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10 things that residential builders need to get right

1. Contracts – make sure they comply with the requirements under the Home Building Act (HBA)

The contracts should:

• comply with the contract requirements under the HBA if the builder is carrying out work with a value of $5,000 (including GST) and above, for example the contracts should be in writing, provide a sufficient description of the work etc. Its best to use the standard forms as they contain all of the required information;

• not just be a quote or a purchase order as they do not comply with the HBA requirements and the builder will be in breach of the HBA and unable to rely on the quote or purchase order to get paid when contracting directly with a homeowner. Of course, there are exceptions to these requirements in the case of any emergency work concerning a hazard or a safety issue;

• ensure that builders don’t exceed the maximum deposits and maximum progress payments;

• ensure that the works are clearly defined in terms of scope and price and that any ambiguity is resolved before the contract is signed; and

• make it clear that the contract price can change for variations, PC and provisional sums etc.

2. Licencing – don’t carry out any residential building work that the builder is not licenced to do

Builders must ensure:

• that all of its sub-contractors that carry out specialist work (and any sub-contractors that are required to be licenced) such as its water proofers, plumbers and electricians are appropriately licenced;

• that the entity which has entered into the contract with the homeowner is licenced to carry out the work. It is not good enough for a builder to engage a licenced sub-contractor to carry out the work, the entity entering into the contract has to be licenced to carry out the work; and

• that there are no restrictions on the licence if the builder is contracting directly with homeowners. We have seen too many times to count, instances where the entity in the contract does not hold an open licence to carry out the work and has a condition on the licence which says that the entity is not licenced to carry out works for which HBCF insurance is required, that is, work with a value of over $20,000.

3. Insurance – no insurance = big problems

Remember that:

• the entity which is entering into the contract must have its insurance in place including insurance under the Home Building Compensation Fund (HBCF) if the value of the work is $20,000 or over;

• it is a breach of the HBA to take any money from a homeowner (including a deposit) when a certificate of HBCF has not been provided to the homeowner; and

• if HBCF insurance is not in place, the builder is not entitled to make any claims for payment even on a quantum meruit basis, unless the Court or Tribunal considers it “just and equitable” for the builder to recover money in the absence of insurance. Also, if there are defects in the work carried out, it would be much harder to satisfy a Court or Tribunal that the builder should be paid and also, harder to obtain retrospective insurance.

4. Increases in the contract price/variations/PC and provisional sums

• ensure that the builder complies with the variation procedure in the contract.

All variations should be approved in writing by the homeowner including not only the approval to carry out the variation itself but also approval of the cost of the variation. No variations should commence until written approval has been obtained from the homeowner. By taking this simple step will avoid a lot of headaches down the track in terms of getting paid; and

• All PC and provisional sums should be based on firm estimates or quotations to limit any surprise and of course disputes.

5. Quality of sub-contractors – find the good ones

• find good quality sub-contractors and pay them well.

Most defect claims will come down to the quality of the work carried out by the builder’s sub-contractors and so it’s a worthwhile investment to have quality trades carrying out the works.

• good quality water proofers are in hot demand carrying out rectification work and it’s easy to see why given that most defect claims include water ingress issues caused by failed waterproofing in wet areas, balconies and planter boxes [we could have a whole section dedicated to why planter boxes may look good but are a nightmare for builders in terms of defect claims but that’s for another day].

6. Practical Completion – what does it mean?

• clearly define what practical completion is as this can be a point of contention between builders and homeowners as homeowners may be under a misapprehension of what practical completion actually means; and

• as a practical suggestion, ensure that the works are practically complete and all minor defects are rectified before the homeowner inspects as this will help to avoid the common dispute about when PC has been reached and the homeowner withholding the final progress claim because they are unhappy with the works. Remember the homeowner is buying “the dream” and expects that the house will be ready to occupy. It is better in the long run, in terms of cost and time, to try and meet that expectation if possible.

7. OC – clearly specify the builder’s obligations in relation to obtaining the OC?

• clearly specify in the contract what the builder’s obligations are in relation to providing the certificates and documents required in order to obtain the OC (which is usually the homeowner’s responsibility to obtain from Council or a private certifier) and also stipulate whether the builder has an ongoing obligation to assist the homeowner in obtaining the OC.

