Construction lawyer talks building disputes, variations and contracts
When it comes to educating our community of Owner Builders, we don’t settle for less than the best and we’ve nailed it again (at least we think so) with this month’s Q&A.
Meet Sydney based construction law specialist John Dela Cruz.
John is the Founder of law firm, Contracts Specialist, divisional President of the Master Builders Association (NSW), as well as CEO and Founder of Small Builders Building Software.
In this Q&A John shares his expertise on key topics for Owner Builders including contracts, variations and disputes (defects and payment).
Please know that the information provided is general information only. It does not serve as legal advice. You must seek your own advice for any specific legal issues relating to your build.
Do you recommend Owner Builders use a contract provided by a builder or should they do their own contract?
Let me start by saying in my experience, construction has it’s own unique laws and unique problems. If new to the industry, it can be easy to get caught out.
There are standard templates available however an OB needs to be aware of who the template benefits (usually the builder).
If an OB attempts to customise a contract it can be time consuming and if they engage a lawyer to customise, it can be quite costly.
There are tried and tested templates known to benefit an OB.
Where can an OB get a contract template?
There are government templates, for example, created by Fair Trading NSW (or equivalent in other states) that are more OB friendly. There’s then the opportunity to slightly modify/customise the template.
They are well used so the relevant tribunals, courts and tradespeople are familiar with the templates.
Variations seem to be a common occurrence, how can an OB reduce the risk of variations?
In my experience, owners and owner builders tend to cut corners at the beginning however cutting corners at the beginning increases the chances of things going wrong.
There are many things an OB could do to reduce the risk of variations:
- Understand the scope of work and be very clear with that in the contract.
- Get several quotes and be certain the contractor understands your expectations.
- Compare details of quotes to ensure you’re comparing apples and apples.
- It’s vagueness that leaves room for variations.
- A more specific quote that may appear more costly to begin with, could be spot on the money.
- Understand the unknowns (the exclusions in quotes) and allow for them upfront.
- Ask contractors for references of at least 3 recently completed jobs
From a legal perspective, if I was to help an OB, what I might do, depending on documentation available, is amend the terms and conditions to say that the contract is what’s called a Design and Construct contract.
This helps reduce the risk to the OB. You can say to the contractor, I’ve given you the concept (design) it’s your job to give all the costs to make my concept work.
An OB might want to allow for a broad provision in the contract that ensures a contractor allows for all associated costs.
What are your tips on avoiding disputes?
Communication is really important.
An OB can avoid a dispute if they’re really clear in their communication and realistic with expectations.
A lot of people have a misconception about how much a builder or contractor is actually making. It’s a tough industry with a high number of insolvencies.
Be realistic with expectations, clear with communication (including contracts), be well informed and when the jobs on, project manage the job well. They’re your team – they need your leadership to deliver.
Click here to learn more about how to avoid building disputes.
What if a dispute cannot be resolved between a contractor and OB?
If the question is ‘when do I get a lawyer involved in a dispute’ then I often encourage an OB to resolve the dispute, amicably and without the need of a lawyer to be introduced.
Once a lawyer is introduced, it’s difficult for the relationship to be amicable. If a lawyer is involved, it’s usually because the relationship has fallen apart. And if the matter has ended up at the tribunal, there are serious problems with the relationship.
Some OBs might want to flip the property so their perspective maybe similar to that of a builder/contractor, that is, they can make commercial decisions. It can sometimes be difficult for an OB to make a decision because they’re emotional about their dream home.
If an OB can take a more commercial approach, by removing the emotion, it may help with resolving a dispute.
What are some of the common disputes that you come across?
The two most common disputes are defects and payments.
If you’re clear with your expectations, you can mitigate the chances of those events occurring.
What’s the best way for an OB (with no construction background) to pick up defects early and therefore avoid a dispute?
Either educate yourself on buildings codes and standards or engage a building expert at an hourly rate, to get peace of mind that things are tracking as they’re supposed to. This expert can be engaged to check-in on a monthly basis.
If a client approaches me with a dispute (to do with building work), the first thing I suggest is to get a building experts report. If an OB is already getting regular visits from a building expert, then they’re already empowered in this situation. At the backend of a dispute, these type of reports can be very costly.
It’s a nominal fee to pay an expert if it means avoiding building defects down the track. It also reduces the risk of a dispute.
How about payment disputes?
For the contractor/builder, it’s a cash flow game – they take an upfront hit by doing the work i.e. up to 60 days with no payment.
Payment rights come down to two things – 1. The contract and 2. The security of payment law.
The security of payment law protects the contractor/builder.
For example, if a contractor is chasing final payment when works are complete but an OB is holding off payment until the work is signed off by a Certifier, a switched on contractor/builder who is well informed of the security of payments law could issue the OB with a payment claim.
If the OB is not familiar with their contractual and legal obligations under the law and the contractor/builder does expedite their rights to payment through an adjudication process – in a very short time, the contractor will get a judgement to enforce their payment rights. Essentially, they can take money out of an OBs bank account and this in turn can affect an OBs credit score.
A VERY BIG TIP: Know your payment obligations per the contract. Set it up correctly in the contract to begin with.
If an OB uses a quote as a contract, should payment terms be clearly specified?
Yes, a contractor at the very least should include standard rules for the job and that includes payment terms and payment schedules.
If there’s a payment dispute and the contract needs to be terminated for whatever reason, or the contractor refuses to come back, the OB will still want to finish the work so they’ll want to have enough money to finish the work which is why the payment terms are super important.
ANOTHER BIG TIP: Be super clear on payment terms! Payment terms are critical.
Are there any legal gaps when it comes to getting advice from professionals in the build process like Draftsman/Architects?
The approach is similar to any professional service provider. If you’ve received the wrong advice, you’ve relied on that advice and as a result, experienced a loss, then I would pursue that professional service provider.
You should obtain from such professionals their insurances and similar to contractors and suppliers – have reasonable contracts in place to ensure that it’s clear what the scope of work is and their liability.
What are your parting words of wisdom?
- Plan – it’s cheaper to plan and get the right advice upfront.
- Be reasonable.
- Don’t assume everyone knows what you’re saying.
- When things go wrong, question your role in the situation.
- Have a good team.
Thank you John! We’re really grateful that you used simple language in this Q&A!
Although the super approachable John Dela Cruz is based in Sydney, his service is offered Australia-wide. Click here for more information.
But wait, there’s more.
You can click here to learn about the building software John developed that helps manage a build project including costs, payments, contracts, contractors and safety.
Until next time,
Happy researching, planning and building!