Keeping it as safe as houses

BY GREG NINNESS

DISPUTES between homeowners and builders should become easier to resolve thanks to a new payments system which channels payments for building work through an independently managed trust account.

Called BuildSafe, the scheme has been set up by John Green, managing director of Building Disputes Tribunal NZ Ltd, a professional disputes resolution service based on Auckland's North Shore.

Green has been providing services such as adjudication, arbitration and mediation for 20 years and was active in the building trade for 20 years before that, so you would think he would have seen every possible type of dispute between builders and their clients during that time.

Not so.

"There's always something new," Green said, and disputes were becoming more common.

Some of these could be outright scams. A common one is for a contractor to ask for a partial upfront payment before they start a job, often described as a deposit towards purchasing materials.

The contractor then disappears with the money, never to be seen again. Or they may turn up for a few days to get a job started and then leave everything hanging while they work on other jobs.

Homeowners are also not blameless. It is common for payment of the final 10% of a job's cost to be held back for up to a month after completion to allow for any defects to be identified and fixed.

When a job is finished, some homeowners say they are withholding final payment because they are not satisfied with the work in some way. But when the contractor remedies the problem and asks to be paid, the homeowner finds another aspect of the work they are not happy with. This cycle continues, and because it is probably not worthwhile for the contractor to take the matter to court, they eventually give up chasing the final 10% of their bill.

The BuildSafe scheme should prevent both types of problems, Green said. It involves the customer who is wanting the work done paying at least part of their money into a trust account administered by trustee company, Perpetual Trust.

Contractors (such as builders, electricians and plumbers) are paid from the trust account once work has been completed to an agreed standard.

If the parties can't agree that the job has been finished to a required standard, the dispute automatically goes to a formal adjudication process to be resolved.

This means the client doesn't have to worry about giving money to a contractor who does a runner, while contractors can be sure of getting paid when a job is finished as it is not in the client's interests to unreasonably withhold the final payment because they could be hit with extra costs if an adjudicator finds they have been unreasonable.

The amount the customer pays into the trust fund depends on the size of the job.

If the work costs $10,000 or less, all of that money is paid into the trust fund upfront. On completion, 90% of that is paid and the final 10% is paid 20 working days later if no faults have been identified.

That's because small jobs were usually completed within a month, so the customer would receive a single bill at completion.

Green said it was "just nonsense" for contractors to say they needed a deposit before starting such small jobs. They would have trade accounts with building supplies companies for the raw materials, so shouldn't need a deposit, he said.

However, some builders were simply disorganised and used deposits to start 20 jobs and finish none. They then ended up robbing Peter to pay Paul, Green said.

The BuildSafe system would force them to finish a job to an agreed standard to get paid.

The percentage of the total cost which is paid into the account reduces as the size of the job increases. For jobs costing more than $650,000, only 10% is held in trust, and paid on final sign-off 20 days after practical completion.

The terms of the work would be governed by the contract both parties signed, but BuildSafe would provide a default contract if no formal arrangements had been made.

Green said it was rare to find contracts that were fair to both parties.

"Contracts that are prepared by contractors are weighted heavily in their favour. Those that are prepared by homeowners or their lawyers are weighted heavily in their favour. Seldom do you ever see fair conditions of contract," Green said.

BuildSafe's default contracts would attempt to provide some balance and be fair to both parties.

The cost of using the scheme started at $100, and rose to $600 and would usually be split between the parties. However if a dispute resulted in an adjudicator being appointed, that would be paid for separately.

Green is launching the BuildSafe service on Tuesday and expects demand to come mainly from people undertaking residential rather than commercial building work. That was because developers or investors involved with commercial projects usually had ongoing, long-term relationships with contractors and the parties were usually able to resolve problems between themselves.

But someone might only alter or renovate a house once or twice in their lifetime, so their contact with a contractor was likely to be a one-off.

Green said such relationships often started on the wrong foot.

"Contractors are notorious for providing poor service," Green said, with the most common problem being a failure to turn up when they say they will, annoying the homeowner who may have taken time off work to meet them.

"So it doesn't get off to a good start, and [when anything goes wrong] people become very hard-nosed when dealing with each other and no one gives any ground."

It was that type of situation which Green hoped BuildSafe would prevent. "It protects both parties from each other and from themselves," he said.

- © Fairfax NZ News