CASE STUDY - RESIDENTIAL CONSTRUCTION PROJECT
Renovation - St Kilda (Budget $750,000)
We were engaged after the project was well underway and the client was having issues with the contracted builder. The builder was on site and approximately 25% of the way through the renovation which was predominantly fit out. The project was technically at lock up stage. The standard building contract was used, which stipulates certain percentages of the contract value must be paid at certain stages of the project.
See below graph.
STANDARD BUILDING CONTRACT PERCENTAGES (%)
The client had paid the builder 65% of the value of the contract as required. Once the builder received this payment, there was not enough money remaining in the contract to finish the project. The builder recognised this and walked off site; this left a financial gap between the cost to complete the project and the available finance remaining.
The client came to us to help determine the cost of the builder’s completed works, the cost of work that was still outstanding and the costs needed to rectify defective work.
During the project, we faced several challenges, including:
The client had overpaid the builder: Unfortunately, due to misuse of the standard building contract for the project, the client did what they were contractually obligated to do. But in this case, they had unwittingly overpaid the builder.
Not enough finances left in the budget to finish the project: The client had inadvertently overpaid the builder and the builder had walked off site, leaving a shortfall in finances left to complete the project.
Additional costs to rectify defective work and certify completed works: The builder had left some defective work on site and other work half-done. There were additional costs associated with rectifying the defective work and certifying the completed works.
This project required thorough analysis of the current state of the project, the works completed and the yet to be completed works, including:
Visiting the site and preparing a report clearly stipulating the cost of works completed, works yet to be completed and cost of defective work. This helped outline the outstanding amount owed by the builder for reimbursement to the client.
Providing contractual and project advice to help get the project back on track and moving towards completion.
Providing ongoing contract administration and management services as well as progress claim and variation assessment services with the new builder throughout the remaining duration of the project.
Providing expert witness advice and consultation during the client’s legal proceedings to recover the outstanding amount.
Unknowingly, the client had entered into a high-risk contract which inevitably exposed them to a scenario where the remaining balance for the project was far less than required to complete the project. Our report documenting the project position and remaining balances formed the basis of the legal claim against the builder, to which the client proceeded legally upon recovering the outstanding balance. For project security and peace of mind for the client, we provided our contract administration and management services for the remaining duration of the project; this ensured the remaining balance outweighed the cost of work to complete. Unfortunately for the client, the standard building contract had exposed them unknowingly to the above mentioned risks. These risks could have been avoided with sound contractual advice before entering into the contract as well as continual contract administration to further prevent the scenario.