Resolving a Building Dispute
This building dispute guide is intended for consumers — individuals who are dissatisfied with their builder.
It is designed to raise their awareness of the potential complexities and risks associated with construction disputes before they cross the Rubicon — making a costly mistake.
Some examples of the most common mistakes people make when they fall out with their builder are listed in Section 4.
Because of the inherent complexity of construction disputes, the observations in this report are necessarily brief and relatively general. But we hope that it will cause you to pause for thought and, if necessary, take advice before taking steps that you may later regret.
Table of Contents
- Pause for thought
- Give Peace a Chance
- Understanding the Nature of Construction Contracts
- Costly mistakes Made by Dissatisfied Customers
Pause for Thought, Take Advice and Act
Once in dispute, you ought to act quickly but not so fast that you make a mistake that you later have cause to regret. Face the problem early and pay for early advice — early advice is often far cheaper than late advice.
A building dispute, even for only a few thousand pounds, can generate legal and professional fees measured in the tens of thousands and will take months or even years to resolve. The emotional costs cannot be overemphasised, especially where it is your home and/or you are suffering severe financial distress.
You are not always free to ‘kick the builders off the job’ as we are so used to hearing new clients say when they call us wondering why their builder is threatening to sue them.
Whether you can ‘kick the builders off the job’ depends on the terms of your contract and whether it allows such action under your particular circumstances. Remember, a contract does not have to be in writing.
You will see from Section 3 that construction contracts — by their very nature — anticipate that you may experience delay, additional costs and some defects.
A construction contract or the court (by implying terms into the agreement) may allow for mechanisms to overcome these common issues between builder and customer without allowing you or the builder to bring the contract to an end.
If you fail to appreciate this, you may get it wrong and terminate the contract before you are permitted to do so by law. If you do terminate too early, you will be in breach of contract and may expose yourself to additional liability to the builder.
The other most common way for a customer to show their dissatisfaction with their builder is simply withholding payment.
Depending on the circumstances, either or both of these knee jerk reactions taken by customers may constitute a breach of contract and entitle the builder to avoid further obligation under the contract. The builder may also be able to claim damages for breach of contract. In some cases, this may be exactly what the builder wants.
Alternatively, even if the customer is correct in terminating the contract, they may, by taking precipitous action, set the dispute on an adversarial course from which it is hard to recover.
The following section explains why winning a fully litigated dispute is often worse than coming to an agreement.
It should be clear that acting too quickly can be the wrong approach. But unfortunately, failure to act promptly may affirm some liability or claim by the builder that could otherwise be avoided.
You should now realise that you are faced with difficult decisions that ought to be made promptly.
Acting too quickly or not quickly enough may cause long term damage.
We strongly recommend that you contact a lawyer experienced in construction law as soon as you feel you are in dispute with your builder.
By taking expert advice, you can ensure that your next move is both timely and well-judged.
Give Peace a Chance
Litigation – The Adversarial Approach
People who have a genuine grievance with their builder often fail to realise soon enough what the cost of litigation can be — both losing and winning, emotionally and in terms of time and energy (whether through the Court, Arbitration or Adjudication).
By way of example, here are some facts about legal costs and court proceedings:
- If, after 1st April 2013, you issue a claim for £10,000 or less, you cannot recover any legal fees you may incur. These are likely to be as much or more than the sum claimed.
- If you issue a claim for over £10,000 and win, you may only recover as little as 70% of your legal costs from the other side in the ordinary course of events. If your claim is £15,000 and your costs are £20,000, then you may only recover a net of £9,000 (£15,000 for your claim less £6,000 of your £20,000 of legal costs that you cannot recover from your opponent).
- Following on from the scenario above: If you lose your claim for £15,000, you may be ordered to pay 70% of your opponent’s cost. That means you would get no compensation and be ordered to pay the builder £14,000 towards their legal costs of £20,000.
- Consequently, if you claim £15,000, you will receive £9,000 if you win. You will have to pay £34,000 if you lose (your costs of £20,000 and your contribution to their costs of £14,000) — clearly not an attractive proposition.
- If your opponent, the builder, loses, they must pay £49,000 (£15,000 of your claim, £20,000 for their costs, and £14,000 of your costs).
