Common contract pitfalls Part 2: When two building contracts become one

Builders often contact HIA seeking advice on day-to-day contract administration issues. Occasionally, these disputes escalate to the Queensland Civil and Administrative Tribunal (the Tribunal), where the Tribunal is required to determine whether the contract has been correctly interpreted and applied. The case serves as a reminder that obtaining advice before signing contracts can help avoid problems later.

Builder ordered to pay damages after two contracts became one

A recent QCAT case concerned a situation where the builder entered into two separate domestic building contracts with the owner. One contract covered re-roofing works to the house and shed, while the other covered construction of a new patio and associated concreting works.

The builder treated the contracts as entirely separate arrangements. However, when a dispute arose over defects and final payment claims, the owner argued that the contracts should be treated as a single contract under section 11 of Schedule 1B of the QBCC Act.

That section of the QBCC Act applies where a builder and owner enter into two or more separate contracts that could have been the subject of a single domestic building contract. In those circumstances, the legislation provides that the separate contracts are taken to be one contract.

The Tribunal agreed. Although there were two signed contracts, the works were performed at the same property, were signed on the same day, commenced at approximately the same time and formed part of the same overall project. Interestingly, no explanation was provided as to why two contracts had been used. The Tribunal found there was no reason the works could not have been performed under a single contract and therefore Section 11 applied.

That finding had significant consequences. While the builder argued they had achieved practical completion of the patio works and were entitled to the final stage payment, the Tribunal found defects remained in the roofing works and that parts of the contractual scope had not been completed. Because the two contracts were deemed to be a single contract, practical completion had to be assessed across the entire project. As a result, the builder was not entitled to claim practical completion or final payment.

The owner's subsequent termination of the contract was upheld. The Tribunal awarded the owner the reasonable cost of rectifying the defective roofing works, while giving credit for outstanding contract amounts that would otherwise have been payable. The result was that the builder was ordered to pay the owner approximately $32,000 in damages.

Key takeaway: seek advice before signing contracts

For most residential projects, there are limited circumstances where multiple contracts will be appropriate. As this case demonstrates, a builder may administer each contract separately, only to find later that the law treats them as a single contract, with significant consequences.

If you are considering using multiple contracts for one project, seek advice before the contracts are signed. The safest approach is often to have the proposed arrangement reviewed before problems arise.

Our final article in this series answers a common question about independent building inspectors.

To find out more, contact HIA's Contracts and Compliance team

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The above is intended to provide general information in summary form. The content does not constitute specific advice and should not be relied upon as such. Formal advice should be sought by members and customers with respect to particular matters before taking action.