Liability 101


Builders are sometimes surprised when they realise there are warranties on their building work even if not stated in the contract under s397 of the Building Act 2004 and the Consumer Guarantees Act 1993, and that responsibility (and liability) for their work can extend up to 10 years under s393 of the Building Act 2004.


From a contractual perspective, if you had a full contract for a build then you’re “it” in terms of liability for a defect that occurs with the building, for the quality and performance of the materials and the specialist trades used.


However, if you have a “labour-only” contract then you are responsible only for the performance of your own work. Materials are selected and supplied to you for your use in completing the work.


Members often call to discuss some interesting contracting arrangements that their potential clients are suggesting to them.


The client wants to minimise the cost of the build and think they have the nous to project manage it. They’re sure they can get the best deal on materials through their Uncle Bob who works at a building supplies yard (and avoid paying a margin) or they have a specialist trade (at mate’s rates) that they’ve promised they’ll use on the job.


They will approach the builder to do the job “labour-only”. Sometimes this works well and the client does a good job of running the project.


But often the client soon finds there’s more to this building caper than they thought, and they can’t be on site as much as they are needed and they don’t really have the knowledge to ensure the job is being done correctly.


They then approach the builder to be available for delivery, inspection, acceptance and storage of the materials, and to schedule and supervise the subbies.


It is very important to discuss this possibility up front with a client, and make it clear that if these extra duties are thrust upon you, then the job goes from being “labour only” to “managed labour only”.


The extra work will be done but at an hourly rate — which may differ from the carpentry rate — so that there is a clear understanding between you at the outset.


What you also need to consider is that the liability that comes with being the head contractor can creep back into managed labour-only contracts. Once you go from “hands off” with respect to materials and specialist trades to “hands on” in their selection and supervision, you are taking on the liability as well.


If anything goes wrong, the client will argue that they paid a management fee and relied on your expertise, and that you were effectively in control of the project.


It is hard to see the benefit for a builder to accept such an arrangement when the control of the site, the selection of materials and specialist trades was not his at the outset, and have been handed over to him when it got “too hard” for the client.


If this scenario happens to you, ensure that the change of the scope of your role is recorded and properly disclaimed. The RMBF can help with this.


Also, the revised Labour-Only Building Contract, and Labour-Only Building Subcontract will be available before the end of the year. These cover all the issues particular to these kinds of jobs.


We recommend members use these to ensure that issues of liability are covered off.