- If your opponent wins, they will not recover all their costs. Even if they win and you are ordered to pay £14,000 of their costs, they still lose £6,000 as their costs were £20,000.
Only the Lawyers Win
The simple scenario above should make clear where the phrase ‘only the lawyers win’ comes from. Similar dynamics apply to Arbitration, and no legal costs can usually be recovered in Adjudication.
It is also worth bearing in mind that your builder may be at or close to insolvency. It would be better to get them to finish the job by agreement than to get a Judgment or Adjudicator’s Decision that the builder cannot pay.
A decision not to make an interim payment may bring about their insolvency, which may harm you more than an alternative strategy for getting your problems with the job resolved.
For these reasons and others, we typically recommend that every effort is made to come to a mutually beneficial agreement. This can simply mean getting around a table and agreeing to a sensible commercial solution, or it may be some form of Alternative Dispute Resolution (ADR)-like mediation.
You are far more likely to get a favourable deal if you correctly understand your rights and obligations under the construction contract. In our view, this will generally require you to take specialist legal advice.
A mediation is usually a without prejudice meeting — with or without lawyers — where the parties in dispute come together with a trained mediator experienced in construction disputes. Often, everyone meets in a large room to set out their position and then break out into separate rooms. The mediator then goes from room to room, seeking to broker/facilitate a deal. The cost of mediation can vary greatly.
However, if mediation takes place early, it is likely to be far cheaper than extended arguments and proceedings through lawyers. The process generally has quite a high rate of success. Not only does it reduce costs, but it is also likely to save months and years of stress.
It is worth noting that by agreeing to mediate, you do not give the mediator any power to bind you — they do not make a decision and often express no opinion on the merits of the case. The mediator usually facilitates and accelerates the parties’ negotiations and acts as a sounding board.
For more information about mediation, visit www.cedr.com
Understanding the Unique Nature of Construction Contracts — A Contract Like No Other
Each building job is, to some extent, unique. Even a pre-fab has a different location each time it is installed/erected.
This inherent uniqueness means that the customer will often not have been able to fully specify what they require the builder to do. The customer may wish to change the design or to seek to add or omit items to or from the original contract.
- How can changes be agreed?
- How can the price be increased or decreased?
- How can the building schedule/completion time be varied?
- Are there any consequences for not meeting the expected quality?
Construction contracts should be designed to accommodate change because of the above and many other issues.
Another facet of a building project’s uniqueness is the far more risks and uncertainties that may go beyond any customer’s changes. For example:
- The builder may encounter gravel where they expected clay — substantially altering the buildout requirements.
- The weather may be too inclement to do any groundwork for a number of days. Bad weather is a foreseeable risk but not really capable of being accurately forecasted and may cause unavoidable delays.
- One of the tradespeople may hold up the general builder for several weeks (this may cause the customer to be in breach of their contract with the general builder).
Who bears liability for those risks, and at what price?
Typically, contracts are about making things certain and fixed from the outset.
Construction contracts recognise that this is not possible (or desirable) given the uncertainties and changes inherent in construction. Therefore, construction contracts simply try to make certain the mechanism by which the contract adapts to change and uncertainty, rather than trying to predict every circumstance that might arise.
A well-drafted contract will seek to allocate the liability for risk and uncertainty and provide a mechanism to accommodate change. Should those allocations of risk and those change mechanisms fail, there is often a mechanism for Dispute Resolution (a crucial thing to confirm if you are in disagreement).
How Disputes Arise
Builders are typically familiar with the unique nature of construction contracts, and consumers are not. Inevitably, this leads to misunderstandings and disputes.
For example, if the customer says, “Can you just put a cat door in” the builder may later add £100 to the final bill for the cat door. On a big job, these additions/variations can mount up to almost double the original ‘quote’ or ‘estimate’, which often causes disputes.
Usually, a quote is intended to quantify a fixed amount of money for which the builder is bound to deliver the original scope of work. A true ‘estimate’ may have little significance, and the builder will generally be able to recover a reasonable sum for the works completed even if it far exceeds the original estimate.
The precise circumstances need to be analysed by a construction lawyer before deciding whether an agreed-upon figure is a quote or an estimate and what effect that may have on the sum payable.
