead to a bad result and even land parties in court anyway.
Whenever a building dispute arises – whether residential or commercial – it is therefore important to bear in mind several key principals for managing the situation:
- Stay calm – remain focused on the issues and avoid personalizing the matter.
- Take notes – A record of communications can be critical, so keep all correspondence carefully and take notes of any conversations with the other party.
- Avoid angry emails – sharp messages only tend to escalate the situation, and rarely contribute to a solution; certainly, avoid having an in-person or telephone argument.
- Review the facts – check your sums, your emails and the contract to ensure you are on solid ground, and think about engaging an independent inspector for an expert view.
- Consider compromise – Most settlements end up somewhere in the middle, so it can be worth thinking through possible compromise solutions from the start.
- Take legal advice – Above all, speak to a legal professional the minute a dispute arises, as early mistakes can close off options and cost you a lot down the line. Sajen Legal is able to advise you on all areas of building disputes.
With these principals in mind, there are various avenues for resolving a building dispute outside the courts. All of them have complexities, and should ideally be undertaken with expert legal advice to reduce the risks, ensure the process is efficient and give the best chance for success. The three main approaches are:
- Informal agreement. At the early stage of a building dispute, ask yourself if it may still be possible to reach an agreement with the other party through open discussion.
If communications have broken down, or if the project is going very badly, this may not be possible. However, embarking on a dispute is always stressful, and will take up time, effort and resources. Once lawyers are involved, both sides will “lawyer up”, creating momentum which you may prefer to avoid. You should still certainly take legal advice at this early stage, so that you can be confident about your position, understand the risk and receive input on possible ways to find a compromise, including reviewing all written communications.
At Sajen Legal, we always assist our clients in reaching for an early, informal resolution if this is possible. We can discuss different strategies and possible solutions, and advise you on risks and pathways not to follow. With careful thought, good preparation and an open mind, it may be possible to engage the other party in a “tough but fair” discussion to address the issues, find solutions and get the work back on track. This is very often the best solution for all parties involved.
2. Third-party Mediation. Where informal discussions are no longer constructive, a reasonable next step is to see if mediation facilitated by a professional mediator may assist the parties in reaching an agreed settlement.
Lawyers represent their clients fiercely – at Sajen Legal we always do. But we also maintain good relations with our colleagues in the legal community, and we bring extensive professional expertise and experience to resolving problems. The “lawyer-to-lawyer” approach takes out the emotion, assists parties focusing on the critical issues and can help find a compromise resolution. While parties to a conflict are caught up in the pressures of the dispute, as well as the strain of an underperforming construction project, our broad experience at Sajen Legal helps us identify areas of agreement, identify pragmatic ways to get the project back on track (possibly with help from an external building inspector) and draft clear and precise language which can give confidence that any negotiated solution will resolve the problem.
3 . Dispute Resolution. When informal approaches are unsuccessful, two bodies serve as the main mechanisms for resolving building disputes: the Queensland Building and Construction Commission (QBCC) and the Queensland Civil and Administrative Tribunal (QCAT). Other states have parallel institutions and Sajen Legal has extensive experience with the Queensland bodies and their counterparts in many other states, as well as other alternative dispute resolution (ADR) mechanisms.
The commission, or the QBCC, is the official regulator of the building industry in Queensland trade, and provides a dispute resolution service. To invoke this process in respect to defective works a complaint is lodged –by either an owner or a builder – and a building inspector is assigned to the case to undertake mediation. This process will involve a review of the documentation and a conversation with both parties. If this facilitation is unsuccessful, a site inspection may be arranged, to investigate the status of the works directly. As a result of this, a determination may be made as to liability, for example to rectify the works (a Rectification Order). If a liable builder fails to comply, the commission has a range of options, either taking disciplinary action with the QCAT or Magistrates Court, or seeking redress through insurance via the Home Warranty Scheme. (It is typically a condition that parties undergo the QBCC and/or QCAT processes before an insurance claim can be made.) Most home building disputes are resolved at the commission level, and are completed within two months of being lodged.
QCAT is an independent dispute resolution mechanism within the Department of Justice and sits below the Magistrates Court in terms of hierarchy. It is designed to be relatively quick and cost-effective, and can hear disputes for both residential and commercial construction. Parties are required to undertake the dispute resolution process of the QBCC before taking a matter to the tribunal. QCAT can review cases with a monetary value up to $20,000. QCAT fees and costs are minimal, the procedures are less formal than a court, and parties to a matter may represent themselves. However, it will still to involve preparation and exchange of evidence, a potential expert discussion and mediation, and a formal hearing. The QCAT process can take from three months to a year to conclude, depending on complexity; its rulings are enforceable by the courts.
