Beginners Guide to Building and Construction (Part One)

General Overview:

Building disputes are separated into Commercial Building and Domestic Building disputes. In most building cases part, if not all, of the claim and the defence will arise out of the contract between the parties. For it is in the contract that most of the obligations of the parties will be found.

The Building and Property List at VCAT hears Domestic and Commercial Building disputes while the County Court has a Commercial Building List.

Building law concerns contracts which affects parties to a building contract and which governs a building project. “Building” in this sense includes all activities which are concerned in the design and construction of the building project.

• The project may be for the carrying out of renovation or refurbishment to an existing structure, for the erection of a new structure or even for the demolition of a structure.
• The structure in question may be domestic, commercial or merely decorative; it may be a major engineering work such as a bridge, a dam or road works.
• Although most of the structures with which this title is concerned will be affixed to land, it does not necessarily follow that they must be so.
• The principles with which this title is concerned and the pleadings which are set out below are for the most part equally applicable to chattels, such as prefabricated structures and to ship building works.

Claims concerning building works are commonly predicated upon one or more of the common legal bases for claims:

• Breach of contract;
• Negligence;
• Nuisance; and
• Reach of statutory duty.
• To that extent a claim against an architect in negligence is different from a pleading point of view compared to one from one brought against a medical practitioner or an employer.

In this sense, “Building Contracts” represent a particular application of general legal principles to special factual circumstances; it does not for the most part comprise a separate area of law. So, for example, while the measure of damages for breach of a term of a building contract or for negligence in connection with a building project is approached in a way which is familiar to practitioners in other fields, in building cases there are special difficulties and these, together with special legislative provisions, will be addressed below.

Building Legislation:

• Australian Consumer Law and Fair Trading Act 2012 (Vic)
• Building Act 1993 (Vic)
• Domestic Building Contracts Act 1998 (Vic)
• Estate Agents Act 1980 (Vic)
• House Contracts Guarantee Act 1987 (Vic)
• Owners Corporations Act 2006 (Vic)
• Property Law Act 1958 (Vic)
• Retail Lease Act 2003 (Vic)
• Sale of Land Act 1962 (Vic)
• Water Act 1989 (Vic)

Domestic Building at VCAT:

Domestic building disputes relate to domestic building contracts or domestic building works; ranging from small projects such as bathroom and kitchen renovations, to disputes concerning high-rise apartment buildings.

The List also hears applications for review of decisions by warranty insurers in relation to domestic building contracts.

The Domestic Building core jurisdiction comes from Section 53 of the Domestic Building Contracts Act 1995 (DBC Act) which provides for the Tribunal to ‘make any order it considers fair to resolve a domestic building dispute’ (Section 53(1).

• The Tribunal‘s position as the body chiefly responsible for the resolution of domestic building disputes extends beyond single houses to multi-million dollar unit developments and serviced apartment developments.
• However sections in the Building Act place some quite common Domestic Building work such as contracts for only painting or plumbing works as also allowed to be heard at the Magistrates Court.

Section 54 of the DBC Act defines a domestic building dispute in terms which basically extends to the range of disputes which could arise under a domestic building contract.

Section 57 of the DBC Act provides that the Tribunal is to be chiefly responsible for resolving domestic building disputes and requires proceedings regarding such disputes in court to be stayed if they could be heard in the Tribunal.

A Domestic Building dispute is between:

• Homeowner;
• Builder;
• Insurer;
• Other building practitioner/architect in relation to a domestic building contract or the carrying out of domestic building work;
• Anyone who carries out or manages or arranges the carrying out of domestic building work.

The meaning of a Domestic Building is the erection or construction of a home:

• Renovating;
• Associated paving;
• Associated landscaping;
• Associated out buildings such as garages or car ports;
• Demolition;
• Site work (but not civil works);
• Preparations of plans for the carrying out of domestic building work.

Domestic Buildings refers to any residential premises and includes any part of a commercial or industrial building but does not include:

• Caravan;
• Residence not intended for habitation (e.g., museum building);
• Rooming house;
• Motel, hotel, etc;
• Nursing home, hospital, etc.

A domestic building dispute will almost necessarily be a consumer trader dispute within Consumer Law.

• Accordingly, most matters which would seem to be the ‘bread and butter’ work of the Building and Property List could be commenced in the Civil Claims List.
• It is a matter of discretion whether proceedings started in that latter List should remain there or be transferred to the specialist Building and Property List.
• Essentially the more elaborate issues such as defects and unfinished work the matter should be transferred to the Building and Property List.

On the VCAT Building and Property List 61% of cases were resolved within 20 weeks of application and 79% of cases were resolved within 35 weeks of application.

Commercial Building:

In so far as the building contract is in writing the normal rules relating to the construction of commercial agreements apply. A distinctive feature of these written contracts, however, is their volume and complexity. This is the consequence of the modern trend of designers to specify to the last detail every component part of the structure and its workmanship. This will produce, even in a moderate project, a great number of drawings and substantial specifications as well as the general conditions of contract.

