Construction projects usually involve a lot of money and complex relationships between multiple parties. With many moving parts, it is not uncommon for things to go wrong. This article provides a general overview of the 5 most common types of construction disputes in Victoria and the options available to each party.
Please note: this article provides general legal information only and is not legal advice. Every situation is different. If you believe you have been affected by any of the issues described below, you should seek legal advice as soon as possible.
- Payment Disputes
Different payment disputes involve different parties and the way to recover money depends on who the parties are and what the contract covers.
In one situation, where one party has carried out construction work and has not been paid by a head contractor, Victoria’s Building and Construction Industry Security of Payment Act 2002 provides a fast and enforceable pathway to recover money owed.
However, where the dispute is between a homeowner and a builder over a domestic building contract, the Security of Payment Act does not apply. Those disputes are generally handled through VCAT under the Domestic Building Contracts Act 1995.
Where neither of the above applies – for example, a payment dispute arising from a commercial contract that falls outside the Act’s scope – the parties will typically need to pursue the matter through litigation or arbitration, depending on what the contract provides.
- Defective Work
Disputes about the quality of construction work are among the most contested in the industry. Where work does not meet the contractual standard or applicable building regulations, the party who engaged the contractor may have a claim for the cost of rectification, diminution in value, or consequential losses. Common examples include:
- There are some structural defects such as cracking foundations that have not been built to specification;
- The builder failed to install waterproofing leading to water ingress in roofs;
- The builder poorly built the house resulting in uneven surfaces or defective tiling; or
- A plumber’s work does not comply with the relevant Australian Standards.
For residential building work, disputes between a homeowner and a builder are generally handled through VCAT under the Domestic Building Contracts Act 1995. VCAT offers a more accessible and cost-effective forum than the courts for these disputes, though the process can still be lengthy.
For commercial construction, defect claims are typically pursued through litigation or arbitration, depending on what the contract provides. Many commercial contracts include mandatory dispute resolution clauses – such as expert determination or mediation – that must be exhausted before proceedings can be commenced.
- Project Delays
Delay disputes arise where one party claims the project has taken longer than agreed and seeks compensation for the costs incurred as a result.
Not all delays are treated the same way:
- Compensable delays – caused by the principal or their agents. The contractor is entitled to both extra time and additional money
- Excusable delays – caused by neutral events outside either party’s control. The contractor receives extra time but generally not additional money.
- Non-excusable delays – caused by the contractor. The contractor receives neither time nor money, and the principal may be entitled to liquidated damages.
Most construction contracts contain specific notice requirements for delay claims. Failing to give notice within the timeframe specified in the contract can extinguish an otherwise valid claim entirely.
- Contract Termination
Construction contracts can be terminated for cause – where one party has committed a sufficiently serious breach – or, in some contracts, for convenience by the principal.
Where a party purports to terminate a contract, the other side will often challenge whether the termination was valid. If a court finds that a purported termination was itself a repudiation of the contract, the terminating party may end up liable for the losses flowing from that repudiation.
A termination for cause is generally valid where:
- One party has repudiated the contract – that is, their conduct shows they no longer intend to be bound by it.
- A fundamental breach has occurred, serious enough to deprive the other party of substantially the whole benefit of the contract.
- A specific contractual termination right has been triggered – most standard form contracts list specific grounds such as insolvency, prolonged suspension, or failure to remedy a notified breach within a set period.
A termination is likely to be invalid where:
- The breach relied upon is minor or technical and does not meet the required threshold;
- The contractual notice and cure procedure was not followed before terminating;
- The terminating party was themselves in breach at the time;
- The stated reason is not one permitted under the contract.
- Insolvency
When a party to a construction contract becomes insolvent, the options available to those owed money become significantly more limited. An unsecured creditor – which is what most subcontractors and suppliers are – will typically rank behind secured creditors in the distribution of assets, and recovery is often partial or nil.
If you become aware that the party you are contracting with is in financial difficulty, acting quickly – including by serving a payment claim under the Building and Construction Industry Security of Payment Act before insolvency crystallises – can improve your position significantly.
What Verge Legal can help with
It is advisable that you take action early. Contractual notice periods, limitation periods, and procedural deadlines are all time sensitive. If you miss these, they might close off options that would otherwise have been available.
Whether you are seeking payment, facing a defect claim, dealing with a delayed project, or unsure about the validity of a termination, Verge Legal can give you tailored advice at an early stage which gives you the best chance of protecting your position.