The QBCC and QCAT resolution services can be effective. However, they also require significant effort to lodge a submission, compile evidence and take part in hearings. As a decision by the tribunal is enforceable, it is highly advisable to seek professional advice on the process. Sejan Legal has extensive experience advising clients before the QBCC, QCAT and other dispute resolution forums.
Commercial Disputes and the BIF. Commercial building contracts are subject to the BIF Act. The BIF Act gives contractors a fast, cost-effective way to ensure timely progress payments, even where there is a dispute, to keep works going without the expense and delay of court proceedings. However, any payment claim – or response to such a claim, known as a payment schedule – must be prepared and submitted in compliance with the detailed requirements of the BIF Act, otherwise a party may lose their rights to recover a payment or subsequently defend a claim.
These stipulations particularly relate to the very strict and tight deadlines – generally 10 working days – for submitting claims or responses, even where the other side’s case may be without merit. Although it may be possible to overturn such a default through a later court process, this is a very expensive and time-consuming effort, and impacts cash flow.
When a payment claim and a payment schedule are appropriately filed, and the parties are still not in agreement, the BIF Act provides for a fast-track adjudication process. At this point it becomes essential that these documents – despite the very short timeframe – have been completed properly and completely, as no revisions are allowed and no issues not included in them may be brought into the adjudication. Documentation completed under very significant pressure will therefore have a big impact on a party’s case in the adjudication, and will have a major bearing on the settlement handed down.
The adjudication process is established to make quick decisions, based only on the documents submitted, and with no opportunity for verbal input or exchange. This results in fast rulings. However, the pace of the process can be nerve-wracking, and decisions taken by the parties under such pressures in compiling their submissions can impact their rights and will ultimately determine whether the settlement is made in their favour or against them.
BIF-adjudicated decisions are interim. Once the determined payments have been made, workers have returned on-site and the construction is once again on track, either party can take the matter back to court if they feel aggrieved and want to challenge a ruling. This allows for much more time to compile evidence, take outside expert advice, question the other party’s statements and potentially address the court. However, given the cost and time of court proceedings, in practical terms SOP Act decisions usually are taken as the end of the matter.
The overriding guidance is this: If you must contest an adjudication claim, it is imperative to do it right, as errors along the way can be extremely costly. Sajen Legal has significant experience with the requirements of the BIF Act, and can advise either party to a commercial building contract to ensure that any payment claims or payment schedules are prepared properly, fully and on time.
Going to Court. Bringing a building dispute to court remains the last resort. Court processes take time, incur significant cost and are hard to predict. Equally, it is in most cases far preferable to reach a settlement than to be named as a defendant in a court proceeding.
Sajen Legal seeks to be a business advisor, and will always look to achieve the most efficient and cost-effective solution for our clients. But when going to court becomes inevitable, or when defending oneself becomes unavoidable, Sajen Legal devotes all of our energies to serving as a fierce and tireless advocate.
We strongly advise our clients to engage legal support early in the process – and we offer cost-effective packages to enable this. So, the progress towards a full court process should be one that emerges together with our clients over the course of the dispute process. The courts also offer access to alternative dispute resolution or mediation services, which may also be considered.
In any case, as soon as the prospect of litigation arises, it is imperative to work with your legal advisers to chart a robust strategy. Depending on the financial level of the disagreement, building disputes may be taken to the Magistrates Court (value up to $150,000), the District Court (value between $150,000 and $750,000) or the Supreme Court (value more than $750,000).
A court proceeding is reserved for significant disputes where all other avenues of dispute resolution have been exhausted. Sajen Legal has represented clients before courts in Queensland and numerous other jurisdictions. We understand that a court proceeding can be part of a process to achieve a negotiated solution, so we always keep this option available. Yet we have also represented clients in Courts at all levels and bring extensive experience and a track record of robust litigation on our clients’ behalf.
Getting Home. At Sajen Legal, we have one objective. We want to ensure that the building project you embark on with such excitement brings a positive result. With our full-service approach, engaging right from the start, we know this can be achieved – whatever the challenges and hurdles along the way. We bring to bear all of our experience and expertise so that you can indeed build out your business – or move into that dream home.
Sajen Legal specializes in advising owners, builders, tradespeople and building professionals, in both the residential and construction sectors. We provide support to our clients throughout the entire course of the building process, from contracting to variations and payments to final sign-off and completion. We have deep expertise and expertise representing parties before all Queensland courts and tribunals on building and construction law. For further information, contact Managing Director Kyle Kimball.