The identity of the contractual documents will vary from project to project, but the following are not uncommon:

• General conditions of contract; These are standard form agreements prepared and recommended by the organisations of builders, architects, engineers and sub-contractors.
• Specifications; These are often voluminous. They contain in detail a description of the work to be carried out. Of particular importance is the section called “Preliminaries”. This section may include clauses which vary or supplement the general conditions.
• Drawings; These are usually prepared by the architect or the engineer.
• Bills of quantities; These may or may not be contractual documents, depending on the terms of the contract. They contain in some detail each item of work and material comprising the work. The contractor may be required to price the bill, that is to place beside every item in the bill that part of the contract price which is referable to that item. These prices may then be used for valuing variations.
• Construction programs; These may take the form of milestone dates, bar charts showing graphically the various activities involved in the work and the timing and sequence of those, or a critical path network showing in schematic form those activities and the relationship between them: see
• Other; It sometimes happens that the pre-contractual correspondence, including the tender documents, are made part of the contract. In the case of subcontracts the provisions of the head contract are sometimes incorporated. This is often productive of obscurity or conflict for the two contracts are obviously included to serve very different purposes and their provisions may be mutually inconsistent.

Type of Building Contracts:

The most common type of building contract is that where the obligation of the contractor is to construct the work to the design of another. In such a contract the obligation of the contractor is to execute the work described in the contract using the material specified. To the extent that the terms of the contract give the contractor a choice in the manner of execution or in the selection of material he or she has the implied obligation to carry out the work in a proper and tradesman like manner with materials which are reasonably fit for the purpose.

• Performance building contract, where the obligation of the contractor is merely to execute the instruction of another is to be contrasted with that where the contractor agrees to achieve a result. A specification which imposes this obligation upon the contractor is called a performance specification. It is often difficult to distinguish in a given case whether the contract is a construction contract or a performance contract; the task is essentially one of interpretation of the contract. This may be difficult in the case of a written contract but it is more difficult where the agreement is oral. It sometimes happens that the contract is a hybrid; some of the obligations require the implementation of a design, and others the achievement of a result.
• Design and construct contracts; as the name suggests the contractor under such a contract undertakes the obligation to design and construct the building. In such a case the proprietor will give the contractor a more or less general instruction as to the building he requires and the contractor undertakes to provide it. These contracts, which are often called “turnkey” contracts are most commonly found in commercial or industrial developments where the primary concern of the proprietor is to have a building which meets the specified requirements rather than to be involved in the detail of how these requirements are met. Needless to say, the contractor under such a contract is exposed to the most comprehensive liability for defects, for it is responsible for all of the likely causes — design, selection of materials and workmanship.
• Lump sum contracts; Building contracts may also be classified by reference to the manner of calculating the price to be paid to the contractor for the work. Lump sum contracts are those where the price is specified in the contract itself. In the usual case this does not mean that the proprietor will pay no more or less than the agreed price for the work, for the contract will contain provisions for adjustment of the price for various reasons, most commonly for variations and extras. Another method of varying the price is by “rise and fall”. This is an expression which describes a term in a contract whereby the price is adjusted, usually by a formula, to reflect increases and decreases in the price of labour and materials during the performance of the work. A lump sum contract which is not subject to rise and fall is said to be a “fixed price contract” or the price is said to be “firm” or to have been “firmed up”.
  • In these contracts the price to be paid is not agreed at the outset; it is to be calculated by reference to the actual amount of work performed. These may be of the most simple kind, as for example where the contractor agrees to perform the work on a “cost plus” or a “do and charge” basis. In such a case the proprietor is to pay the cost of the labour and materials plus a mark up to cover the contractor for time and skill in organising the work and for profit. A more sophisticated version of these contracts is found in major engineering works where the agreement is to pay the contractor at agreed rates for quantities to be measured at the conclusion of the work.
• The essential difference between the lump sum contract and the rated contract is the agreement or no that the works will be carried out for a specified price. In many cases, especially concerning domestic buildings it is common ground that the contractor gave a price, but there is a dispute as to whether the contractor promised to perform the work for the price or whether it was an estimate only, so that the promise was to perform the work on a rated basis. It is often difficult for the pleader to know how to classify the price, especially at an early stage when instructions may be sparse. In such a case it is prudent to allege a fixed price contract and a rated contract in the alternative. When acting for the proprietor in such circumstances and the cost of the work on a rated basis exceeds the given price, attention should be directed to the question whether the disparity is so great as to provide a basis for alleging that the estimate was given negligently or in circumstances where it amounted to deceptive or misleading conduct. In an extreme case, where the circumstances so warrant, an estimate may be, so inadequate that it was given fraudulently.

 

 

 

Daniel Epstein of Counsel