Understand your building contract

Author: ME

Published at: 2/3/2017 10:25:22 AM

Building contract help

Constructing a home from scratch is an exciting process that gives you a unique chance to create a place that is all your own. But take the time to understand your building contract – it’s your best point of reference if anything goes wrong.

No matter how big or small your new home, always insist on having a building contract drawn up. Even if the builder is a ‘friend of a friend’ or seems completely trustworthy, having a formal contract is essential (and a legal requirement in many states like Victoria) because it provides a baseline of how things work in case a dispute arises.

Types of contracts

Your building contract will likely fall into one of the following main categories:

Fixed price contract

This type of contract quotes a fixed price for the project even though it may contain ‘rise and fall’ clauses. These clauses allow the builder to pass on unforeseen increases in the cost of materials, or pass on any savings to you if materials end up being cheaper than expected.

Cost plus contract

Here the builder will charge you for labour plus the cost of materials. Ask the builder for an itemised budget that outlines the expected number of hours of labour as well as costings of materials. It can be worth enquiring whether you could save money by providing some materials yourself especially if you scour trade auction sites. Builders are able to get trade discounts but most will add on their own mark-up to materials they have organised.

A customised contract

You and your builder can draft a bespoke contract, but remember it will be a legally binding document so be sure to have it reviewed by your solicitor to ensure it is fair to both parties.

Builders often use standard contracts provided by industry bodies like the Housing Industry Association (HIA), or the Australian Building Industry Contracts (ABIC) jointly published by the Australian Institute of Architects and Master Builders Australia. If your builder suggests one of these contracts, read it carefully – they may be standard but that doesn’t mean they reflect your circumstances.

The must-haves

At a minimum your building contract should set out key details like:

  • -Start and end dates for construction.
  • -Your name and the exact name on your contractor’s licence card and the licence number. 
  • -The contract price.
  • -A cooling off period (this varies between states/territories though a cooling off period of five days applies in Victoria and NSW).
  • -Detailed building plans and specifications.
  • -Insurance details particularly warranty insurance.
  • -Costings and dates of progress payments.

Check the website of the department of fair trading or consumer affairs in your state/territory for more details on what the building contract should include.

Cross out all blank sections in the contract and ask your solicitor to review the contract before you sign it. This is important because if the correct information isn't recorded in the contract it may not be binding if you end up in dispute with your builder.

Changing your mind – the danger zone

You’ve probably seen it happen a dozen times on TV reality shows. The home owner decides the downstairs powder room would be better located upstairs, and the beleaguered builder wearily agrees.

What these scenarios don’t show is how a change of plan midway through construction can leave you seriously out of pocket. If you are thinking about changing anything in the plans – or the contract – be sure to do it before the contract is signed.

If there is anything in the contract you don’t understand, ask your builder for an explanation. If you’re still not sure, hold off signing the paperwork until you’ve spoken with your solicitor. It’s better to face a minor delay at this stage than face unwanted (and potentially very expensive) surprises midway through the construction project.