When housing approvals are up, building companies and tradesmen have work coming out their ears. How does this affect the build for the client and what risks are they taking?

Building companies are taking on too many projects at the same time. Many builders are struggling to find tradespeople, let alone good ones. When builders can’t stay on top of trades, poor quality work slips through the cracks to the detriment of their clients.

So what are the four risks to mitigate before and during your building process?

Risk 1: Builder liquidation

Builder insolvency could result in significant financial losses and emotional distress. There are many factors that could lead to builder liquidation, such as inexperience, cash flow problems, and poor project management, just to name a few. Therefore, why not do some background checks on builders you are considering before you sign the contract?

Risk 2: Contract amendments

Before signing your building contract, why not have someone review your contract and inclusion lists to ensure you fully understand the contract content and includes any of your included clauses? Crucially, your contract also needs to include clauses stipulating how you will be protected if things may go wrong. Things that could be included are:

  • ensuring your upgrades or changes are included before exchanging contracts
  • ensuring the progress payments are within recommended standards
  • ensuring you are compensated when construction completion is delayed

It is advisable to take a breath and not be overwhelmed with the process. It’s important that you take your time to ensure you have all building components included in your build now. Contract amendments can become extremely expensive as some builders will charge an administrative fee of up to 30 per cent, plus the additional cost of the inclusion. Little things like extra power points could cost you an extra $100 each and, of course, something like a retaining wall could set you back up to $10,000. Stopping and thinking about this now could save you significant money throughout the build. Variations are the builder’s cream, so get it right the first time.

Risk 3: Defective works

During and after construction, it's important to have the correct measures in place if the builder became liquidated. Therefore, it is important that you:

  • find out what to expect in each stage of construction before releasing progress payments
  • quality check your documents such as Home Warranty Insurance, builder insurances, government/council documents and have them well filed
  • have independent inspections done by your private inspector (not by the builder's certifier) at the pre-slab stage, frame and brickwork stage (pre-sheeting) and the final handover stage (practical completion)

Risk 4: Delays in construction

Construction delays occur more often than not, and you could lose money through issues such as lost rental payments. Delays could be a result of weather conditions, poor project management, supplier/tradesperson unavailabilitie and the like. It is important to understand what are your rights and be compensated when the construction is delayed.

Disputes between the builder and the client are unfortunately a common occurrence. Therefore, ensure your contract is locked down and contains the details outlined above. And avoid variations at all costs.

Get the help of a professional early as engaging legal services later can be a costly exercise. Endeavour to reduce your risk before you start and you are on your way to a happy building experience.

  • Interesting angle. With 98% of construction projects non-compliant, reportedly 16,000 builders buying their registration and the VBA/BPB protecting business at all costs I'd recommend:

    1. Going the owner-builder route (despite HIA lobbying against this)
    2. Disconnect builder/surveyor
    3. Use municipal surveyor rather than private
    4. Never sign HIA contract
    5. Forget warranty insurance it's worthless

    Think your consumer rights are protected? You have no rights whatsoever in Victoria.

    • Hi Steve, It's at least something consumers can consider until things are changed. It doesn't seem the problem is going to be sorted overnight but if consumers can do some initial background checks and proper reviews of a contract they could reduce some risk.

    • Agreed, Steve … HIA contract should be banned from use! No wonder domestic building is so fraught with danger for the owner with a monstrosity of a contract that is so lopsidedly stacked against them.

  • Hi Bruce,
    In an ideal world what you say might work. But how do you explain what has happened to thousands of new home owners each year as they spend something like $3 Billion (in Victoria alone) fighting for their right to have their homes brought to a reasonable condition? There is an intrinsic unfairness in the industry starting with Warranty Insurance. Simply looking over the policy does not ensure fairness… and cannot when the product is intrinsically grossly unfair. DBI (warranty insurance) must change to First Resort immediately. There were also a considerable number of defects in the vast majority of houses I inspected including those which had building consultants looking over the project at each stage… because they did not have an adequate definition of defect. There isn't even a definition of defect in the standard building contract and the Domestic Building Contracts Act has only half a definition. The Codes for Building Inspections AS4349 series are a joke. When an industry is intrinsically unfair ensuring good quality builds is not a reality, but only a slim chance unfortunately.

    • HI Mark, I do understand your frustration in that Victorian market and have read your posts. It's not much better in NSW. But until some things are resolved let's try and provide some advice to consumers and hopefully reduce what risk they can by some initial background and contract checks.

  • It's a great article from Bruce even if the heading is overly optimistic. Even if you do your diligence as Bruce recommends, it will still only give you half a chance of a great build. Reputation means nothing, it's where the puck was and not necessarily where it is now or where it is going to be with your build. I should know, I have been dealing with disreputable things done by reputable builders for over a decade.
    It is notoriously difficult for the average homeowner to predict which builder may be financial risk (remember Avon homes)
    There are other problems, warranty insurance isn't worth the paper (not strictly true but close) and of course. the market power of project builders is such that it really is, take it or leave it. So if you don't like their special conditions, or just $250/week liquidated damages per week it's too bad, it's their way or the highway.
    Building a home is a very uneven playing field with layperson lining up against professional. But as Bruce aptly points out you can help yourself to even the field by getting experienced building consultant to back you up.

  • Great article Bruce. My business, in Canberra, offers similar services that you mentioned above. I understand that the system is broken and there are a lot of things that could go wrong and/or have gone wrong in the building industry already, however, I believe that when consumers knowledge increases about construction, hopefully the risk of building will be somewhat lowered. At the moment, most homebuyers rely on builders wholeheartedly because they don't know anything about building. For example, there is a case in the ACT where homebuyers received fraudulent Home Warranty Insurance certificate (homebuyers didn't question the certificate upon receipt as they trusted the builder) and it was a mayhem to get the insurance payout when the builder got liquidated. A consultant could have helped the buyer as to how to quality assure the documents that they received from their builder before paying the progress payment. This action itself could have saved the homebuyer significant amount of money. I think knowledge is power and I think at the moment the knowledge is currently heavily on the builder side which disadvantages the homebuyers significantly. Before You Build was established to educate the homebuyers to help them make smarter decisions.