The Terrible Twos
Case studies are a great opportunity to learn. In this case study, after a two-year delay, the design and contract for a building project were no longer fit for purpose. Fair Way was approached by the builder, who had incurred significant additional costs during the building project.
A wealthy international businessman bought a large section in an upmarket suburb. The businessman engaged a builder to design and build a lavish house that the businessman would use as his New Zealand base. The builder looked forward to being part of an impressive ‘house of the year’ type project. Careful consideration was given to every unique aspect of the design and fixtures before the final contract to build was signed.
Work began on the site to get it ready for the build. The builder began purchasing materials, and placed orders to import items from Europe. However a consenting issue resulted in delay upon delay. With the build under hiatus, the businessman began focussing on individual aspects of the house and some variations were verbally agreed. Further delays followed, and it took nearly two years for the building work to get underway.
The businessman was relieved to have the build underway, but his taste had changed over the course of the two years. A big issue arose when the businessman changed his mind on the agreed upstairs bathroom.
During a site visit, the businessman didn’t like the agreed bathroom fixtures. He decided to install a more modern sink, toilet and bathtub however the new materials were substantially heavier than those initially planned. Considerable extra work was required to reinforce the first floor to accommodate such heavy features.
The whole project ran into difficulty when the builder issued an invoice for the additional bathroom costs. It became clear that the builder and businessman had differing interpretations of the variations. The builder refused to complete further work on the property until he was compensated for the extra costs incurred. The businessman began to attribute blame on the builder for the two-year consenting delay, claiming that he would sue the builder as many of the house’s materials had become warped or damaged during the delay. With trust broken, work on the site stalled and communication broke down.
Exploring the issue
A Fair Way mediator helped facilitate conversations between the businessman and builder. It was clear that they both had very different interpretations of the variations.
In the case of the bathroom, the builder assumed he would be paid for the additional work and materials needed to reinforce the bathroom. He claimed that he was working under the instruction of the businessman and should be appropriately reimbursed for all the additional charges that went above and beyond their initial contract.
The businessman believed the PC sum in the original contract should cover the work. He said the builder should ‘have said no’ if the costs were not in line with their original agreement. He also suggested that the builder should be paying him for time wasted and materials damaged over the course of the project or risk facing him in court.
Over a series of conversations, the mediator helped both the businessman and builder to understand each other’s perspective. The businessman wanted to move into the home he thought he deserved. He felt he was being taken advantage of because he was successful. He had worked hard to earn all that he had, and he wanted a home to be proud of. He travelled a lot, so his new home provided him with a sense of security and his sense of security was threatened by the builder.
The builder really wanted to be part of such an impressive building project, but the debts incurred during the build were crippling him. The additional costs incurred were in the high six-figure range and impacted his ability to deliver on other projects. The builder provided an itemised breakdown for all the additional costs incurred during the build and the businessman was genuinely surprised to see how much the builder was out of pocket from their original contract.
The businessman offered to pay a large portion of the additional costs if the builder resumed the building work immediately. The builder agreed. While he still incurred a loss on the project, his immediate cash flow problems were alleviated, and he didn’t want to further damage his reputation as a luxury builder with a public legal battle.
Where there have been significant delays it may be better to cancel the original contract and start again. While a contract can only be cancelled with the consent of all parties and it can take some negotiation to set out the terms of that cancellation, it can be a better option than continuing with an outdated contract.
In this case, the builder and businessman spent a lot of time on arguing about variations. All of the ‘changes’ meant that both the builder and businessman had unclear expectations In the end, this was counter-productive and almost destroyed the relationship and the builder’s reputation.
Had the variations been recorded in writing along the way, there would have been clarity around what changes were agreed and who would pay for any additional costs. A simple email confirming what was discussed would have prevented a lot of problems. Our advice to any builders or homeowners with projects underway is to make a habit of always putting it in writing – send a quick email confirming any agreed changes.
The most important lesson is that the relationship between the builder and homeowner is essential to the successful completion of the project and it is important that conversations lead to common understandings so that disputes are reduced.
What to do if you find yourself in a dispute?
If you find yourself in a building and construction dispute, you’re first step should be to try and work things out together. If you find that those conversations become stuck or you cannot resolve things directly, get in touch with Fair Way. To find out more, visit www.fairwayresolution.com, send us an email on firstname.lastname@example.org or call us directly on 0800 77 44 02.