Contract issues and getting paid

Pay attention to detail

It is imperative that you pay close attention to precisely what is required of you under a contract. The builder and other responsible parties should go through the relevant parts of the plans and the specification with a fine-tooth comb. If there is any uncertainty about the extent of the parties’ obligations then they need to be clarified before the contract is signed. 

A common example of this sort of problem is fencing work. Quite often plans will show a perimeter fence, but no mention will be made of it in the specification. Clients may later argue that you are obliged to build a fence for them. If the contract says the plans have priority over the specification then the client’s argument might have some force in a court, even though you know that neither party ever mentioned a fence when negotiating and costing the contract. 

You also need to get even the most minor details of the building work right. You have promised under the contract to build according to the plans. It is not good enough to say that the work you have done is ‘as good as’ what is shown on the plans. Work must reflect the plans exactly or you may be regarded as in breach of contract. 

If the client thinks you have not performed all of his obligations, obtaining payment will be very difficult. 

Don’t do preliminary work without a contract

Many builders outsource to third parties for preliminary services including design work, soil testing and surveying. If you are organising for this sort of work to be done before you have signed a formal building contract then you should enter into a preliminary services agreement. This will help you get paid if you do preliminary work, but don’t end up doing the building work. 

But the Building Act (the ‘Act’) requires a formal contract that must include prescribed progress payment stages. Is it still legal to use a Preliminary Services Agreement? 

It is possible to use a HIA Preliminary Services Agreement where preliminary services are less than $12,000. Otherwise, you will need to use a contract that contains prescribed payments stages as required by the Regulations. 

Formalise any variations

Every variation should be agreed in writing and expressed in terms that identify precisely what work is to be done under the variation. If variations are not agreed to in writing, it is much more difficult to get paid for them. Agreeing to variations in writing also puts the client on notice of the extra costs that are being incurred. 

If you agree to do a variation for free it may still be a good idea to cost it up, and then give the client a credit for it, so that the client has some idea of the lengths that you are going to for them. You might feel awkward pointing out your generosity but it helps assure the client’s good will if problems arise later on. 

We suggest that you use the HIA Variation Authority Form for all variations. 

Think about the bank, not just the client

Although your contract is with the client, his or her promise to pay you is only as good as the finance behind it. Banks can be difficult to deal with, but there are some things you can do to make life easier or at least more predictable: 

• Don’t take on jobs you know banks won’t like unless there is some other source of finance. The essential concern of a bank in financing the construction of a home is to ensure that their security is valuable. As a general rule, this means that the closer a house gets to completion the more prepared the bank will be to release funds. If you contract to do work that doesn’t go all the way to completion you may find that you run into trouble – building houses ‘to first fix’ or ‘to lock up’ are examples of the sorts of job that banks may not like. 
• Sometimes the nature of the building work requires the parties to deviate from the prescribed progress payment schedule (alterations and additions or extensions). Be prepared for a more complicated relationship with the bank if you have an alternative progress payment schedule that has too many progress claim stages. If your client is applying for finance, the banks may not grant finance approval. 

My client hasn’t paid, what do I do?

If your client does not pay you by the due date for payment, you will need to consider your options as to what steps to take. In any event HIA suggests that you should first contact your client and discuss the non-payment. You may mention that late payment interest is now chargeable. 

Your options will depend on your contract. Your options include stopping work (for a progress claim), taking steps under the contract to end the contract and/or commencing a court action or alternative dispute resolution. You do not have to end a contract first before taking steps to obtain an overdue payment. 

You should read your contract carefully concerning your rights and you seek advice if you are unsure. 

Stopping works/ending the contract

Most HIA contracts allow for the works to be suspended in the event of non-payment. To stop work you must give your client a written notice to this effect. If this right is not set out in your contract then you cannot stop work for non-payment. 

Your HIA contract may be ended if your client does not pay. HIA recommends that you seek advice before taking steps to end the contract. 

Alternative dispute resolution/court action

HIA contracts provide for the resolution of disputes through alternative dispute resolution including conciliation and dispute reference. If the dispute is a simple money claim (without the owner claiming defective work) then court action may be appropriate. However, if the dispute is more complex and involves questions of workmanship, then we suggest that you should consider whether you pursue court action or alternative dispute resolution.