Article written by Amanda Davidson OAM – from Davidson.
There has been a lot of press in recent years in relation to significant defects emerging in residential apartment buildings throughout Sydney and the impacts of such problems on individual owners of apartments within those buildings. Issues ranging from defective structural concrete panels through to dangerous flammable aluminium cladding have been regular features in Australian newspapers over that time.
Somewhat less newsworthy is the way in which routine maintenance and construction works are presently undertaken for strata buildings in Australia, including the preparation and implementation of the mandatory 10 year maintenance plans for such buildings. Although nowhere near as sensational in terms of newsworthiness such work is nevertheless extremely important for such buildings, and the mismanagement of such work can have far reaching ramifications for both Owners Corporations and individual lot owners. We have been involved in a number of matters in recent times which have highlighted this problem.
Most Owners Corporations Committees do not hold the necessary project management and construction law expertise to properly procure and manage the ongoing maintenance and repair requirements for their buildings. Commonly those committees tend to rely on Strata Management companies engaged to manage the day to day operations of the strata.
It is important to understand that there is a distinction between the management of the strata and the management of the building itself. Management of the strata largely involves monitoring of compliance matters, issuing accounts for levies and assisting in the management of annual general meetings, the election of the committee and other administrative tasks. On the other hand the management of the building itself requires identification of maintenance and construction requirements, project management of procurement of services and works, usually through a tender process, and inspection, management and sign off on such works.
Most strata management companies are not engaged to project manage construction works or make decisions as to the works to be carried out or the entities who should be engaged to do so. Strata management companies may be involved in the issuing of works orders, but their involvement in ensuring that the works are performed, or performed on time, within budget and to applicable codes and standards is generally not part of their role or skillset.
Most Owners Corporations Committees, perhaps unwittingly, assume that Strata Management companies are responsible for such matters. In our experience this assumption can lead to significant gaps and risks in the way in which repairs and maintenance contracts are procured, and in the way in which buildings are maintained. Even when lawyers are engaged to assist in the process, usually those lawyers are expert in strata laws, and often do not have the necessary expertise in the complex area of construction law.
There is an urgent need for Owners Corporations to better manage the procurement of maintenance and construction services for their buildings.
Based on our experience over 30 years in advising Owners Corporations on their disputes and contracts we have developed the following 10 point checklist before undertaking any construction project for their buildings:
1. Get proper project procurement and transaction management advice up front – understand what the appropriate process is which will lead to the outcomes sought in terms of the delivery of your project.
2. Make sure that you engage an expert to develop a proper and clear scope of works before going to the market to ask for tenders. Without a detailed and clear scope any tenders will simply be guesses and it would not be possible to compare them. Don’t just ask the Strata Managers to issue a purchase order in the hope that they know what is required. This is a recipe for disaster both in terms of cost and quality. Similarly, strata managers may need support to negotiate provisions of a construction contract once a contractor is selected.
3. Don’t rely on standard form contracts. Put in place a proper suite of contracts which will be necessary for the procurement of your projects – this would include at the very least a compliant consultancy services agreement which could be used for the engagement of project managers, designers and other necessary consultants. Critically you should also have a compliant construction contract which protects your interests. Most standard form contracts are drafted in favour of the builder, and need substantial amendment if they are to be used by Owners Corporations. Get proper advice from experienced construction lawyers on all forms of contract that are proposed to be used for your projects.
4. Once the procurement strategy is determined engage entities with the right skillset to manage the project – the Strata Manager is not that entity – for smaller projects this may be able to be carried out by a qualified member of the committee of the Owners Corporation, and for larger projects a qualified project management company should be engaged. Don’t assume that the designer of the solution should be the manager of the process. The skillsets of designers such as architects and engineers may not always be the same as those required for the complex management of procurement of residential construction projects in the context of a strata environment.
5. Be involved in the receipt and review of tenders from builders and trades. Do not simply choose the cheapest tender, but have regard to factors such as the familiarity of the builder or tradesperson with your building, their experience with similar types of projects, their quality of work and their size and financial capability. You want to know that the work will be done to the right quality and by a company who will be around to fix any problems or defects that arise in the future.
6. Competitive tendering is not always the best course to take. There is no legal requirement for Owners Corporations to tender works for their buildings and they may be better served to request pricing from entities that they know well. That pricing can be checked against market by the project managers involved for the Owners Corporations.
7. Be sure to meet regularly with the project manager and have them report to the committee of the Owners Corporation, and for major projects, to the owners in a general meeting. Be proactive in finding out what obstacles there may be to the project and in implementing solutions to those problems.
8. Establish streamlined processes for payment of construction contractors with your strata managers. There are strict certification and payment requirements under Security of Payment legislation which must be complied with.
9. Ensure that you obtain security for performance from contractors in the form of retention or bank guarantees. In the event that contractors are unable to complete the works, or in the event of defects, it may be possible to have recourse to such security.
10. Make sure that you do not combine work for individual lot owners with work to be carried out for the Owners Corporation under a single contract with the builder. Whilst this approach may appear to be convenient, it introduces difficulties surrounding warranties, insurances and payment. It is possible for an individual lot owner to engage the same builder to do works at the same time that the builder is doing works on common property, but that should always be done through separate contracts.
At Davidson we have extensive experience in assisting our clients in the establishment and performance of construction projects of all sizes. We have developed a standard suite of contracts especially designed for Owners Corporations which are compliant with New South Wales laws, and are familiar with all aspects of the procurement of such projects in the strata building context. Our team has a combination of skills including construction law as well as strata and project management which means we are uniquely placed to assist Owners Corporations with their projects.
Amanda Davidson Elisabeth Maryanov