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In this video, OMB Solicitors Partner, Juliette Nairn, talks about building contract disputes and bodies corporate.


Know About Building Contract Disputes And Bodies Corporate

Hello, committees and strata managers. Today, I just wanted to touch base with you about a topic which I have been coming across recently from a different perspective, being building contracts.

Now, normally, when I speak about buildings and building contracts, I’m typically looking at it from a residential building defect perspective and dealing with an original owner. I want to actually look at it from a different perspective today because a lot of files and matters that are coming across my desk at the moment are dealing with a dispute.

But the dispute is arising as a result of a building contract entered into by the body corporate and its third party contractor, whether that’s a builder, a painter, an engineer, a superintendent, remedial works, whatever that scope with that third party contract, and the body corporate did not obtain legal advice or other advice prior to entering into the building contract.

A couple of the issues to keep in mind is that when we are talking about a body corporate undertaking painting work, remedial work, concrete cancer repairs, refurbishment of a building, it is a long term program, and the start of the committee and the body corporate manager needs to be a 12 to 18 month preparation.

So the very first thing that I look at when a body corporate committee comes in to see me, or if I’m talking with their strata manager, is I ask, so what are you wanting to do with your building?

The very first thing that I need a body corporate committee to think about is what is the scope of the building work that they are looking at regarding remedial building work, or what is the scope of the program, and once they have their third party contractor being an engineer, or an architect, or a designer, or a project manager.

Someone who is helping them design that scope of works, that they understand exactly what is in the scope of works, what is the methodology, so how is the scope of works going to be implemented, so how is the work going to be done, what is the time frame for the works, and what is not included.

One of the issues in dispute that come across my desk at the moment is a body corporate thinks they’re getting a certain painting job done, and it is done a different way or doesn’t include parts of the building that they thought that was in the scope of works.

So the very first starting point is 12 months before going to a general meeting to consider a job, sit down with the person who’s drafting your scope of works, and walk over the building so you very clearly understand what is included as the remedial work you’re going to do.

Once you understand that, then from that project manager or architect or designer, you might be able to get a best guesstimate regarding price so that your second step is you can start properly considering a budget.

How are we as the body corporate going to raise the funds to do this work? Is it coming from a capital works fund, a sinking fund? Is it a loan? Are we looking at a special levy? Are we going to project it over a 12 month period?

All of those questions are very important because they determine how you’re going to engage your lot owners to get the authority from lot owners as a general meeting, so how are the motions to be drafted?

What are to be included in the motions for you as the committee to sell that product and the remedial project you’re doing to your lot owners so they understand very clearly how it’s going to be funded.

Sometimes we’re in a situation where a body corporate committee will spend a large amount of money in going down a certain pathway, and the lot owners aren’t interested in that design concept for a refurbishment, or they don’t understand the scope of the repairs that are required to the building, and as a consequence, we could get a no vote at a general meeting.

So early preparation avoids those type of no votes. In addition to that, once you have that concept of what is the scope of works, you have a budget for your scope of works, then you can put your project manager or your architect or your engineer in a position where they can go to a tender.

So that what we are comparing when we look at three quotes as a body corporate committee is apples with apples. We don’t get such a great variation in price, or if we have a variation in price, we understand why.

Having those quotations is very important because that’s our final step that sets us up appropriately to going to a general meeting seeking the authorisation from lot owners to make sure that we can enter into a proper building contract.

Now, QBCC says that any remedial building work over $3,000 must have a signed, fully executed building contract. Within a building contract, there are very important things that a body corporate needs to look at, regarding the size, and it can be variable based on the amount of money that a body corporate is going to spend.

If you’re a 200 lot scheme and you’re spending $50,000 on a refurbishment program, maybe that’s a minor building works contract, and doesn’t require the same level of scrutiny.

If you are a 32 lot building and you are spending $200,000 on doing a scope of painting works, which includes remedial works to balustrades or balconies, then you need to have that building contract properly checked to make sure it contains protections for you as a body corporate.

Because what I am seeing at the moment are issues in dispute, either halfway through a project or at the end of the project where we’re dealing with the quotations are incorrect, solvencies of a building company, so a building company does not have sufficient funds to complete the work.

The other side of that, the body corporate has not raised sufficient funds to complete the work. The body corporate ends in dispute with the builder because of the scope of work is being different.

The time frame for the work, because there’s no liquidated damages or delayed damages, or a proper project management company involved in the project, and they are the type of problems that we want to avoid by having manufacturer’s warranties, understanding the scope of work, understanding the budget, understanding the timing of the work, and understanding what is the role of the project management company in the supervision of that work and reporting back to committee members.

Often issues arise when I have a committee come to see me to say, We thought that we could project manage the work ourselves. It is very time consuming and there is expertise required, so we don’t recommend that strategy because there are warranties associated with the work and how we wish to draft the building contract.

My best suggestion that I can give a body corporate is if you are thinking of this type of remedial work or the range of the media work that is valuable to your building, please come and consult with legal advice at first instance.

So 12 months before the project gets started, so you can set up a strategy where you will have a successful result at the end of your remedial building works.

Hopefully, that’s given you a few little tips and tricks in terms of thinking about what is the type of work you want done and how you value that work in your building.

As my next talk that I will be doing, I’ll actually be talking about the next stage of what goes into a building contract and dealing again with remedial building work such as original construction defects.

Thank you for taking the time to listen.

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