With the increasing pressure on construction companies and builders to meet their deadlines and get the job done, the performance of works in building contracts remains relevant. A contractor is required to complete the items of work set out in a building contract including any necessary additional work. Each state and territory has specific legislation which regulates building contracts. They are also governed by Australian Consumer Law (ACL) when the proprietor is considered a consumer for the purpose of the ACL. As such, there are significant consequences for non-performance of the building contract. This article will outline what a building contract is, the performance completion dates, the consequences of non-performance, and the Acts which govern securing performance.
What is a Building Contract?
A building contract is an agreement between a proprietor (the client who requests the work to be done) and the contractor who constructs the works. A contractor may also have many sub-contractors working for them to build the works.
The contract will usually set out the extent of the obligation to complete the work in differing levels of detail. The agreement may be quite broad, or it may explicitly describe the work to be completed in great detail. If the description of the work is very particular, it will be much harder to request any additional work other than work that has already been set out in the contract.
The building contract will also usually allow the contractor to continue to do the work as long as the contract is on foot (unless there is a clause in the contract that says otherwise).
There are also two important dates which relate to the performance of works in building contracts that are relevant to the proprietor. In particular, they outline when the contractors agree to complete the work. These dates are as follows:
- Practical Completion Date: This date outlines when the contractors will complete the work sufficiently (minus any minor defects). Practical completion has no statutory definition and is defined under the building contract.
- Final Completion Date: This date relates to the completion of the contract rather than the project or the works. It is when the contractor no longer has work to complete concerning the contract, including rectifying any defects after the practical completion. A “Final Certificate” is usually issued at this stage as well as the final payment of the fees due to the contractor under the contract.
What is the Difference Between the ‘Date of Practical Completion’ and the ‘Date for Practical Completion’?
In many building contracts, there will be two components to the practical completion date. These are the ‘date for practical completion’ and the ‘date of practical completion’.
The ‘date for practical completion’ means the date the contractors must complete the works under the contract.
The ‘date of practical completion’ is the actual date the contractors complete the works.
Upon the date of practical completion, various clauses will come into effect, including:
- The commencement of defect liability and ongoing obligations;
- The release of security for the performance of works;
- The release from the accrual of liquidated damages for delay; and
- The right to have no additional variations requested
What Happens if the Contractor is Not Able to Perform the Work?
The contractor will not be able to get out of performing the works and performing their obligations. For example, this includes situations where:
- They are not able to undertake the work;
- They cannot meet the specification without having to incur additional costs; and
- Unexpected issues arise which mean that the contractor has to change the work so that they can complete the work required.
The building contract (including standard form contracts) may allow for these situations, but it will address how the parties will deal with these unexpected issues. For example, the contract may provide clauses concerning extensions of time or delay.
If the contractor continues to non-perform to the extent they repudiate the contract, then subject to other requirements, the proprietor will be able to terminate the contract and seek damages.
The building contract will also likely address force majeure issues (issues outside both of the parties control, such as fires or floods). If this is not set out in the contract, then the common law doctrine of frustration will apply.
Frustration occurs when an outside event renders the contract unperformable. The contract will become terminated, and any loss resulting from the termination will lie where it falls.
Security of Payment Acts
Building contracts usually always address security of payments and each state and territory has its respective Security of Payment Act (SOPA):
- Building and Construction Industry (Security of Payment) Act 2009 (ACT)
- Construction Contracts (Security of Payments) Act 2004 (NT)
- Building and Construction Industry Security of Payment Act 1999 (NSW)
- Building and Construction Industry Payments Act 2004 (QLD)
- Building and Construction Industry Security of Payment Act 2009 (SA)
- Building and Construction Industry Security of Payment Act 2009 (TAS)
- Building and Construction Industry Security of Payment Act 2002 (VIC)
- Construction Contracts Act 2004 (WA)
Security of Payment legislation assists with ensuring that payment claims are met and that subcontractors and suppliers receive payment they are owed. The main benefit of this legislation is to ensure that parties are paid (including where the principal must pay the sub-contractors directly if they have made a request under the relevant SOPA).
Generally speaking, contractors are required to perform the works under a building contract until the works are complete. If you are having issues with a contractor not completing works or you would like your building contract reviewed, get in touch with our experienced construction lawyers on 1300 544 755.