Building Contracts

The contractor must provide a written contract if the price of their work will amount to over $1,000.

Under the law the contract must contain the following elements;

• The owner's name and the exact name from the contractor's licence card and licence number.
• Date that all parties signed.
• The contract price must be clearly exhibited on the first page.
• A warning with an elucidation if the contract price is subject to being altered or if the price is unknown.
• A clear explanation establishing the cooling-off period of five business days after the copy of the contract has been given, where the contract is over $12,000.
• Applicable warranties: section 18B of the Home Building Act 1989.
• Adequate explanation of work to be undertaken.
• Plan and specifications affixed.
• A notice regarding the right to a copy of the contract within five days.
• A note that a home warranty insurance certificate must be provided by the contractor if the contract price is over $12,000.
• A clause that outlines that all plans and specifications to be completed under the contract and variations are to be considered to form part of the contract.
• A clause that outlines that any agreement to alter the contract or any plans and specifications are obliged to be in writing and signed by the contractor and the owner.
• A clause that asserts the work will conform with the following:
  • The Building Code of Australia to the degree stipulated under the Environmental Planning and Assessment Act 1989.
  • The work needs to comply with every relevant code, standards and specifications under any law.
  • A development certificate or the requirements of any pertinent development consent.
• A clause that indicates that the contract may reduce the liability of the contractor for failure to conform with the preceding work compliance clause if the failure correlates exclusively to:
  • A design or specification created by or on the behalf of the owner or a design or specification required by the owner if the contractor has informed the owner in writing that it violates the clause referred to previously.
• A checklist of the below 12 points and a warning regarding the signing of the contract if you are unable to answer yes to all of the points.

CHECKLIST FOR A BUILDING CONTRACT

A home building contract by law must include the subsequent checklist:

1. Does the contractor hold a current contractor licence?
2. Does the licence cover the type of work included in the contract?
3. Is the name and the number on the contractor's licence exactly the same as on the contract?
4. Is the work to be undertaken covered in the contract, drawings or specifications?
5. Is the contract price clearly stated? If not, is there a warning that the contract price is not known?
6. If the contract price may be varied, is there a warning and an explanation about how it can be varied?
7. Are you aware of the cooling off provisions relating to the contract?
8. Is the deposit within the legal limit? The limit is 10% for work costing $20, 000 or less or 5% for work costing more than $20, 000
9. Is the procedure for variations understood?
10. Are you aware of who is to obtain any council or other approval for the work?
11. Do you understand that the contract must have a policy of home warranty insurance under the Home Building Act 1989 and provide you with a certificate of insurance before receiving any money under the contract (including a deposit) or before doing any work for more than $12,000?
12. Has the contractor given you a document that explains the operation of the Home Building Act 1989 and the procedures for the resolution of contract and insurance disputes?

• If you answer NO to any of the questions in the checklist, you may not e ready to sign the contract.
  NSW Office of Fair Trading. Accessed: 2009.

PRECAUTIONS TO TAKE WITH BUILDING CONTRACTS/CONTRACTORS

• The owner should seek legal guidance if they would like to make changes to a standard contract.
• If the builder or tradesperson has altered a standard contract or integrated any special provisions.
• Ask for changes to the contract if you are displeased with the contract.
• The progress payments outlined within the contract should be for work that has in actual fact been completed and not the amount of time working.
• Make certain that the dollar value set on each phase of work is reasonable.
• Ensure that that there are no elements in the contract which can make you responsible for termite control, the builder or tradesperson should be responsible.
• Arbitration clauses will be deemed void if they contained within a home building contract.
• Make sure that the duration of the warranties is clearly outlined.
• Check the contractor's licence details. The individual's company or partnership is not permitted to make the contract if the licence is in the name of the individual. This additionally applies to individual's who are the directors or partners in the company. The company or partnership must be licensed in the company name if they are making the contract.
• Be wary of a builder who asks that you get a owner-builder licence whilst they arrange all the work. They may not have the appropriate licence or are unable to attain insurance and they could be avoiding accountability.

DEPOSITS

• There is a maximum that you can be requested to pay under Home Building Law;
  • You cannot be requested to pay more than 10% deposit if the contract price is under $20,000.
  • You cannot be requested to pay more than 5% deposit if the contract price is over $20,000.
• If the work to be completed needs Home Warranty Insurance, the contractor needs to take it out and supply a certificate of insurance. A contractor is not able to request the deposit without the insurance.

PROGRESS PAYMENTS

• If the cost of the work to be completed in is the thousands of dollars than it may be realistic for the contractor to request progress payments.
• Merely pay for the work that has been completed.
• If you have a loan from the bank, the bank may have particular conditions for progress payments. This may need to be addressed through including a further clause in the contract.

PROGRESS INSPECTIONS

• The owner can obtain a building consultant to inspect the work prior to each payment being made.
• The building consultant should attempt to ensure that the work outlined in the contract has been completed and meets the applicable standards.

PRIME COST ITEMS

• A set cost for all work under a contract is beneficial. However, there specific fixtures or particular fittings that may be require selection subsequent to the contract being signed.
• Prime cost items are outlined within the contract.
• A price should be allowed by the builder or tradesperson which should cover the likely expense.

ADDITIONS TO A CONTRACT

• Something that you want to add to the project and has been considered after the contract has been signed.

VARIATIONS TO A CONTRACT

• A variation is an alteration to what has previously been established in the contract.
• A variation is required to be in writing and signed by both parties or their agent and affixed to the contract.
• A contract price change can occur as a result of a variation. In the majority of situations a price rise will be evident; however there are instances where there is a price decrease.
• A variation must always include an account of the cost implications of the variation and effect on the final contract price. A separate calculation and the basis for the alteration should be displayed.
• Unanticipated circumstances or a council requirement may be reason for changing the contract
• You are not obliged to pay for any added work to correct the reason if the basis for the variation is the contractor's error.

MAKING A VARIATION

• All variations are required to be in writing.
• The variation may be able to completed in writing after the work is finished only when it is vital, as there may be risk to a person's safety or if there is a chance of imminent damage to the property.
• Prior to the work beginning on the variation the contractor should provide a written explanation of the work, details of any additional cost or the amount of time for the additional work and any relevant plans and specifications for the work.

ADMISSION TO SITE

• People that may require access include:

o Agent's owners.

o Lending establishments

o Private certifiers

o Council officials

o Assessors from authorities relating to electricity, gas and water.

• Builder must provide access to the site as the works may require assessing.
• If the builder is permitted access to the site within the contract, the owner should not hinder the access as the interference may possibly incur further costs.

ENDING THE CONTRACT

• Provisions should generally be included within the contract regarding the ending of a contract and should be adhered to.
• You should attain legal guidance prior to ending the contract.
• Careful consideration and negotiation should be given as ending the contract should be the final option.

HOME BUILDING LICENCE CHECK

• Need to request contractor licence from the builder or tradesperson.
• Ensure the licence is valid and current.
• Check the licence is appropriate for the nature of work to be undertaken.
• Look at information regarding the contractor's history with the CTTT, insurance claims, disciplinary action, cancellations or suspensions, conditions endorsed on the licence, expiry date, and details of any partnerships or directorships, penalty licence information.
• Retrieve information of other licences held currently or previously.
• Conduct the search online.
• Only deal with a licensed builder and check licence before entering into a contract.