Conflict of Interest in Building Management and Construction

When a new apartment building is completed and handed over, one of the first major decisions facing the Owners Corporation is:

A common industry practice is to engage the same construction company that built the property to also take on the building management or caretaker role. On the surface, this seems logical—and in many ways, it is.

However, there is an important and often overlooked issue at play:
conflict of interest.

Once construction is complete, the building enters what is commonly known as the Defects Liability Period (DLP)—essentially a warranty period during which the builder is responsible for rectifying defects.

At this point, responsibility shifts to the Owners Corporation. They must now ensure the building is:

• Properly maintained
• Operating efficiently
• Protected as a long-term asset

To achieve this, they typically engage:

• A building manager
• Cleaning services
• Maintenance personnel

The goal is simple: preserve value, functionality, and presentation over time.

There are several practical reasons why many committees choose the construction company for building management:

• They already understand the building’s design and systems
• They know the subcontractors and suppliers involved
• They have technical construction knowledge
• There is an existing working relationship
• They are familiar with compliance requirements
• They are assumed to be financially stable
• They likely have experience in similar projects

On paper, it makes sense—much like taking your car back to the dealership for servicing.

But this is where the issue begins.

The Core Problem: Conflict of Interest

The construction company has two competing interests:

1. As the builder:
   They are responsible for fixing defects under warranty.
2. As the building manager:
   They are responsible for identifying and reporting those defects.

This creates a fundamental tension.

A company is unlikely to actively highlight issues that will cost them money to fix; especially when those issues stem from their own work.

This doesn’t necessarily come from bad intent, it’s simply human nature and commercial reality.

Imagine a newly completed building with beautifully tiled balconies.

After heavy rain, water begins leaking into the balcony below. Signs appear:

• Discolouration
• Peeling paint
• Rust marks

The root cause may be poor drainage or inadequate waterproofing.

The solution?
Potentially expensive and invasive works:

• Removing tiles
• Opening up the slab
• Reinstalling waterproofing
• Retiling multiple balconies

Now consider:

• Who identifies and reports the issue?
• Who pays for the repair?

If the builder is also the building manager, they are effectively being asked to report a defect that could cost them significant money.