Building and construction projects involve multiple parties, contracts, deadlines and significant financial commitments. Disagreements can arise when there is uncertainty about contractual obligations, changes to the agreed scope of work, delays, payment issues or concerns about the quality of completed work.

These disputes can affect project costs, completion dates and relationships between owners, developers, builders, contractors and subcontractors.

Understanding how construction contract disputes and claims generally arise can help project participants identify potential issues and keep appropriate records. Depending on the circumstances, building and construction lawyers may also assist with interpreting contractual obligations, assessing claims and considering available dispute-resolution options.

This article provides general information about building and construction disputes in Australia. Construction law, security-of-payment legislation, adjudication procedures and applicable deadlines can differ between states and territories. The contract and legislation applicable to a particular project should therefore be checked before action is taken.

What Is a Building and Construction Contract Dispute?

A building and construction contract dispute occurs when two or more parties disagree about their rights, responsibilities or obligations under a construction agreement.

A dispute may involve:

• Payment
• Delays and extensions of time
• Variations to the scope of work
• Defective or incomplete work
• Contract interpretation
• Additional costs
• Contract termination
• Responsibility for losses or rectification work

Construction contracts commonly address the work to be completed, payment arrangements, project timeframes, quality requirements, variations, notice requirements and procedures for resolving disputes.

Even where a contract appears comprehensive, disagreements can still arise when circumstances change or the parties interpret contractual provisions differently.

Common Causes of Construction Contract Disputes

Construction disputes can develop at different stages of a project. Some common areas of disagreement include the following.

Payment Disputes

Payment is a frequent source of construction disputes.

A contractor may believe that an amount is due for work completed, while an owner, principal or head contractor may dispute the value, scope or quality of that work.

Payment disputes may involve:

• Progress payments
• Payment schedules
• Retention amounts
• Variations
• Final payments
• Unpaid invoices
• Set-offs or deductions
• Additional costs

Some Australian states and territories have specific security-of-payment legislation that provides statutory processes for eligible payment disputes.

For example, NSW has a Security of Payment framework covering payment claims, payment schedules and adjudication in specified circumstances. Queensland also has legislation providing processes for progress payments and payment disputes under the Building Industry Fairness (Security of Payment) Act 2017.

Because the rules differ between jurisdictions, parties should check which legislation applies to their particular project.

Delays and Extensions of Time

Construction projects can be delayed for many reasons, including:

• Weather events
• Design changes
• Variations
• Supply-chain problems
• Labour shortages
• Unexpected site conditions
• Delays caused by other contractors
• Approval or access issues

A dispute may arise over whether a contractor is entitled to an extension of time or whether delay-related costs are recoverable.

The answer will generally depend on the contract, the circumstances causing the delay, notice requirements and the evidence available.

Project participants should therefore keep contemporaneous records of significant events, instructions, delays and communications.

Variations to the Contract

Changes to the original scope of work are common in construction projects.

A variation may involve:

• Additional work
• Changes to materials
• Alterations to design
• Changes to specifications
• Removal of previously agreed work

Disputes can arise when a variation is not properly documented or when the parties disagree about its price, scope or effect on the completion date.

Where possible, variations should be documented clearly, including the work involved, agreed price or pricing method and any impact on the project schedule.

Defective or Incomplete Work

Disputes may also arise when completed work is alleged to be defective, incomplete or inconsistent with contractual specifications.

The parties may disagree about:

• Whether the work is defective
• The seriousness of the defect
• Who is responsible
• Whether rectification is required
• The appropriate method of rectification
• Who should pay the associated costs

Photographs, inspection reports, plans, specifications, correspondence and site records can be important when assessing these issues.

Contract Termination

Ending a construction contract can have significant legal and financial consequences.

A dispute may arise when one party believes the other has breached the contract and seeks to terminate it, or when the parties disagree about whether a contractual right to terminate has arisen.

Termination provisions can be highly specific. Before taking steps to terminate a contract, a party should carefully review the relevant provisions, notice requirements and applicable law and obtain appropriate legal advice where necessary.

What Is a Construction Claim?

A construction claim is generally an assertion that a party is entitled to payment, additional time, compensation or another contractual remedy.

For example, a contractor might make a claim for:

• Additional work
• An approved variation
• An extension of time
• Additional costs resulting from a contractual event
• Unpaid progress payments

A principal or owner might make a claim relating to:

• Delay
• Defective work
• Rectification costs
• Other losses said to arise from a contractual breach

The strength of a claim depends on the applicable contract, legislation, circumstances and supporting evidence.

A well-documented claim will generally be easier to assess than one based primarily on informal discussions or incomplete records.

Contractual Claims and Statutory Payment Claims Are Not Always the Same

It is important to distinguish between an ordinary contractual dispute and a statutory payment process.

A contractual claim may require the parties to interpret and enforce rights created by their agreement.

A statutory payment process, by contrast, may operate under specific legislation designed to address payment disputes within the construction industry.

For example, NSW’s Security of Payment legislation provides a statutory process involving payment claims, payment schedules and adjudication for eligible matters. The NSW Government specifies strict timeframes for responding to payment claims and applying for adjudication.

Queensland has a separate statutory framework under the Building Industry Fairness (Security of Payment) Act 2017, with its own eligibility requirements and time limits.

This means that a process or deadline applicable in one state should not automatically be assumed to apply in another.

How Are Construction Contract Disputes Resolved?

The appropriate method for resolving a construction dispute depends on the contract, the type of dispute, the applicable legislation and the jurisdiction.

Common approaches include:

Negotiation

The parties may communicate directly or through their representatives to try to reach an agreement.

Negotiation can sometimes resolve a disagreement without formal proceedings, particularly where the parties have a continuing commercial relationship.

