Hi everyone.
First time poster, long time lurker. Hope you can assist me, to go forward.
I am in the midst of a development in Melbourne. 3 townhouse development, total cost of build approx $900k. Current stage: frame stage completed, and paid for. Bricks being laid currently for the garages.
Unfortunately, the process to get to this stage has been pretty painful, and slow.
Not stalled, but way too slow. It is obvious at this stage that the builder is having major cashflow issues, and subcontractors are not being paid. Upon further investigation (not through builder), I have found out the the builder has recently had to let go numerous projects recently, in order to “consolidate”. In addition, a number of other sites have stalled.
At this point, I feel I need to formulate a plan B / C urgently, to ensure the completion of this project, in a manner acceptable to me.
This week, I have lined up a couple of meetings with builders to discuss:
– taking over the project
– understanding insurance issues around switching over from one builder to another.
– any other issues I need to consider….
In addition, I want to understand the builder’s financial position more. How can I do this. Are there resources that are available that can assist me?
Can anyone assist me in helping me with a strategy to move forward effectively?
Thanks for reading.
You definitely need to take control
I’m not up with it as far as the legal requirements (in Aus) go but you need to put yourself or a suitably qualified person in as the project manager and that person to be in charge of purchasing (materials) and payments to contractors. In effect you become the primary contractor and everyone else a subby. The important thing is to retain control of finances so that monies paid to contractors (for materials) aren’t seized as part of any dispute with other parties.
I can see this getting messy so make sure your contract with your builder allows this. IE if he’s being paid to project manage as well as build then he may be reluctant to relinquish control. He may also spit the dummy and simply make things even more difficult by delaying.
I would make sure you are in a position where you owe money to the builder and maintain that position to hold leverage. He fails to deliver and you bring in someone else and the present builder bears the cost (money owed) for any expenses incurred in the transition.
Tread carefully and document everything as far as practicable.
When you come out of this it will have been a big learning curve.
– Simple rules are always retain control (project manage) and always always always retain financial control.
– Nobody gets paid for anything until it passes muster (meets spec)
– Building specs must be clearly defined to support above
– Include penalty/performance clauses where necessary.
– Include exit/termination clauses for performance failures etc
Good luck
The Freckle
I am not sure what you can do. but you have to be careful as you could pay the builder a progress payment and then the builder go under without doing the work.
You also have to be careful about supplies taking back goods which they have supplied the builder and they have not received payments for – the supplier will often retain title to goods until they are paid. So they could try to come back and remove hotwater systems etc.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Getting a builder to take on someone else' half finished work could be problematic too. Who is at fault if …………?
As Terry has said make sure that you only make progress payments after the work is completed. I have heard of people making payments before the work is completed and, the rest is history as they say.
You will also need to check there is no corner cutting in the balance of the project. Some builders may be tempted to save a few cents here and there.
I would also check with the relevant housing authority in your state to see what they recommend. Having said that make sure you temper your comments so they are not slanderous or misleading.
You may be a bit stuck.
Even though work may be behind, the builder is not necessarily in breach of the contract, the builder must be given time to complete the work. If the work takes more than 1.5 times the original period in the contract then you can terminate the contract. Problem is by the time this happens you will be in serious trouble.Contact the Builders Practitioners Board in Melbourne to find out your options. Maybe if it is very obvious he cant finish the job in the contract period you may be able to get an independent judgement to let you cancel the contract early, would be diffficult though.
What area of Melbourne are you in?
OK. Thanks everyone for your comments. Lots to consider.
This morning I had a meeting with my builder, plus I got some legal advice.
My positives:
– The frame stage has been completed, and certified by the building surveyor. I’ve also paid for it. A little brickwork has gone up for the garages in the meantime. So, financially, I am marginally ahead. That’s good. Need to quit whilst I am ahead.
– I believe that the above gives some reassurance to a new builder taking the project over. The new builder will only be responsible for insurance for the work he has carried out. Current builder is still liable for everything up to frame stage.
Negatives:
I signed original HIA contracts with the builder, who actually is not licensed. What I did not realise is that the licence number I witnessed belonged to a builder, who, as part of a wider arrangement with my builder, agreed to take on the insurance part of the build.
I have a warranty certificate in the licensed builder’s name. However this builder’s signature is not on the Build contract.These 2 builders are no longer in partnership. In fact, they are amidst a legal battle. My build contract is likely worth very little at the moment. Obviously this speeds up my urgency to act quickly.
I still am unsure or bad the cashflow position is. It’s probably irrelevant right now, as my site progress is still slow, and the only way I can guarantee movement is to switch contracts asap. Which, should not be difficult, given the validity of the build contract.
Learnings???
– I went through all the site visits, reference checks, interviews. nothing untoward uncovered. I signed up at a time, when my builder was rapidly expanding, and it is now out of control. So, my decision to use them was not fully informed.
– My gut instinct was to go with a tried a tested builder, but opted instead for the cheapest believing a $100K saving would be worth any extra hassle I might go through. Not the best decision in hindsight.
This weekend, I have meetings with two builders to discuss an opportunity to move forward. Feeling sick to the stomach, but gotta move forward.
Will keep you up to date with progress. Thanks for reading.
I may be able to help.
I am a registered, multi award winning builder, operating in Melbournes west.
Reading your last post I think you may have a chance to get things sorted out.
Let me know if you want to have a chat.
jazz77. Thanks for the offer.
This is where I am at.
– it looks like, after all, I didn’t get certification for frame stage yet. Having spoken to a couple of builders, another days’ work should do it, it just hasn’t been finished off properly. So, obviously I have paid prematurely. Knowing this, I spoke to my builder at the weekend and asked if he could fax me the building surveyors sign off, to get his response. His answer was, “the report should be ready this week.” So, at best, he may be scrambling to organise this asap before he gets rumbled. Then again, he may not.
-given the current dispute going on between the two builders, the licensed builder (whose insurance is covering my project) is keen to be out of this project asap. At the same time, my contracted builder is pushing me to sign a “variation” to switch over to another licensed builder, which he has arranged. So, I think I may have some negotiating power to push for frame stage to be offfically signed off on, before I sign anything. Hopefully, by the time is in place, I will have secured an independent builder myself to take over this project.
This is my plan this week:
– try and get frame stage completed properly by the current builder, and signed off, so it’s done and dusted.
– organise a bill of quantities to date, independently so I am in a position, so I have an independent view to where I am really at.
– on advice from a builder, I should arrange for an independent building surveyor, to check off on frame stage. The current building surveyor being used is linked to the current builder in some way.
– currently talking to two builders who may be interested in taking this project on.Any advice on the above? Other issues I need to address as part of my plan to switch over.
Again, thanks for reading. Any advice appreciated.
You've got your solicitor involved, yes?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM,
That’s coming up next. The further I dig into this, the more I unfold.
I met up with another client this morning who was in a similar situation to me, and is about 2 months ahead of me. He made the move to a new builder, and work has now recommenced at his site. He came out of this project about 100K out of pocket, and 15 months down the track for a single dble storey home. Legally, we have discussed the option of clubbing together, sourcing the other clients who are being left high and dry, in positions much worse than us. We want to get together and hit the builder directly with a big force.
But first things first, my current priority is to get a new builder in place.
Tonight I have found out there is a meeting of a few contractors who are owed money. I am going to try and attend it, and will understand how dire the situation is.
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