Building a house or constructing commercial property can be a minefield, but with a focus on some key issues and the right advice the process can work well and be stress-free.

Due Diligence on the Builder

• Probably your biggest risk is the builder having financial problems or not being up to scratch. This could cost you significantly in additional costs to restart the project and for lost time. In a worst case scenario, you could lose money already paid.
• It is strongly recommended that you complete due diligence on the builder to ensure that they are reputable and financially robust.
• Ask for references, talk to previous customers and inspect the builder’s work. Ask for their financial reports for you to review and for your accountant to check.

The Contract

• Make sure the contract is appropriate for the works. Don’t just sign what has been placed in front of you. Contracts vary widely and may or may not be appropriate or completed correctly.  Seek legal advice.
• Understand how the contract works, for example, the key roles and processes applicable, how the contract fits with the other consultants’ roles etc.
• The drawings and specifications should be attached and form part of the contract. All parties need to be clear as to what the contractor needs to produce.
• Ensure you understand what represents a variation (as variations will increase costs for you).
• If you have strict timeframes the contract needs to be clear – there are a range of ways to attempt to achieve completion on time.

Price and Payment

• A fixed price is a good start, although there are many different arrangements. Avoid signing when items have not been priced or are unknown (PC sums).
• Ensure no large payments are required up-front without work being completed.
• If invoices are being issued under the Construction Contracts Act it is essential you understand the process, how “Payment Claims” and “Schedules” work, the timeframes involved and implications of non-compliance.

Warranties and Guarantees

• Push for specific warranties or guarantees especially where the implied warranties under the Building Act don’t apply.
• The terms of the warranty or guarantee are very important – you need to know what each warranty or guarantee covers and what it doesn’t.
• Even standard warranties or guarantees have exclusions and requirements to fulfil and will not cover everything.

Practical Completion and Defects

• The contractor should be responsible for obtaining required sign-offs from the Council, including Code Compliance Certificate, prior to Practical Completion.
• Understand the process for Practical Completion, the defects liability period and the payments required at each stage.
• Ensure that the contractor completes and remedies as many defects as possible before you agree to Practical Completion, taking possession and making final payments. It is often difficult to get contractors to come back and repair defects promptly, therefore ensuring this happens before the final payments are made provides incentive.

Disputes

• It may be helpful, and at least provide peace of mind, if you understand the processes and the different options available if you are in dispute.
• Don’t ignore issues. There may be strict timeframes to comply with, for example, if you receive incorrect “Payment Claims”.
• Seek advice immediately if you are unsure.

Kent Yeoman has significant experience in building and construction law and has provided advice on a variety of residential and commercial projects – contact Principal Kent Yeoman (DDI 03 343 8453 / kent@mmlaw.co.nz).