Effective Post-Construction Dispute Resolution Methods 11

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Tuesday, November 17th, 2015
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Disputes following construction unfortunately happen far too often and could be avoided with common sense and if builders always adhered to contract law.

From a client’s perspective, the builder needs to deliver on time, on budget, have no defects and present a finished job that is in accordance with the plans. It’s when this doesn’t happen, or when things have not clearly been stated in writing, that disputes can happen.

A building contract should clearly outline what has been agreed upon. When this fails and becomes a building dispute, there are a few methods to take that could help resolve the matter. Hopefully a resolution can be found without the matter ending up in court, although sometimes there is no other option.

Negotiation

The first and least formal way to resolve a dispute is to negotiate. This means meeting with the other party and trying to come to a mutual agreement that satisfies everyone’s needs.

Always seek acknowledgement 

Communication is the key to resolving disputes and ‘assuming’ that the other party understands or agrees with what is being communicated is heading for trouble. Always, when discussing the dispute, seek acknowledgment of key points to avoid miscommunication.

Talk, don’t argue

It doesn’t take much for an argument to start when there is a building dispute. The key is to stay calm, and talk things out in a calm manner. When the discussion turns up and tempers flare, it becomes harder to resolve the problem and things can be said in the heat of the moment that lead to regrets later on.

Put everything you’ve agreed to in written form

This is essential because if the dispute ends up in court, the proof is in the written forms of acknowledgments. Always clearly document your joint conversations and facts, complete with all times and dates, in chronological order.

Ensure the facts are beyond reasonable doubt

Make sure you have the correct information and your case is iron-clad before casting blame. Refer back to contracts and notes to determine whether you are in the right and use these documents to bolster your position in any negotiation.

Mediation is the best way forward should conciliation fail

If the conciliation fails, the best approach is to hire a mediator to try and resolve the problem. A skilled mediator facilitates a solution, which suits the needs of both parties. The mediator does not judge who is right and who is wrong. Because the disputing parties arrive at a solution rather than having a court make the ruling, the disputants maintain control of the entire process. Heading to arbitration is expensive and stressful, so resolving the matter out of court is a much better option.

Resolve each issue rather than dissolving the relationship

Despite any disagreements, preserving relationships should be paramount because often the parties might have to continue in business after the dispute is resolved. This is why mediation is often a good option as the parties strive to keep the relationship intact.

Arbitration

Should the above steps not resolve the matter, the next step is arbitration, in which an impartial third party makes the decision. The decision can be enforced legally and is not easy to appeal.

Litigation

When all else fails, then the final step is litigation, a very costly exercise. Litigation is a formal process for resolving disputes in court or tribunals, based on the rights of the parties involved. As an expert witness in building disputes, I have seen costs anywhere from $10,000 up to and over $75,000, so it’s in everyone’s best interests to avoid taking things this far wherever possible.

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11
  1. Branko Mladichek

    Great contribution Howard! I agree with everything you say but want to offer my experience.

    Unfortunately, people will be careless (even educated ones) and will often sign building contract in blind trust thinking less than buying shoes or being played nicely by the builder (you have to sign today or the discount will end and tomorrow price goes up). The stage is set for a dispute!

    Believe it or not, I have seen 35K renovation quote written on a lunch bag.
    Builder was unregistered and the owner did his money.

    Then if the owner proceeds without independent inspector for stage inspections then more than likely the will call me when they already have full blown dispute. By then they already have lost something substantial.

    The best disputes are the ones you can avoid or quickly put a lid on and smother before they become all consuming raging fire.

    My answer to that is to offer pre contract review + four stage inspections during construction at critical points. This not only will prevent major defects to be picked up before they are built in but also puts builder on notice that you have your own expert looking after you.

    Over the last decade it has proven to be very effective with major disputes avoided and my clients generally getting better job and an easier ride.

    The alternative is well articulated by you. Recently I have seen $8K dispute cost each party $30K before it was settled in VCAT (before decision)

    The fact is that building control and consumer protection only exists in name and you are on your own.

    Prevention better than cure? Sure is!

    • Howard Ryan

      Branko,
      Keep going mate as the industry needs major help in defining Contract LAW adaption

  2. Greg Rooney

    There is a basic problem Howard. Black letter contracts that try to pass all the risk to the contractor while screwing them down to a low priced tender is a recipe for instability. Contractors get their revenge by chasing variations. It's a game and contractors can play very well with good lawyers. Hence costs blow out. But in a strange way it can also suit government owners because often projects would never get up if the real costs were known. The Sydney Opera House, the F111 and other major construction projects would never have been built if the true cost was revealed in advance. It's a game everyone plays.