8. Claims by the builder – have the paperwork in order

• if the builder is making claims for the payment of money due under the contract, ensure that the contractual provisions are complied with concerning the builder’s entitlement to those moneys and that all supporting documentation is provided; and

• ensure that progress claims are not issued prematurely when the work the subject of the claim has not been completed (as this could be deemed to be a breach of the contract and a breach of the HBA).

9. Claims by homeowner – defects/incomplete work/negligence

• use the defences available under the HBA if the builder has been instructed to carry out works by the homeowner or a professional such as an architect or engineer, contrary to the builder’s advice. The builder must put any objection to carrying out any such works in writing to the homeowner;

• use every opportunity to rectify defects to limit the issues in dispute. There is no strategic advantage in delaying rectification in exchange for the payment of money as this will only end up in litigation as builders are liable to fix defects regardless of whether payment has been made; and

• any items not agreed can be resolved with the assistance of NSW Fair Trading, mediation or proceeding to a Court of Tribunal to determine as a last resort.

10. Keep up to date with the changes in legislation

By way of example, some of the recent changes (some of which apply to class 2 buildings only) include:

• From 10 June 2020, owners with defects will benefit from the statutory duty of care that applies to new buildings, and existing buildings where an economic loss first became apparent in the previous 10 years;

• From 1 September 2020, the NSW Building Commissioner will be able to stop an occupation certificate from being issued, order developers to rectify defective buildings, and issue stop work orders;

• From 1 March 2021, residential builders can rely upon the Building and Construction Industry Security of Payment Act (SOPA) and issue payment claims against homeowners. See our attached article here; and
• From 1 July 2021, there will be compulsory registration for practitioners involved in design and building work, including professional engineers

If you would like to discuss any of the above, please contact us.

Contractors – don’t use Dropbox if you want to get paid!

In Wärtsilä Australia Pty Ltd (ACN 003 736 892) v Primero Group Ltd (ACN 139 964 045) & Ors [2020] SASC 162, a contractor has failed to recoup $15M because it tried to submit completion reports via Dropbox link.  This is adds to the line of authorities which caution reliance on cloud-based technologies for issuing documents, whether under contract or statute.

Facts

Primero Group Ltd (Primero) contracted with Wärtsilä Australia Pty Ltd (Wärtsilä) to perform civil, mechanical and electrical works and supply tanks for the construction of the Barker Inlet power station on Torrens Island in South Australia.

The contract provided the following requirements for ‘SW Completion’:

(2) the tests, inspections and communications required by this subcontract (including Schedule 3) to have been carried out before SW Completion have been carried out, passed and the results of the tests, inspections and commissioning provided to [Wärtsilä]

(8) the completed quality assurance documentation … is available for inspection by [Wärtsilä] at the Facility Land’ (emphasis added)

Primero emailed Wärtsilä on 28 February 2020 a Dropbox link to the documents.  Yet Wärtsilä was unable to access the documents via the link until 2 March 2020.

On 2 March 2020, Primero served a payment claim under s 13 of the Building and Construction Industry Security of Payment Act 2009 (SA) in the amount of $85,751,118 (excluding GST).  On 10 March 2020, Wärtsilä responded with a payment schedule which scheduled “nil” but also stated that the payment claim was invalid as it was not supported by a reference date.

Primero proceeded to adjudication and the adjudicator determined Primero’s payment claim was valid, awarding $15,269,674.30 (excluding GST).  Key to the adjudicator’s determination was that the payment claim was supported by a reference date of 28 February 2020.  Wärtsilä made an application to the Supreme Court for an order quashing the adjudication determination.

The parties agreed that if SW Completion under the contract had not occurred on 28 February 2020 the adjudicator’s determination was invalid.[1]

Primero argued that it had provided the documents and made them available for inspection by sending the email.

Primero also contended that the Electronic Communications Act 2000 (SA) (ECA) permitted the contractual obligation for the provision of the documents to be satisfied by electronic communication.  Under s 8 of the ECA, the time of receipt of an electronic communication was when it is ‘capable of being retrieved by the addressee’.

Decision

Sending a Dropbox link to the documents was not sufficient for SW Completion.  On 28 February 2020, Primero had emailed the link to Wärtsilä, but Wärtsilä was unable to completely download the documents.[2]

Accordingly, the adjudication determination was quashed because it was not made with reference to a valid payment claim.[3]  The $15M award to Primero was nullified.

