Freedom to build under a housing guarantee contract

The Arbitration Board for Construction Disputes (the Board) recently issued an important ruling in a Woningborg guarantee dispute. From a legal perspective, the ruling centres on the question of whether an annex forms part of the contract. However, the Board’s explanation regarding the freedom a contractor has in carrying out the work is far more important in practice.

A supplement to the brochure falls outside the scope of the contract

The buyer of a property expected 16 solar panels of 400 watt-peak (Wp) on the roof. This number was stated in the document “Supplements to Brochure G”. That document had been sent to the buyer by the estate agent acting on behalf of the property developer prior to the signing of the building contract.

When the contractor completed the project a few months later, they installed 12 panels of 450 Wp. The buyer felt aggrieved and took the matter to the Council, arguing that the contractor had failed to fulfil its obligations and demanding compensation for the 4 panels.

The Council ruled clearly on this matter. The document ‘Addendum to Brochure G’ did not form part of the concluded contract. The list of contractual documents at the bottom of the building contract mentioned a large number of documents. These included, amongst others, the Technical Specification, Site Plans and Construction Drawings, but the brochure addendum was missing. It is also important to note that the contractor did not conclude the contract with the clients directly, but that this was done via the project developer. Consequently, the contractor had never seen the supplement to the brochure. In this case, the clients were not entitled to exactly 16 panels, as this had not been (clearly) agreed.

Is a contractor permitted to deviate from the specifications as long as the end result is correct?

However, even if the document had formed part of the contract, it is doubtful whether the clients would have been found to be in the right. Here’s why.

The brochure contained provisional guidelines and assumptions, apparently to determine the required energy performance of the property. The key point is that the building must comply with the BENG standard (Nearly Energy-Neutral Building). The contract clearly states that this standard must be met. However, assumptions and basic principles are not contractually binding standards.

During the execution of the work, the contractor made a number of changes to the house’s installations compared with the original design. The most significant change is the use of a different heat pump to that originally specified. In this case, it is a more energy-efficient model. Apparently, the deviation was such that a new calculation of the house’s energy consumption had to be carried out. This revealed that the building would still meet the BENG standard even with fewer panels.

That calculation showed that 12 panels of 450 Wp were sufficient to meet the standard, whereas the original assumption had been 16 panels of 400 Wp. Reality thus overtook the assumption.

The Council therefore follows the following framework. To meet BENG requirements, there are several levers the contractor can adjust. For example, they can improve insulation, opt for more efficient systems or further optimise the heating and cooling. What matters is that the requirements are met and the objective is achieved. In principle, the route to that objective is up to the contractor.

In this case, therefore, the contractor could have opted for different systems, including different solar panels, provided the end result met the BENG requirements. Moreover, the 12 panels of 450 Wp fell within the margin specified in the Technical Specification.

This case is valuable for contractors in the construction industry because it clarifies what is and is not binding. The actual contract stipulated that the property had to be handed over as energy-neutral with a specific energy label. That was the crux of the agreement. Whether 16 panels of 400 Wp, 12 panels of 450 Wp, or even a different number of panels were used was secondary, provided the energy label was achieved.

Are there any restrictions on the freedom to deviate?

This does not, however, mean that contractors are free to change everything as they see fit. A client who, for example, has received a written confirmation that they will receive exactly or at least 16 panels can usually claim this. The fact that the BENG standard can also be met with fewer panels is then irrelevant.

Such specific agreements can prove disastrous for contractors, as was evident from another ruling by the Council. In this case, whilst the so-called ‘Zero-on-the-Meter’ requirement had been met, specific insulation values had also been agreed for the façades and roof of a block of flats. The contractor therefore did have some freedom of choice, but had to remain within the boundaries set by the specific agreements. The Council rejected the contractor’s defence, which argued that the contract had been fulfilled because the building was a ‘Zero-on-the-Meter’ (NoM) building, and therefore the specific insulation values were not required. A deal is a deal, so the specific insulation values had to be met.

The practical lesson

These rulings serve as a reminder of the importance of clarity and putting things in writing. If, as a contractor, you hand over a property with specific installations, and questions later arise as to whether that was indeed what was agreed, then the contract between the parties is what counts.

If you attach great importance to certain installations or specifications, ensure that these are explicitly included in your contract or listed as a binding annex. A vague reference is not always sufficient. To be on the safe side, you must therefore set this out explicitly.

Furthermore, the arbitrator found that the property did, in the end, meet all the BENG requirements. This underlines that the final result is more important than the specific path taken to achieve it. At the same time, the contractor must remain vigilant to ensure they stay within the boundaries of the agreement and that the building meets all the specific requirements that were agreed upon.

For contractors in the construction industry, the rule is therefore: only commit to very specific regulations if you are certain you wish to be bound by them. The argument that ‘all roads lead to Rome’ as long as the end result is achieved only applies if the agreements allow for it.

Questions

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