Builders – Are You at Risk of Losing Thousands?
Q&A with Patrick & Associates
When it comes to the construction industry, there’s so much education and advice available for clients, to ensure they’re protected for the duration of a build. But the thing about a building project, whether it’s residential or commercial, is that it always involves two parties – client and builder.
With a huge focus on ensuring clients are getting the most out of their building contract, it can be easy to forget your own rights as a builder during the construction process. It’s so important that you’re covered in the eyes of the law when building; your team, materials, and general business should always come before anything else.
So, how much do you know about construction law? Are your building contracts airtight, should something go wrong? Are you liable for issues or mistakes that may happen during or after you’ve completed a project? Are you at risk of having to pay liquidated damages for not completing a project on time?
At Sea Salt Marketing, we’re passionate about making sure our clients understand their rights and are adequately protected by the law at all times. We recently sat down with Ben and Charlotte from Patrick & Associates to find out more about construction law and how it could save your business thousands.
Sea Salt Marketing: What type of contract would you recommend for builders and what key things should these include?
Patrick & Associates: A written contract must apply to every construction project, whether small or large, and be signed by both parties. If you’re starting your business and work in the domestic construction space, we recommend the HIA standard contract. If you’re building in the commercial space, we recommend the Australian Standard contracts. Depending on your budget, you may prefer a more customized contract drafted specifically for the needs of your business. This is something we can assist with.
SSM: Is there anything else to look out for when it comes to building contracts?
P&A: Variations are a big one. All variations to a contract should be documented in writing with an agreement on price and agreed by the client. If you’re unsure what the cost of variation works will be, inform the client that these will be done on a cost-plus basis however provide an estimate. Keep the client updated, particularly if it’s looking like the cost of the variation will exceed the estimate provided.
You should also consider latent conditions and extensions of time. What does your contract say in relation to these? It’s important to be on top of this so that you can avoid any claim for liquidated damages for not completing the project on time.
Be sure to check the invoicing clause of the contract and ensure you invoice in accordance with this. For example, when can you invoice? How can you send invoices? Does the contract allow the service of invoices by email or are they required to be sent via post or delivered in person?
Also make sure to check the defects and retention clause of the contract so you understand when to issue your final claim for the return of the retention withheld during the project. You can find out more about domestic building contracts on the Victorian Government website.
SSM: Is a verbal construction contract ever legally valid?
P&A: Yes, however beware! There must be agreement on the works to be completed, cost, materials and payment. Often verbal contracts are a headache to prove as it is likely the opposing party who will deny the terms of the verbal agreement. We always recommend that clients protect themselves by ensuring a written contract is in place.
SSM: Should our builders have terms and conditions?
P&A: Terms and conditions are a useful document to have attached to your website or the initial email that is sent out to a client with your quote. Terms and conditions can ensure that you retain title in goods provided until payment is received. They also allow you to recover legal costs incurred in chasing outstanding amounts, should the project take an unexpected turn.
If your business has an annual turnover of more than $3 million, you must have a policy to ensure that your business complies with the Privacy Act 1988 (Cth). Most companies include this policy on their website, which covers how personal information is collected, stored and accessed.
SSM: Do builders need insurance for all projects?
P&A: Insurance is non-negotiable (domestic building, professional indemnity, public liability, structural defects/builders’ indemnity insurance etc). Ensure that you have proper cover for all the works you are performing. Make sure to check and meet local, state and federal insurance requirements before embarking on any projects.
SSM: What happens when my client brings their own third-party consultants on board? Am I liable?
P&A: As you will know, the earlier the builder is on board, the better. Often consultants such as architects and engineers don’t get things like dimensions and specifications right which makes for more work down the track, particularly in the form of variations.
Where the client is engaging their own consultants, ensure your contract states that the owner bears the risk for those consultants’ work. Generally, a contract will include the builder’s specifications, engineer and architect’s drawings and a clause stating the builder is to complete construction in accordance with those drawings.
Where the owner engages their own consultants they should carry the risk (and potential cost) for any errors or omissions in their drawings and vice versa – where you engage your own consultants be sure to check their drawings carefully as the general rule thumb is that the builder will carry the risk in the later circumstances.
SSM: What are the legal implications of building?
P&A: Be aware that as a builder you are providing numerous warranties under Australian Consumer Law, your building contract, the Building Act 1993 (Vic) (and regulations) and the Domestic Building Contracts Act 1995 (Vic) for the works performed on a project.
In Victoria, the VBA monitors construction projects at random and maintains a Practitioner Sanction Register, which records disciplinary sanctions made against registered building practitioners in Victoria. The general public can search the register and your licence details.
The Register does not show information about current inquiries or investigations or any other complaints made against the practitioner, such as cases involving disputes at VCAT or those reported to Consumer Affairs Victoria.
SSM: Do you have any tips for avoiding disputes with clients?
P&A: Apart from doing good work, the best way to avoid disputes is to have good documentation and processes. This takes substantial investment to set up and ongoing discipline to maintain compliance, but it always pays dividends. This will lead to good communication with your clients and avoid the surprises and disappointments that lead to disputes.
Building contracts have a very strict regimes for communication through payment claims, variations, requests for extensions of time and defect claims. Make sure you follow these requirements precisely and it will minimise the opportunity for disputes, but it will also make it much easier to resolve them if they do arise.
Finally, seek the party’s feedback at the completion of the build, what did you do well? What can you improve on? This will greatly assist your business for future projects.
If you want to find out more about construction law in Victoria, you can get in touch with the team at Patrick & Associates. If you’re confident your building contracts are airtight, perhaps it’s time to start showcasing your work – get in touch with Sea Salt Marketing to find out how we can help you increase brand awareness and generate quality enquiry.
Note – the advice provided in this blog is of a general nature. This blog is based on Victorian laws and legislation and we recommend seeking advice from your own lawyer before making any decision that may carry legal implications.