Building Contract Administration 101

Building Contract Administration 101

8 Dec 2016

By Justin Cotton, Partner and Head of Practitioner Advocacy, Lovegrove & Cotton

You have all heard the saying: “It’s the economy stupid”. Well in the case of building contracts the saying becomes: “It’s the paperwork stupid.”

What we come back to is this. Only a minority of registered builders appear to have good systems in place in ensuring the paperwork is done correctly.

This is despite the fact that the contracts usually require, as does the building law, that certain events are put in writing. Usually the laws will place the onus for doing this on the builder, not the consumer.

In fairness, this can be as much to protect the builder as the consumer. For example, a verbal agreement to do a variation for a certain price is still an agreement. But how do you prove the terms unless it is written?

Recently we have been involved in a VCAT hearing where the Builder is trying to argue he has done work on a series of variations but where there was apparently no advice given to the owners that the work was extra to the specifications and there would be an extra charge.

If that is not enough, he is trying to argue that the Owner was paying the Builder in uneven amounts under the contract and not in lump sums. But it was also the Builder who had failed to make written payment claims in accordance with the stage claims in the contract.

Variations:

this is a highly fertile ground for disputation, whatever jurisdiction you are working in.

Equitable principles require that an Owner be properly advised of extra work, including what it involves and how much it will cost, how much extra time, BEFORE the work is done.
A good building contract will also require this, and in some jurisdictions building law enshrines this.

Generally if a Builder can prove the work was requested or required, it was a departure from the plans and specs, and that the Owner has benefited from the work, then the Builder will be allowed the fair value plus a margin.

But it is so much easier to prove the work was done and was a variation, if the variation is put into writing and a price agreed beforehand.

We find that in the great majority of building disputes, be they domestic or commercial, if the dispute does not involve defects it will in some way involve either variations or time related arguments.

Extensions of Time (EOT’s):

in a similar way to variations, requests or notifications for extensions of time should be put in writing by the Builder.
This obligation is generally also recorded in building contracts. In most commercial contracts in particular, even if there is a delay to the Builder outside his control, they can be barred from claiming for the delay if they have not complied with the contract timeframe for lodging the EOT.

The EOT request should state the following:

  • The nature of the delay and when it commenced
  • The reason for the delay and identifying the ‘enabling’ ground under the contract that allows an EOT
  • The estimated or known duration of the delay

The EOT request should otherwise contain any information specified in the relevant contract.

Suspension:

the right of a Builder to suspend works if there is a contract breach is a powerful weapon. Especially if is used at an earlier stage rather than around final claim time.

Too often though we see Builders suspending works ‘willy nilly’ where there is only an arguable breach by the owner, or more importantly, even if the Builder is ‘in the right’ there has been no written notice of suspension.

Even if you are correct to be suspending, you must always ensure that there is a notice of suspension. As this is a contractual document of some importance, you should ask a building lawyer to do this for you.

Termination:

likewise with a notice of default or to ‘show cause’, and then if necessary a later notice of termination, these should always be drafted by a lawyer.

The notice has to contain a very specific formula. It has to be pedantic in following the contract wording ‘to the letter’ and in citing the fundamental breach or breaches of contract.
Full factual details need also be described to give reasons why the other party is said to be in default.

The notice of default must also be very precise in stating the correct number of days to rectify the default and specify the consequences of the notice not being complied with.

If the contract procedure, generally a 2 step notice procedure, is not complied with ‘to the letter’ then the party giving the notice can end up being the one who is said to have ‘wrongly terminated’ the contract.

This is also known as a repudiation of the contract. To avoid any whiff of this you should see a construction lawyer to discuss your rights at law and if necessary draft the correct notices for you.