Dealing with lenders and other third parties

These delays may be caused by the client’s financier or, more commonly, independent inspectors engaged by the homeowner to undertake inspections in connection with the Relevant Building Surveyor (RBS). 

Accordingly, builders should take a proactive approach to managing homeowner-appointed third parties. Clear communication and appropriate control can minimise the risk of disputes or delays in achieving completion of the works.

Bank lenders and other financial brokers

Banks and finance brokers are typically involved at the early stages of a project. They may raise concerns regarding the proposed progress payment schedule, use of Method 2 under a lump sum contract, or the use of a cost-plus contract. Some lenders may attempt to dictate the builders’ percentage allocations under the progress payment schedule and claim if they don’t adhere to the requirements the loan won’t be granted to the homeowner. 

Resolving such disputes can be complicated, particularly given the strong bargaining position of the financial institution. The builder will need to determine how far they are willing to push back against these types of demands by considering their pipeline of work, business needs and risk tolerances.

HIA’s position is that builders should retain control over how the contract is administered and how the works are carried out. In practice, this may mean the builder maintains the proposed progress payment schedule and, if necessary, asks the homeowner to seek finance from another lender. Alternatively, the builder may need to consider terminating the contract.

Building inspectors other than the Relevant Building Surveyor (‘RBS’)

It is common for homeowners to engage their own third-party independent inspectors to conduct site inspections on the homeowner’s behalf. This can delay the progress of the works, particularly when the inspector identifies minor issues that could more appropriately be addressed during the defect’s liability or statutory warranty periods.

Builders should understand that if the building inspector is not the RBS, and is not a party to the contract, the homeowner is discouraged from inviting a building inspector on site to conduct a walkthrough with them to produce a report. The contract provides the builder with control of the building site, where a builder can determine who can attend and when. Therefore, it is important for the builder to control the site for insurance and safety reasons.

If a homeowner insists on engaging an independent inspector, then a suitable date and time needs to be agreed upon. Where appropriate, the builder should attend the inspection to help address any issues or misunderstandings as they arise. The builder should also consider the potential necessity of claiming additional time for the building period if the inspection or any resulting report delays the progress of the works by submitting a written extension of time form to the homeowner.

Builders should continue to manage the works in accordance with the contract and maintain project momentum regardless of the inspector’s involvement. As the inspector is not a party to the contract, the builder remains responsible for meeting the contractual milestones, including completion within the required building period. Should these milestones be missed, the builder could be in breach of their contractual obligations.

Agents and or representatives of the homeowner

The HIA contracts permit homeowners to appoint an agent or representative to act on their behalf. To do so, the agent or representative details must be noted in the contract. The builder will liaise with the agent or representative for the duration of the building period.

The homeowner should be made aware that any delays caused by agent or representatives is in effect, a delay caused by the homeowner. Consequently, this may entitle the builder to charge damages per the rate outlined in the contract for the delays accrued. 

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.