In Australia’s building and construction industry there is generally a good standard of workmanship from contractors and subcontractors, however from time to time circumstances occur where the standard of work is questionable, potentially defective or not quite meeting the owner’s expectations. In the 2011-2012 financial year there were 4,726 complaints made to the Queensland Building Services Authority (BSA) for defective or in-complete works.

The statutory defect liability period imposed on a contractor/subcontractor depends on the nature of the defect.

Defects may occur as a consequence of, for example, the use of poor standard of material and workmanship, non-compliance with approvals and regulations and the end result not being fit for purpose (only where the contractor has design and construct obligations).

Where the contractor or subcontractor has not carried out the works in a good and workmanlike manner employing good and proper materials and fails to achieve the relevant standard required by the contract the owner must not ignore the defective nature of the works until the end of the contract. The Owner must be pro-active in pointing out to the contractor that the work is defective and requires rectification as the works are progressing and, subject to the terms of the contract, direct the contractor as to the removal and rectification of the of defective workmanship and materials.

Defect Category

Most defects that owners complain about are cosmetic defects, or to use the terminology of the BSA, these are Category 2 defects. In the BSA’s Rectification of Building Work Policy, there are certain timelines which builders and owners need to adhere to in regards to notification, investigation for the purposes of the potential rectification of defects, which are discussed in more detail below.

More serious defects are Category 1 defects. These are defects which are either structural in nature, have allowed water to penetrate into the dwelling, or pose a health & safety risk.
The most serious defects are classed as Tier 1 Defective Works. This is work that does not meet the standard reasonably expected of a licensed contractor for the type of work that has been carried out and includes either (i) adversely affects the structural performance of a building to the extent that a person could not reasonably be expected to use the building for the purpose for which it was, or is being, erected or constructed (ie. requires substantial reconstruction of demolition) or (ii) is likely to cause death of, or grievous bodily harm to, a person.
The following are examples of defects under the respective types of defects:

Tier 1 Defects –

• these are grossly defective works;
• adversely affect the structural performance of the building to the extent that it can not be used for its intended purposes; or
• is likely to cause death of, or grievous bodily harm, to a person.

Category 1 Defects –

• adversely affects the structural performance of a building;
• adversely affects the health or safety of persons residing in or occupying a building;
• adversely affects the functional use of a building; or
• allows water penetration into a building.

Category 2 Defects –

• it does not meet a reasonable standard of construction or finish expected of a competent holder of a contractor’s license of the relevant class; or
• it has caused a settling in period defect in a new building.

Statutory defect liability period

If the defect has arisen from work that the contractor/subcontractor has done then the following timelines apply for the notification to and investigation by the BSA:

• For Category 1 defects a contractor is liable to rectify them up to 6 years 3 months after practical completion.
• For Category 2 defects a contractor is liable to rectify them up to 6 months after practical completion.

How to deal with defective works

Where a contractor has not carried out the works in a good and workmanlike manner employing good and proper materials, the contract, commonly by way of “warranty” clauses and in the specifications and drawings will include description of the materials to be used and the standard of workmanship to be applied to the carrying out of the works. A well drafted contract should set out (among other things) the applicable warranties required from the contractor and a clear definition of a “defect”.

If the contract does not expressly provide for compliance with the appropriate standards and codes (the Building Code of Australia for example) in the warranties, compliance would be required by the applicable legislation in any event, the construction of the contract documentation and also the implied terms.

An owner must notify the contractor of the defect in accordance with the contract provisions and allow the contractor to make a justified determination as to whether the contractor is responsible for the defect.

Rectification Obligations

Once being notified of a potential defect the contractor must make a justified determination on whether the defect has been caused by the building work they carried out. It may be possible that the defect has been caused by other factors such as poor owner maintenance, work completed by other contractors or persons after the contractor left the site which has subsequently damaged the original work or storm damage etc.

If the contractor believes that the defect has arisen from work or factors not caused by them, the contractor’s employees or sub-contractors, then the contractor may claim that they are not responsible for the rectification work.

However, in all circumstances the contractor’s warranty to rectify defects only applies if the owner has contacted the contractor (or if the owner can show that they have repeatedly attempted to contact the contractor) first to return to the site to review the apparent defect. The owner must ensure that it has allowed the contractor to make a judgement on the building work problem to discern the cause and responsible persons, if any.

If the owner engaged a replacement contractor to fix the problem before contacting the original contractor, but then asks the original contractor to reimburse the owner for the cost of hiring that replacement contractor the original owner may be under no obligation to pay for all, or part, of the costs claimed.

Therefore, we recommend that the owner contacts the contractor in writing to notify of the existence of the defect, allow the contractor to visit the site to view the owner’s complaint and then request the contractor make a justified decision on what action to take (if any); to either:

• rectify the problem; or
• inform the owner that the issue is not a building work defect or that the defect has not been caused by the contractor’s work.

Of course, if the owner does not agree with the contractor’s determination, they can take the matter further to the BSA. The BSA will then follow the due process to resolve the issue.

Potential Cost of Rectification/valuation of damages for defects

Each case will be impacted differently by defective building works and individual assessment will be required to be carried out on each. For example, in some circumstances the extent of damages for defective building works are commonly assessed by one of two methods:

• the costs of rectification of the defective works; or
• the diminution value of the property as a result of the defective works.

In determining the proper measure of damages for defective building work one will need to consider the nature of the defective works, the reasonableness in rectification of the defective works and non-compliance with contract prior to quantifying the damages for defective building works.

Please contact Usher Levi Lawyers for advice in regard with the legal and commercial aspects of your construction contract including treatment of defective works under the construction contract, rectification of defective work, potential damages associated with the defective works, claims for delay in reaching practical completion and all other contractual issues and claims in connection with your project.

Please note the information contained in this article is merely a guide and does not purport to provide a full explanation of the law or provide legal advice. This firm cannot take responsibility for any action readers take based on this information. We would be happy to assist you with any building, construction and engineering related legal issues you may have, please get in touch via [email protected] or telephone our Brisbane office on (07) 3087 3463 or Sunshine Coast office on (07) 5413 9270 and one of our experienced construction lawyers will respond to you.