Construction Contract Claims and Dispute Resolution: Everything You Need to Know

Disputes happen in every industry. And every industry has its idiosyncrasies when it comes to managing those disputes. This is particularly true in construction. 

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Regardless of how common disputes are, it’s best to handle them quickly. Taking care of disputes as soon as possible will save you time and money whether you’re the plaintiff (claimant) or the defendant. And when builders let disputes linger on, there’s a greater chance of reputational damage. 

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So what’s the best way to handle construction claims and dispute resolution?

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Everything you need to know about construction contract claims and dispute resolution 

What is a construction contract claim?

There are several types of construction contract claims, but one of the most common is the defect claim. A defect claim is where work has been done that is faulty or unsatisfactory. 

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This can happen when the work doesn’t comply with the NSW Building Act 1989 or another applicable Australian Standard. It can also happen when a product is installed or used in a way that doesn’t comply with the manufacturer’s instructions.

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Some other common construction claims are:

• Damage claims - Damage has occurred on a property, and the claimant is demanding a legal remedy or money.
• Change or variation claims - Here the agreed scope of works are altered, impacting the project budget.
• Delay claims - Delay in the completion of the project with the claimant seeking remedy for a financial loss. 
• Price acceleration claims - If more work needs to be completed, or the timing is extended, then the project can cost more money. 
• Different site conditions claims - This claim arises when the site condition is not as described.

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Limitations on construction claims

Whether it’s a defect or a delay, or anything in between, all construction claims have limitations. These are set out by the Home Building Act 1989 (the ‘Home Building Act’). These limitations put an end date on the time when someone can bring a construction claim against another party.

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Construction claims are divided into major and minor defects. So if a claimant has a major defect (sometimes called a ‘structural defect’), they have six years to bring the claim. If it’s a minor defect, they have two years. In both cases, the countdown starts from the date of practical completion of work. 

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Examples of major and minor defects

Examples of major defects are:

• Cracks in or damage to the foundation 
• Cracks in or damage to floors and slabs 
• Cracks in or damage to walls 

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Examples of minor defects are:

• Thin cracks
• Wall dents
• Uneven finishes
• General deterioration

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Prevent construction claims with a robust building contract

One of the best ways to manage construction claims is to have good processes in place to prevent them. This starts with having a strong building contract. 

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Elements of a good building contract

When putting together a building contract, you’ll want to ensure that you have all the right elements in place. These are important because they help to clarify expectations, set the scope of work and acknowledge agreed outcomes. And it ensures that you’ve taken all the steps you need to protect yourself, whether you’re the builder or the customer. 

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Some of the elements your building contract will include are:

• Inclusions and exclusions
• Payment amounts, including progress payments and timing
• Variations
• Provisional sum items and costs
• Defect liability period
• Warranties and indemnities
• Dispute resolution steps 

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Having a building contract is not just important to protect both parties, they are also required if the builder is carrying out domestic building work over $3,300, including labour, materials and GST.

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Dispute resolution lawyers  – like our team – will be able to help builders draft an excellent template to ensure they’re protected no matter what occurs. We can also review a building contract to ensure that the rights of the customer are protected as well.

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Construction contract claims and dispute resolution

So what do you do if, despite your best efforts, you’re involved in a claim? It’s time to consider dispute resolution. 

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Alternative dispute resolution

Before anyone looking to make a claim goes to court, they might consider alternative dispute resolution. This might be mediation, adjudication, arbitration or expert determination.

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• Mediation - This is one of the most common forms of ADR in the construction industry. A neutral third party will hear both sides of the claim and make a non-binding recommendation. Many courts and tribunals require meditation before a claimant can bring court proceedings.
• Adjudication - With adjudication, a neutral third party (such as a retired judge) gives a decision on a dispute. The process is generally agreed to in the building contract and can be enforced as a contractual provision. 
• Arbitration -With arbitration, the parties agree to use an arbitrator to decide the matter passed on the facts, documentation and principles of law. This is agreed upon in the contract and enforced under that contract.
• Expert determination - This is used when there is a valuation dispute, and an expert in that field is needed. He or she will come in and determine the dispute. Again, this is agreed to in the contract and enforced as part of the contract. 
• The Security of Payment Act dispute resolution - Builders are entitled to progress payments under the Building and Construction Industry Security of Payment Act 1999. This is true whether or not the contract provides for them. If those progress payments are not met, the builder will be able to bring a claim under this Security of Payment Act, which also sets out how to do that. 

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Unfortunately, claims won’t always be remedied by alternative dispute resolution. In that case, the claimants may end up going to a court or tribunal. 

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NCAT

The Home Building Act makes it clear that the NSW Civil & Administrative Tribunal (known as ‘NCAT’) is primarily responsible for resolving building claims in NSW. A construction contract claim can be brought in any other court of competent jurisdiction. But NCAT is so highly preferred by the court system. 

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If ADR doesn’t work, then NCAT is your final stop to help you resolve an issue or dispute fairly. 

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Getting expert help

Our expert team is here to help you with all your construction claims and dispute-resolution issues. Whether you’re looking to create a new building contract, are being pulled into a new construction claim or are struggling with an ongoing claim that isn’t working out the way that you’d like – we’re here to help.