When a contractor makes a claim for ‘quantum meruit’ they are seeking payment of a fair and reasonable amount for the work they have carried out and any materials they have supplied as part of that work.

A claim for quantum meruit does not necessarily rely on any amount specified in the construction contract but is essentially a claim for payment for ‘what the job is worth’.

Construction contracts in NSW are subject to the provisions of the Home Building Act 1989 (NSW) (the “Act”). Written contracts are required for all work over $5,000. For home building works over $20,000 more extensive contract documentation is required.

In particular, the insurance requirements set out in Sections 92 and 94 of the Act apply to all residential building works with a value of $20,000 or more. Failing to meet the requirements of these sections can prove to be very costly for a contractor and it is important to understand both the obligation to insure and the effect that a failure to insure residential building works may have on a contractor’s right to payment.

You need insurance

Section 92 provides that a person must not carry out any residential building work unless they have in place a contract of insurance that complies with the Act, taken out in the name of the person who contracts to do the work and for the specific work in question.

A certificate evidencing the relevant insurance must be given to all parties to the contract.

Importantly, section 92 provides that a contractor must not demand or receive payment under a residential building contract, whether as a deposit or some other payment and regardless of whether or not work has commenced, from any other party unless the insurance requirements of this section have been met.

Section 92 also provides that if the same parties enter into two or more contracts for work to be carried out in stages, the contract price will be the sum of the contract prices under each of the contracts. This means that insurance obligations cannot be avoided simply by breaking a larger contract for the same building project up into smaller areas of work.

In addition to not being able to make a demand or receive for work if the insurance requirements of section 92 are not met, heavy penalties apply if a contractor is found to have breached this section. These penalties increase for second and subsequent offences and can include, for an individual, imprisonment for up to 12 months in addition to any monetary fine.

Consequences if you fail to insure

Section 94 deals with the effect of failing to insure residential building works. It provides that if the insurance required by section 92 is not in force at the relevant time, a contractor will not be entitled to a claim for damages or be able to enforce any other remedy in respect of the contract which has been committed by another party. This includes any claim for quantum meruit.

Notwithstanding the general prohibition on quantum meruit claims outlined above, section 94(1A) provides that if a court or tribunal considers it just and equitable, a contractor may be allowed to recover money on a quantum meruit basis.

The court or tribunal may consider a range of factors when deciding the question of quantum meruit including the impact on the resale price of the property if no contract of insurance is provided. Even if a quantum meruit claim is allowed the contractor will still remain liable for damages and will be subject to any other remedy available to the other party for any breaches of contract.

It is possible to obtain insurance for residential building work after work has been carried out. If insurance is obtained after work is done the work will cease to be considered to be uninsured work for the purposes of section 94. This is worth considering given the ongoing liability for damages and other remedies that the contractor will remain liable for even after a quantum meruit claim is allowed.

The commercial reality of residential building work is that even with the best will in the world disputes between contracting parties do arise. It is therefore important that all insurance obligations are fulfilled prior to entering into the contract to ensure, not only that you have complied with your legal obligations but also that if a dispute arises, you will be able to be paid for the work you have done, preferably without the need to instigate costly legal proceedings.

If you are unsure of how best to meet your obligations it is always sensible to seek legal advice prior to entering into any contract for residential building work. We are always happy to assist in this regard as we know that timely legal advice may save you both time and money, not to mention a great deal of stress, in the long run.