Mediation

Mediation involves an independent mediator assisting the parties in discussing the dispute and exploring possible settlement options.

A mediator generally facilitates communication rather than deciding the dispute for the parties.

Adjudication

In jurisdictions with applicable security-of-payment legislation, eligible payment disputes may be dealt with through statutory adjudication.

The exact process varies by state or territory.

For example, NSW provides a statutory adjudication process for certain payment disputes, with strict application deadlines and prescribed documents.

Queensland also provides adjudication for eligible construction payment disputes. The Queensland Building and Construction Commission states that the process can apply to disagreements about progress payments and money owed, subject to the legislation’s requirements and exclusions.

Because statutory adjudication can involve strict deadlines, parties should obtain advice promptly if they receive or intend to make a payment claim.

Arbitration

Some construction contracts contain arbitration provisions requiring certain disputes to be determined through arbitration.

The availability and operation of arbitration will depend on the contract and applicable law.

Litigation

If a dispute cannot be resolved through negotiation, mediation or another available process, court proceedings may be necessary.

Litigation can involve significant time, cost and procedural requirements, so the appropriate strategy should be assessed according to the circumstances.

Why Construction Contracts and Records Matter

A clear contract is an important starting point, but documentation throughout the project can be equally important.

Relevant records may include:

• The signed construction contract
• Plans and specifications
• Variations
• Invoices
• Payment claims and payment schedules
• Notices
• Emails and other correspondence
• Site diaries
• Photographs
• Inspection reports
• Project schedules
• Meeting minutes
• Records of instructions
• Evidence of delays
• Defect reports
• Records of rectification work

For statutory payment disputes, particular documents and deadlines may be prescribed by the applicable legislation.

For example, NSW Government guidance states that an adjudication application must be made within the relevant statutory timeframe and supported by documents including the payment claim, payment schedule where applicable, supporting information and the contract.

How Can Building and Construction Lawyers Help?

Building and construction lawyers can assist parties at different stages of a construction project.

Depending on the circumstances, their work may include:

• Reviewing construction contracts
• Explaining contractual rights and obligations
• Identifying potentially risky provisions
• Reviewing variation provisions
• Assessing potential claims
• Advising on notices and contractual procedures
• Assisting with payment disputes
• Negotiating settlements
• Advising on dispute-resolution options
• Representing clients in appropriate proceedings

Legal advice can also be useful before a contract is signed. Identifying unclear obligations, unsuitable clauses, notice requirements or other potential risks at an early stage may help parties understand their contractual position before a dispute develops.

The appropriate legal advice will depend on the project, contract, jurisdiction and circumstances.

What Should You Do When a Construction Dispute Arises?

When a dispute develops, the first step is generally to understand exactly what is being disputed.

Consider:

1. Review the contract. Identify the relevant clauses, payment provisions, variation mechanisms, notice requirements and dispute-resolution provisions.
2. Identify the issue. Determine whether the disagreement concerns payment, delay, defects, variations, termination or another matter.
3. Preserve evidence. Keep relevant contracts, correspondence, photographs, invoices, plans, schedules and site records.
4. Check applicable deadlines. Some contractual and statutory processes have strict time limits.
5. Avoid unnecessary admissions. Significant statements about contractual rights or liability should be made carefully.
6. Consider communication and negotiation. Where appropriate, an early discussion may clarify whether the disagreement can be resolved commercially.
7. Obtain professional advice where necessary. Particularly where significant amounts of money, termination rights, statutory deadlines or potential court proceedings are involved.

For statutory payment disputes, parties should not assume that ordinary contractual dispute-resolution procedures replace statutory requirements.

Payment Disputes Require Particular Attention

Payment disputes can become time-sensitive.

In NSW, for example, a respondent who receives a payment claim may need to provide a payment schedule within the statutory timeframe. Failure to provide one can have significant consequences.

The NSW Government also provides specific procedures for applying for adjudication where a payment claim is disputed or unpaid.

Queensland has its own statutory payment and adjudication framework, including specific timeframes for adjudication applications.

Accordingly, anyone involved in a construction payment dispute should establish which state or territory’s legislation applies and what deadlines apply to the particular claim before deciding how to proceed.

Preventing Construction Disputes

Not every construction dispute can be avoided, but clear processes can reduce the risk of misunderstandings.

Project participants can consider:

• Using a clear written contract
• Defining the scope of work precisely
• Establishing clear payment terms
• Documenting variations
• Recording instructions in writing
• Maintaining accurate project records
• Setting out responsibility for delays
• Understanding notice requirements
• Addressing defects promptly
• Communicating changes clearly
• Obtaining professional advice before significant contractual decisions

Good record-keeping can also make it easier to establish what happened if a disagreement later develops.

Final Thoughts

Building and construction contract disputes can involve substantial financial commitments, deadlines and contractual obligations. Common issues include payment, delays, variations, defective work and termination.

The appropriate way to address a dispute depends on the contract, the type of claim and the law that applies to the project.

In Australia, construction payment and adjudication rules are not identical across all jurisdictions. NSW and Queensland, for example, operate under different statutory frameworks for security of payment.

For that reason, parties should avoid relying on a generic process or deadline without first confirming the applicable jurisdiction and legislation.

Keeping comprehensive records, reviewing the contract carefully and obtaining appropriate professional advice can help project participants understand their position and consider the available options.

Legal Information Disclaimer

This article is provided for general informational purposes only and is not legal advice. Construction law and security-of-payment requirements can vary between Australian states and territories and may change over time. The specific contract, project circumstances and applicable legislation should be reviewed before legal or contractual action is taken. Where a dispute involves significant financial, contractual or statutory issues, obtaining advice from an appropriately qualified legal professional may be appropriate.

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