Picture this: you are contracted to build apartments in the heart of Brisbane City. You complete the job and the works reach practical completion. Six years later, you receive an email from the Queensland Building and Construction Commission advising you that one of the apartment owners has lodged a complaint about defects in the work which your company carried out. QBCC has decided to issue a Direction to Rectify (DTR) for the defects.
How you respond to the DTR can have significant reputational and financial impacts for your business and you, if you are the nominee licence holder.
If you receive a direction to rectify, it is critical to know the steps you can take, and the time by which any step must be taken. In this article, we walk you through, from the contractor’s perspective:
- the circumstances under which the QBCC may issue a DTR;
- steps to take if a DTR is issued against you; and
- the consequences of failing to comply with a DTR.
When can QBCC issue a DTR?
QBCC is empowered under section 72 of the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) to issue a DTR to a person who carried out building work where:
- the building work is defective or incomplete; or
- consequential damage has been caused by, or as a consequence of, carrying out the building work.
What is ‘defective’ building work?
The QBCC Act does not provide much clarity on the definition of ‘defective’ building work. The definition provides that defective, in relation to building work, “includes faulty or unsatisfactory.” This gives QBCC significant discretion as to how it categorises work as ‘defective’.
Objective standards which QBCC may consider include the National Construction Code, relevant Australian Standards and manufacturers’ installation requirements.
In deciding whether to give the direction, the QBCC Act provides that QBCC may:
take into consideration all the circumstances it considers are reasonably relevant and, in particular, is not limited to a consideration of the terms of the contract for carrying out the building work (including the terms of any warranties included in the contract).
Consequently, QBCC may consider the terms of the relevant construction contract to determine whether the work is defective or incomplete. However, QBCC maintains a broad discretion to determining whether works are defective or incomplete.
What is consequential damage?
Consequential damage is damage caused by, or as a consequence of, carrying out building work at a building site, regardless of any intention, negligence or recklessness of the person carrying out the work. The damage must be caused to a residential property at the relevant site, containing the relevant site or adjacent to the relevant site.
Examples of consequential damage include damage to a retaining wall on a neighbouring property, impacts to the structural integrity of a house on a neighbouring property, or damage caused by water ingress to a neighbouring property, because of the way the building work is being performed.
This extends the contractor’s liability beyond the strict boundaries of the site, if damage is caused as a consequence of building work.
Process for issuing DTR
A DTR may be initiated by a complaint by the owner/occupier affected by the defective building work or consequential damage, although a DTR for consequential damage may be initiated by QBCC.
The complaint may be lodged through the QBCC online portal by filling in a ‘Residential and Commercial Construction Complaint Form’.
The owner/occupier is required to lodge a complaint within 6 years and 6 months from when the work is completed and within 12 months of noticing the defect.
2. Assessment, attempt to resolve, repairs, and inspection
Once a complaint has been lodged, the QBCC will assess the complaint and contact the relevant parties to discuss and/or request further information. The QBCC may also request the owner/occupier to provide reasonable access to their property to inspect the allegedly defective/incomplete items.
Parties will be encouraged to resolve the dispute without further intervention from the QBCC. While some disputes get resolved at this early stage, this is not always the case.
If there is agreement about rectification of defects or completion of work, that can be carried out. It is recommended that the scope and nature of the works to be performed is documented.
However, if there is a dispute as to whether the works are defective, the QBCC may appoint a Building Inspector to undertake an inspection and determine whether the works can be categorised as defective. The Building Inspector’s determination will inform the QBCC’s decision as to whether a DTR should be issued.
3. The Direction to Rectify
If QBCC determines that there are grounds to issue a DTR, the DTR may be issued. The DTR will specify the works subject of the DTR, and the time by which rectification must occur, in most cases being 35 days from when the direction is made. A shorter timeframe may apply where there is a risk to public safety.
QBCC’s considerations in issuing a DTR may include whether it is unfair to do so. For example, the QBCC Act provides:
The commission might decide not to give a direction for the rectification of building work because an owner refuses to allow a building contractor to return to the owner’s home or because an owner’s failure to properly maintain a home has exacerbated the extent of defective building work carried out on the home.
I have received a DTR – what now?
If you agree with the DTR, you should comply with the DTR according to its terms.
If you receive a DTR, and you do not agree with the requirements of the DTR, you are entitled to exercise your rights of review to have the decision reconsidered. At this point, it is best to get legal advice on:
- seeking an internal review of the DTR under the QBCC Act. This allows the decision to be reconsidered by another decision-maker of the QBCC; and/or
- proceed to seeking an external review with the Queensland Civil and Administrative Tribunal of the internal review decision, or the original decision.
While an internal review is usually the first point of call, there may be reasons to proceed directly to an external review.
To be successful in having a DTR removed, you will need some reasonable arguments as to why the DTR should not be given. Some arguments that are usually put forward include:
- the works are not actually defective;
- you are not responsible since you did not carry out the defective work; or
- it is unfair to issue the DTR in the circumstances (e.g. because the owner refused to give you access to the site, or the owner failed to properly maintain the property).
Time is of the essence. An internal or external review application must be filed within 28 days of the date of the DTR. While legislation allows the QBCC and QCAT to extend the date for submitting a review, this is not allowed as of right and is at the discretion of the QBCC (for an internal review) or QCAT (for an external review).
What happens if I fail to comply with a Direction to Rectify?
Non-compliance with a DTR is not lightly taken by the QBCC.
If you fail to comply with a DTR, you could be prosecuted (maximum penalty is $35,937 for an individual and $179,685 for a company).
The QBCC could also apply demerit points to your licence, commence disciplinary action in QCAT and/or apply conditions to your licence.
The fact a DTR has been issued to a licensee will appear on the licence search available on QBCC’s website.
For residential building work, the work may be the subject of a claim under the Home Warranty Insurance (HWI) Scheme. If a claim is paid out, the person responsible for the defective/incomplete work may be responsible for the claim under the HWI.
How do I best protect my company against a Direction to Rectify?
We understand that projects do not always go according to plan. Defects (whether minor or major) may be identified at some point in the lifetime of a project, or after.
In saying that, your company could implement strategies to assist in defending not only a DTR but any claim generally. These strategies include:
- ensuring that there is an executed contract in place with risks which you are comfortable with accepting;
- ensuring the scope of works accurately reflects the work that is to be carried out;
- any work (e.g. work carried out by others prior to your involvement) which you do not wish to take responsibility for, should be clearly identified in the contract in as much detail as possible (this could be by way of special conditions);
- document all variations including any changes to warranties;
- keep records for at least 7 years after project completion;
- maintain easily accessible and identifiable records of all communications, correspondence and reports exchanged between any party and/or the QBCC. If any conversation occurs via phone call, summarise the key points of the conversation in an email and send it to all parties involved;
- regularly communicate with the owner where possible and attempt to resolve any dispute prior to QBCC’s involvement.
If you need help negotiating with the QBCC about, or responding to, a direction to rectify hit us up and we’d be happy to help.