    I like the following quote:
    “In recent years a considerable number of projects have not been finished, nor will they be finished. This disorder, Sir, is caused by the depressed prices frequently obtained for your works:…these cut prices are illusionary, especially as a contractor who is working at a loss is like a drowning man who clutches at straw. In the case of the contractor this means he does not pay his suppliers, cheats everyone he can, underpays his men, getting the worst, not only using the most inferior materials, but quibbling over everything and always begging forgiveness over this and that. Abandon [this type of competitive tendering] Re-establish good faith, give the estimation of the work and not refuse a reasonable payment to a contractor who will fulfil his obligations. That will always be the best transaction you will be able to find.” Marshal Vauban, (1633 – 1707), Chief of Fortifications for Louis XIV – a letter from Sébastien Le Prestre de Vauban, Maréchal de France written 17th July 1685 from the island Belle-Isle-en-Mer (Bretagne) to Louvois, Superintendent of Buildings of France.

    • Howard Ryan

      Greg,
      Absolutely correct mate, the tendering process is very daunting for both parties and when the client says they only have so much to spend, the best thing to do is just say thank you and leave.

  3. Mark Whitby

    Some good advice in the article Howard, but line one there must be no defects… This is the crux of so many disputes. There is no agreed definition of defect. No authority or organization has come even close to giving a comprehensive definition of defect… and yet it appears in every residential building contract I've ever seen. The 3 codes for Inspection of Buildings is pathetic. Are the authorities too scared or are they not permitted to really care about consumers?

    • Branko Mladichek

      Perhaps I can assist there Mark

      Among other things any breach of implied warranties of s8 of DBCA1995 is defined as a defect
      The object of Domestic Contracts Building Act 1995 is to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners.
      Provisions of the Act are the section 8. Implied warranties concerning all Domestic Building Work and Division
      6 -Display Home Standard
      defective, in relation to domestic building work, includes—
      (a) a breach of any warranty listed in section 8;
      (b) a failure to maintain a standard or quality of building work specified in the contract;
      Alleged defect/item of work:
      (a) (1) The builder warrants that the work will be carried out in a proper and workmanlike manner.
      Q1: Considering all of the circumstances would, a reasonable person conclude that the builder has carried out work in a proper and workmanlike manner?
      (2) The builder warrants that the work will be carried out in accordance with the plans and specifications set out in the contract;

      Q2 Is the work carried out in accordance with the plans and specifications?

      (b) The builder warrants that all materials to be supplied by the builder for use in the work will be good and suitable for the purpose for which they are used and that,
      Q3: Are the materials used good and suitable?
      Unless otherwise stated in the contract, those materials will be new;
      Q4 Are the materials new?

      etc

    • Howard Ryan

      Mark,
      Its up to you as an expert in the industry to convince the hierarchy your definition of a defect and then PROVE it.

  4. Mark Whitby

    Well on the way Branko, but not fully answering the problem I'm afraid. The definition must be more than that to be effective, and that is my point… the Domestic Contracts Guarantee Act 1995 and the contracts based on that Act are insufficient… by quite a margin.

    Specifications must have workmanship clauses for starters… and those clauses must be proper and thorough clauses or they are useless.

    Next there must be compliance with manufacturer specifications.

    Next there must be compliance with the Building Act and the Building Code of Australia, so that what is installed must perform… that is last a reasonable lifetime. And because of this, there must be no inferior (alternative
    ) solutions even if they are cheaper.

    All of this leads to the sad lack in every authority's definition of defect as I stated earlier.

    • Mark Whitby

      Correction: I meant 'Domestic Building Contracts Act 1995'… always get it mixed up.

  5. A couple of things, Arbitration is illegal in some jurisdictions like NSW and Victoria in the residential dispute resolution context, the Domestic Building Contracts Act (Vic) and the Home Building Act (NSW) have ousted its jurisdiction. Arbitration is far more prevalent in commercial contracts and commercial disputes ie disputes that do not occur within the domestic building context. Secondly arbitration is a form of litigation, if mediation fails litigation will ensue either in the Courts, the Tribunals or the theatre of arbitration.

    • Howard Ryan

      Great reply Kim, see you soon mate at the BDPS meetings for 2016