Subcontractor fails in Costs Plus (do and charge) Claim

08/08/2018

There is an industry of Builders who undertake emergency work; for example after a storm causing damage to property either by direct contact or through flood.  There are numerous building companies who undertake this work for owners or insurers.  The Head Contractors often subcontract part of the works to subcontractors to undertake part of the works.

Most often the initial work to protect the building is undertaken on a “do and charge” basis.

Where the work relates to residential building work the Home Building Act still applies.

Recently there has been a change to the Home Building Act which now provides that progress claims for residential building work under a Contract essentially on a “do and charge” basis (or costs plus) requires that the person making the claim must annex to the claim invoices, receipts and other documents as may be reasonably necessary to support the claim.  The Home Building Act prohibits a person demanding payment or entering into a Contract entitling payment without compliance with this section (Section 8A of the Home Building Act).

Unfortunately many Builders and subcontractors when making a claim fail to comply with this obligation and simply issue Invoices for the amount claimed without any supporting documentation.  Most often the claims are paid by the owner to the Head Contractor or the Head Contractor to the subcontractor even though the claim is not made in accordance with Section 8A of the Home Building Act.  By some it is viewed that it would be bad business not to pay the Head Contractor or the subcontractor.

Recently in 2018 we received instructions from a Builder who had been engaged to undertake roof repairs following a storm in Sydney.

The Builder subcontracted this work to one of its usual subcontractors who undertook the works.  The basis was a “do and charge” basis. The subcontractor issued invoices which were paid by the Builder.  Issues arose when further invoices were issued; it became apparent to the Builder that the subcontractor’s claims were excessive.

The Builder produced an “audit” setting out what it believed was the appropriate sum claimable by the subcontractor and ascertained that the subcontractor had been overpaid.

The subcontractor had not complied with the requirements of either the Contract or the Home Building Act and failed to provide supporting evidence to support its claim.

Notwithstanding the subcontractor instructed Solicitors then issued proceedings against the Building out of the NSW Civil and Administrative Tribunal (NCAT) claiming a significant amount for claimed moneys due to the subcontractor.

In this particular case there were further investigations and we could establish that part of the claim was “completely false”.  In this day and age one can prove the true facts much easier than in the past when there was not as much technology available.  In this particular case, we utilised “technology” to establish that one of the particular facts and amounts claimed for a particular service was completely implausible.  With the evidence we pointed that out to the Solicitor for the subcontractor and before the matter progressed very far the matter was resolved by the subcontractor withdrawing the claim.

Further in our experience even if the Contractor fails to comply with their obligations under the Home Building Act they will make and be entitled to claim on a quantum meruit basis.

A quantum meruit claim by the Builder (who has failed to comply with the Home Building Act) is not for the benefit of the owner; the owner will usually be required to pay in those circumstances the reasonable value of the work.

Further if the claim is over $30,000 most often the owner will be ordered to pay the costs of the Builder (even though the Builder has not complied with the many of the sections of the Home Building Act).  This seems inappropriate however one must prepare a case based on the likely outcome of the dispute.  We can advise you in relation to methods of protecting claims by such Builders against owners.

We can advise you as to possible enquiries that can be made and to establish and prove (or disapprove) certain facts by technology which are not commonly utilised in home building matters.

If you are faced with a loss and you believe that it is appropriate to make a claim or you are faced with a claim made against you which you do not believe to be valid please contact Richard Watson or his Personal Assistant Shereen DaGloria to discuss your concerns and to obtain appropriate advice as to the best course of action to ensure a cost effective resolution.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

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