THE SECTION 31 DILEMMA, KNOWING WHEN TO USE A COMPLIANT DOMESTIC BUILDING CONTRACT
By Justin Cotton, Partner, of Lovegrove Solicitors
When problems crop up on a building site, it is not always the “registered domestic builder” in charge of the site who is held accountable by the owners.
Further to that, many contractors working in a defined area on the project, who might traditionally be regarded more as subcontractors, are running foul of some of the more stringent edicts in the Domestic Building Contracts Act 1993 (“the DBCA”).
Two major quandaries to look out for, is where the domestic building work price is over $5,000 to make it a “major domestic building contract”, AND where the works are for more than $12,000 meaning that the warranty insurance requirements must be met by the contractor.
In a recent case where our firm represented a restumping contractor before the Building Practitioners Board, the contractor was found guilty of carrying out works without a written contract that complied with the various requirements of section 31 of the DBCA for works more than $5,000 in value.
These requirements include such matters as:
- The written agreement must set out the contract price, how it is calculated, and refer to the plans and specifications;
- It must include a checklist for the owner to work through before signing the contract;
- It must have the “cooling off” notice to allow the owner to withdraw within 5 days;
- It must contain warnings about how the price may increase to reflect approved variations, changes to prime costs and provisional sums or “cost escalation clauses;
- The times or stages when progress payment claims may be made must be specified.
Our client as a restumping contractor had initially been briefed to restump the front of the dwelling only, as part of a $100,000 plus project to renovate an existing home. He had been subcontracted by the Builder to do this work, but after a dispute descended over the Builder’s relationship with the Owners, the contractor agreed to invoice the Owners direct. Later he was asked to also restump the rear of the house.
An argument was presented that the front restumping and rear restumping were two separate and distinct contracts formed by their respective quotations, while the first quotation at least was made to the Builder thereby making the front restumping a subcontract with the Builder. In addition to that, the original price of the rear restumping was less than the $5,000 threshold value.
Whilst these appeared to be good, arguable points, the Board preferred to focus on the fact the first invoice for the front works was higher than the $5,000 value by a fair margin (including variations) and this invoice was sent direct to the Owners. There is another perspective that the contractor should have been aware of the ramifications of doing domestic building work that is over $5,000 and contracting directly with the Owners (albeit part way through the process).
The question then becomes, at the moment the contractor realised the nature of the contract had changed so that he was dealing direct with the Owners, should he then have entered into a written agreement that was compliant with section 31 of the Act? At the BPB, the answer seems to be an implicit “yes”.
Section 31 of the Act does refer to the rights of Owners to have certain ingredients included in their written contract with a builder. Where a contractor is working as a subcontractor to the Builder, it is not such an issue – obviously then the registered builder or head contractor “picks up the tab” for section 31 compliance.
However, on those occasions where a contractor is dealing direct with owners, and the works relate to domestic building for more than $5,000 in price, then that contractor would be well advised to have a written contract to hand that can be used in those circumstances. Legal advice needs to be sought to ensure that the agreement is in accord with DBCA requirements.
Those who take a relaxed attitude about this are taking something of a gamble, because while 9 times out of 10 the relationship with owners will be a good one, it is the rare “problem project” where a well informed client may bring a matter to the Building Commission’s attention.
By Justin Cotton, Partner in Construction and Head of Practitioner Advocacy
Ph 03 9600 1643