Know What You’re Getting In To: Types of Building Contracts
Written by Jennifer Barry, Solicitor, Lovegrove Solicitors
When you have a new property built or renovations done to your property, ideally you are left with a completely finished property that is just the way you dreamed it would be. However, often at the completion of building works there are defective or incomplete works which need to be remedied or completed. Luckily for owners, depending on the circumstances they are able to have these defects remedied by the builder or to claim the cost of fixing the defects or incomplete works from the builder.
What is a defect?
The first question that must be considered is what is defined as a “defect”.
To put it simply, a defect, or defective work, is work that is not in conformity with the contract or a work that does not meet a requisite Australian standard. It is important to note that work that does not conform to the contract will be defective even if the contractor is not guilty of any personal fault in providing that work.
Where the work that has been completed is in accordance with the contract specifications and/or drawings but is not adequate for an intended purpose, it will not be considered to be defective work.
In contrast to this, an incomplete work is simply a work that is incomplete. Often the issue of incomplete work arises when a building contract is terminated prior to the completion of the building works and works remain incomplete at the time of termination. If the dispute over the incomplete work goes to VCAT then likely the VCAT Member will be required to determine whether the work is a defect or incomplete work, usually with support from expert evidence provided by experts engaged by the parties.
Consequences of a defect
If a work is defective then generally, although not always, there will be a breach of the contract.
In particular, in relation to domestic building works, the builder will be in default under the warranties in section 8 of the Domestic Building Contracts Act 1995. These warranties form part of all domestic building works contracts and, among other things, the builder warrants that all work carried out will be conducted in a proper and workmanlike manner and will be in accordance with the plans and specifications outlined in the contract.
Unless there are specific contractual provisions to the contrary, the defective work will entitle the owner of the property to rectify the defective work and claim damages against the Builder or sub-contractor responsible for the defective work.
Consequences of incomplete work
If the incomplete works arise out of termination of the contract prior to completion, then the circumstances of the termination will also be important in relation to incomplete work as, if the contract was terminated by the builder then the owner will be able to seek damages for any costs associated with completing the works, however if the owner terminated the contract then no such claim can be made: Torua Pty Ltd v Sariklis  VCAT 144.
It is also important to note that, as stated by Senior Member Riegler in Peterson Homes Pty Ltd v Paalep  VCAT 1599, there may be circumstances where the amount of incomplete (and/or defective) work is so significant that it may “lead to the conclusion that a builder was unwilling to perform its contractual obligations”. If you believe that these circumstances may apply to you, it is essential to seek advice from experienced construction lawyers.
What can you do if your property has incomplete or defective works?
If you believe that some of the work completed by your builder is defective, then the essential first step is to obtain advice from an experienced construction lawyer who can advise you as to the damages that you may be able to claim.
The initial step is to contact the builder and direct them to return to the site to rectify the work. If the builder fails or refuses to do so, then the next step is to engage an experienced construction lawyer to attempt to get the builder to rectify the work, or alternatively to negotiate for the builder to pay money in compensation of rectification costs or an adjustment in the contract price.
If the builder continues to refuse to rectify the works and the negotiations for monetary payment in compensation fail, then the next stage is to issue proceedings in VCAT. It is essential to engage an experienced construction lawyer, if you have not already done so, to assist you with this process in order to enable you to get the best possible result.
In general, the damages recoverable for defective work is the difference between the contract price of the work and the cost of rectifying the work (of making the work conform to the contract.
Further, it is advisable that you obtain an expert witness report who can provide their expert opinion as to whether the works are defective and provide an estimate of the cost for rectifying the works. An experienced construction lawyer can advise you further regarding obtaining an expert report.
If there are incomplete works due to the contract being terminated prior to completion, it is important to note that the builder may be entitled to payment for the works performed. If you do not believe that the builder should be paid for the incomplete works, it is essential to seek advice from experienced construction lawyers before withholding any payments on the basis of your belief. If you withhold payment that the builder is rightfully entitled to for works performed then the builder may be able to take action against you to recover those monies, so it is important to seek advice from construction lawyers with experience in this area.
Finally, it is important to note that a cheap price for building works often doesn’t prove as cheap as it may initially seem and as stated by Deputy President Macnamara in Mechea v HGF  VICCAT 56: “where parties agree to carry out building works for too cheap a price, in the long run an exorbitant expense is likely to be imposed all around”.
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© Lovegrove Smith & Cotton 2014