Dealing with subcontractor defective works

What happens if you discover during the build, or after completion that your subcontractor has completed work that is incomplete, defective, or does not meet the specifications that you provided? 

Key facts

• Statutory warranties that apply to builders in NSW for residential building works also apply to subcontractors.
• It is recommended that there is a contract between builders and their subcontractors.  However, even if a written contract does not exist, it is implied that works will comply with industry codes and standards and in accordance with any plans and specifications provided.
• If a subcontractor’s work is defective, incomplete, or otherwise has issues, you should notify the subcontractor and provide the subcontractor with an opportunity to respond. 
• Evidence of an alleged defect may be required if the subcontractor disputes that their work is defective.
• A builder may be able to seek an order that the subcontractor rectify the defective works (or pay compensation) via the NSW Civil and Administrative Tribunal (NCAT).

FAQ’s

My subcontractor has completed their scope of works.  I have inspected the works and found the work to be sub-standard or defective.  What do I do?

Whilst there is no set procedure, builders should consider following these steps when communicating issues with subcontractor completed works: 

1. Notify the subcontractor of the issue  

You should notify the subcontractor of the issue in writing (in addition to any verbal notifications).  This is to ensure that there is evidence that the subcontractor has been informed of the issue and has a reasonable opportunity to respond and/or conduct rectification works. 

It is a good idea to indicate a time frame within which the subcontractor needs to respond and/or rectify the issue. 

2. Advise the subcontractor of what you might do if they do not rectify the work

If final payment has not been made, you may consider holding that until the issue is resolved (subject to the terms of your contract). 

Ensure you outline in writing your reasons for non-payment especially if the subcontractor’s invoice is a payment claim under Security of Payment laws (a Payment Schedule may need to be prepared).

You may also warn the subcontractor of what you intend to do next should they not respond or return to rectify their works.  This might include seeking quotes from alternative contractors to rectify the works, which you may seek to recover from the subcontractor if additional costs are incurred.

3. Obtain evidence that works are defective or incomplete

If the subcontractor disputes that the work is defective, be prepared to provide evidence that the works are defective or sub-standard.  This may include photographs, reports from independent experts or other contractors.  

It is also important for you to keep a record of all communications with the subcontractors in relation to the incomplete or defective works.  This may include evidence of the defective works, letters of demand, notices requiring the subcontractor to inspect and rectify those works, as well as the responses from the subcontractor.

The owner of a house I built 3 years ago is complaining of waterproofing issues.  I subcontracted those works to a waterproofer.  Can I tell the owner to call him? 

No, unless the waterproofer entered into a separate contract with the homeowner, it is your responsibility to inspect the works.  You contracted with the homeowner and provided a warranty regarding the works completed, including any subcontracted works such as waterproofing. 

Accordingly, it is your responsibility to investigate the complaint to determine if there is a problem with those works.  However, you should still contact the subcontractor and seek their assistance whilst investigating the complaint. 

If the works are found to be defective, you as the builder would need to rectify the problem for the homeowner.  This may include pursuing the waterproofer to meet their warranty made to you. 

What if subcontractor works are defective but they refuse to come back to rectify?

If the subcontractor refuses to rectify the works, you may need to consider takings matters into your own hands to resolve the problem. 

However, before taking any legal action, you should take all steps to try work out the issue between you and your subcontractor.  Additionally, consider what impact this dispute may be having on the homeowner such as whether it is delaying the projects completion. 

If you are forced to rectify the works, ensure that you retain evidence supporting your claim against the subcontractor should you decide to pursue the subcontractor in a court or tribunal.

Where can I go to pursue a subcontractor for defective work? 

NSW Fair Trading provides a dispute resolution service for home building disputes. However, this assistance is not available where the dispute is between builder and subcontractor. 

The NCAT is a tribunal that can hear and determine building claims including defective works claims by a builder against a subcontractor.  It can make orders for rectification of the works, or an order to pay money (such as compensation where the builder has already rectified the works).  

A builder may also consider action via other means such as the court system to seek compensation where there has been a breach of contract (works not performed in accordance with the contract).

Seek independent legal advice before commencing any form of legal action.