Certain forms of contract provide for a Contract Administrator. The administrator may be the customer’s architect, but the architect is, in this context, a ‘creature of the contract’, not a party to the contract.
This is quite unusual and often leads to misunderstandings and disputes. Sometimes there will be a dispute whereby the architect advises the customer not to pay for a defective installation. But the builder claims the architects’ design is at fault.
Who is right?
A dispute between the architect and builder places the customer in a difficult position. Similarly, the builder may say that the architect’s failure to provide instructions and drawings on time entitles them to additional payments for the delay.
If the architect denies this, what does the customer do?
The issues raised above are by no means comprehensive but ought to give the inexperienced reader some idea of the potential complexities that may arise in a building dispute.
This guide aims to help the reader understand the value of good early advice.
It is inspired by the frequent conversations we have when contacted by people who have not taken legal advice. The building dispute is already developed — and we find ourselves thinking, ‘If only they had called earlier’.
Examples of Costly Mistakes Once a Dispute Arises
1. Purporting to terminate the contract without the contractual right to do so. E.g., ‘Kicking the builders off the job’ when they are not in breach of contract
The builder is later than you expected, and you have received an interim account that includes numerous items you considered were part of the quote. You lose confidence and think you are being ripped off. You decide to kick them off the job.
Variations of this scenario happen all too often.
However, careful analysis of the contract or agreement may show that the delay and extra charges are reasonable. Typically, this is because you have asked for additional changes or items or your architect has given late instructions.
Never seek to terminate the contract unless you have the right to do so — AND it is in your best interest to do so.
If you do not have the right to terminate, the builder may issue County Court proceedings or commence adjudication or arbitration if the contract permits it.
You may find yourself liable for damages and legal costs/arbitrator’s/adjudicator’s costs.
Suppose you have the right to terminate the contract, but a new builder will cost you significantly more. In that case, make sure the old builder can satisfy any claim in damages and costs before committing to that course of action.
You may find that it may be better to force the original builder to complete the job for a relatively small sum of money.
2. Failing to give the builders a reasonable opportunity to remedy any defects or omissions
The standard of work is poor, and you do not think the builder can finish the job to the required standard. You instruct another builder to complete the work.
You need to be very careful and give the builder a reasonable opportunity to fix the defects. Otherwise, you may find you have to pay the full price to the original builder plus the extra costs of remedy to the second builder. You will not be able to recover those additional costs.
3. Failing to read the contract and failing to deal with matters in writing
Once you are in a dispute, you must prove everything you assert and the builder denies. From the outset of a contract, written instructions and exchanges are very helpful. Further, the contract may explicitly require certain matters to be in writing or notices of a prescribed form by a specified time.
Make sure you carefully read and understand the contract.
4. Failing to understand delay
Deciding who has caused the delay and the likely legal/financial ramifications can be complex.
There may be strict terms as to the time for completion in the contract, or it may just be implied that the builder has a reasonable time for completion. Broadly speaking, the builder is not in delay until the time for completion has passed — and you have done nothing to prevent the builder from meeting that deadline.
Carefully analyse the contract and the causes of delay before starting a dispute about delay.
5. Inappropriate use of Without Prejudice
You are in a dispute, and one party or the other sends a letter headed ‘Without Prejudice’.
If the court or other tribunal decides that the communication is, as a matter of law, without prejudice, it cannot be used in evidence.
Without Prejudice communications are typically used for negotiations and making offers. If you want to prove you wrote or said something, you need to ensure it isn’t put under a Without Prejudice heading.
Embarking on development or a building is one of the most substantial investments an individual or company can make.
The rewards, both personal and financial, can be tremendous…
But when things go wrong, disputes can escalate in a hurry. Sometimes what seems the most expeditious course of action — such as ‘kicking the builders off the job’ or seeking to terminate the contract — can end up being extremely costly mistakes.
Just as every building project is different, so is every building dispute.
If you find yourself at an impasse with your builder and are considering taking drastic action, it is incredibly important that you take expert legal expert advice immediately, and beforehand.
Helix Law’s specialist Construction Team advises on building disputes nationally — often resolving the problems without ever having to go to court. If the need for litigation does arise, we have the experience to ensure the best possible outcome for our clients.
If you have any questions regarding a building dispute that we can help you with, don’t hesitate to get in touch.