Stanley J held[4]:

  1. in relation to SW Completion item (2), ‘the provision of the hyperlink merely provided a means by which Wärtsilä was permitted to download the documents stored in the cloud. Until it did so, those documents had not been provided.

 

  1. in relation to SW Completion item (8), ‘the hyperlink did not amount to making the documents available for inspection… because until all the documents were downloaded, they were not capable of being inspected at the facility land.’

His Honour stated:

a common sense and businesslike construction of the contractual requirements that the documents be provided and are available for inspection necessarily requires that the documents were capable of being downloaded on 28 February 2020. I find they were not.[5]

Stanley J applied a Queensland case Conveyor & General Engineering v Basetec Services & Anor [2015] 1 Qd R 265 (Conveyor) and a Federal Court case Clarke v Australian Computer Society Inc [2019] FCA 2175 (Clarke), which went to the point that a document could not itself be considered to be “left at” or “sent” to an intended recipient if an email containing a link to the document was sent to that recipient.[6]  To summarise, it is only the email itself which is sent or transmitted, not the document housed on the cloud server.

The ECA did not apply to the communication to solve the problem for Primero because[7]:

Both s 8 and s 10 prescribe circumstances that condition the operation of those provisions. Those circumstances include: first, that at the time the information is given by means of electronic communication, it was reasonable to expect that the information would be readily accessible so as to be useable for subsequent reference; and second, that the person to whom the information is required to be given consents to the information being given by means of an electronic communication.

His Honour held that Conveyor and Clarke stood as authority for the proposition that the provision of the documents by hyperlink did not constitute an “electronic communication” for the purposes for the ECA.

This point is highly relevant to because the relevant legislation governing electronic transmissions and communications are modelled off uniform Commonwealth legislation (Electronic Transactions Act 1999 (Cth)) and have largely consistent provisions.

Take Home Tips

It is important to consider closely whether the terms of your contract allow you to submit completion documents (or other documents) via a Dropbox link.  If the contract uses words like “provide”, “send”, “make available”, etc, it is unlikely that merely providing a link to those documents will satisfy the obligation unless and until the documents are actually downloaded or accessed in full by the intended recipient.  This can be difficult to prove.

It is unlikely that you will be able to fall back on the relevant electronic communications or transactions legislation in your jurisdiction because the provision of the link will not be considered an “electronic communication” of the document itself.  Strict compliance with the contract and statute (particularly in the realm of security of payment) is always required.

[1] At [12].

[2] At [93].

[3] At [128].

[4] At [94].

[5] At [105].

[6] At [98] to [101].

[7] At [117].

COVID Update – Environmental Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020

Yesterday (April 2,2020), the Environment Planning and Assessment (COVID-19 Development – Construction Work Days) Order 2020 came into effect. The Order allows for building work and demolition work to be carried out on Saturdays, Sundays and public holidays, provided that the development is approved through development consent and continues to comply with all other conditions of the development consent. Further any work that is performed on a Saturday, Sunday or public holiday must:

  1. comply with the conditions of consent that restrict hours of work on any other day as if the condition applied to work on a Saturday, Sunday or public holiday;

 

  1. not involve the carrying out of rock breaking, rock hammering, sheet piling or similar activities during the weekend and public holiday work hours; and

 

  1. all feasible and reasonable measures are taken to minimise noise.

 

So what does this mean for the construction industry? Where a project is subject to development consent conditions that restrict the days of working to Monday to Friday, the Order allows for the approved working hours in the development consent to apply to weekends and public holidays. The purpose of this Order is to allow for construction sites to implement social distancing measures which may require smaller workforces on site but prevent or minimise loss of productivity by allowing works to be carried out on more days.

As a result, construction programs may need to be reconfigured to balance the slower rate of progressing the works due to social distancing and/or team splitting, any EOTs claimed and the greater number of days that can be worked.

The Order may also result in contractors and subcontractors being able to make a claim in relation to a change in legislative requirements under their contracts. This may result in entitlements for time or cost relief arising from complying with the Order and other government orders made in response to the COVID-19 outbreak.

If you need advice as to how this order affects your contractual obligations or are negotiating a contract, please contact us. We are committed to providing the highest quality of legal services at competitive prices to help you and your business get through these challenging times.