Can the Builder Enforce the Builder’s Contract for Progress Payments?

16/08/2022

We have acted on behalf of Builders, Owners and others involved in the building industry in relation to their legal matters including disputes for many years including disputes relating to residential building works as referred to in the Home Building Act (HB Act).  These include major projects and also many contractual matters and disputes between Builders and Home Owners who are building or renovating their home. 

The HB Act provides for protections and rules which apply to the relationship between the Builder and the Home Owner.  The Contract must be in writing and must comply with the various provisions of the HB Act:

Section 10 of the HB Act provides in part:

“That a person who contracts to do any residential building works and who so contracts:

(c) in a contravention of any provision of the Home Building Act is not entitled to damages or to enforce any other remedy in respect of a breach of the contract committed by any other party to the contract, and the contract is unenforceable by the person who contracted to do the work. However, the person is liable for damages and subject to any other remedy in respect of a breach of the contract committed by the person.”

In those circumstances, there are serious consequences if a Builder or Contractor contracts to do residential works in contravention of provisions of the HB Act as the Builder is not entitled to damages or to enforce other remedies in relation to a breach of Contract by the Owner.  However, the Owner can enforce the terms of the Contract against the Builder.  There are numerous sections which provides for obligations on the Contractor.

Usually in relation to a construction of a home, the Builder will produce a Contract usually in the form of one of the numerous standard forms of Contracts and often the Builder will include Special Conditions amending various terms of those standard Contracts.  Care should be taken when considering the terms of the Contract in particular, any amendments made by the Builder.

Most often the Contract provides for a fixed price Contract Sum (subject to adjustments for example for variations) with a defined Scope of Work.  The Contract usually specifies “stages of work” and allocates a percentage of the Contract Sum as against each of those stages.  Care needs to be taken in relation to this aspect of the matter in particular, if you are an Owner having been provided with a Contract completed by a Builder.

The HB Act provides amongst other things that there is a Maximum Progress Payment for example, where there is a specified amount for completion of a specified stage of work.  The HB Act only authorises such agreement where the terms of the Agreement complies with Section 8A of the HB Act which states in part:

“(2)     A progress payment for residential building work under a contract to which this section applies (namely residential building work) is authorised only if it is one of the following kinds of authorised progress payments -

(a)        a progress payment of a specified amount or specified amount or specified percentage of the contract price that is payable following completion of a specified stage of the work, with the work that comprises that stage described in clear and plain language”.

2. ……
3. …….”

Since the beginning of 2020, we have observed that to a greater extent, some Builders have amended the standard form in a form which we believe is in breach of this requirement. 

The consequences of such a breach by the Builder, includes those referred to above in breach of Section 10 of the HB Act.  In addition the Builder must not:

(a)      demand or receive payment of a progress payment under a Contract relating to residential building work to which Section 10 applies unless the progress payment is authorised under Section 10 of the HB Act; or

(b)      enter into a Contract to which Section 10 applies under which the person is entitled to demand or receive payment of a progress payment unless the progress payment is authorised under Section 10 of the HB Act.

The HB Act provides for a penalty to the Builder for each breach.  If the Contract form is in breach entering into the Contract is a breach, and each request for payment is a breach.  There should be serious consequence for this.

In one case this year, we have advised an Owner where the Builder produced a Contract which was in a “standard form” which had been changed throughout the body of the document without any indication as to where those additions, deletions or variations had been made.  This is contrary to the almost universal practice that the amendments are identified, and are usually identified in a Schedule of amendments to the standard form which form part of the Special Conditions.

Such action makes it very difficult for an Owner to know whether the document that has been provided to you is in fact, a standard form Contract or has been amended.

Also a standard form Contract even without amendments has various schedules which need to be completed.  Care needs to be taken in relation to those schedules.  Recently we have seen a greater tendency for breaches of Section 8A(2) in relation to the requirements relating to Maximum Progress Payments as referred to above.

Similar restrictions apply in relation to Cost Plus Contracts in relation to residential building works regulated by the Home Building Act.  The HB Act sets out the requirements that the Builder must comply with in relation to claims under a Cost Plus Contract.

Owners and Builders should be aware of the problems associated with the above issues.  This is only one of many issues that arises when you are contracting a Builder to build your home.

Please contact Watson & Watson Accredited Specialist in commercial litigation specialising in the building and construction and strata matters by contacting Richard Watson or Shereen DaGloria Personal Assistant and seek timely and appropriate advice to mitigate the issues that often arise.

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