Whether you’re building a new property or renovating an existing one, having the right building contract is vital to ensuring everyone knows their rights and responsibilities.
Building contracts act as a reference point and legal framework for you and your builders and contractors, so everyone is on the same page throughout the construction process.
What is a building contract?
According to the Housing Industry Association of Australia (HIA), a watertight building contract is just as important to the construction process as the materials and plans. You should have one in place regardless of the amount of work to be carried out – from small powder rooms to complete builds.
Your contract outlines all roles, rights and responsibilities of the parties involved and, in the case of disputes, how they should be resolved.
A contract should include everything that has been agreed on, including:
- The timeframe for the work to be completed
- What the work is
- The contract price
- How and when the payment should be made
- What happens if there are delays and how to manage the process
- How to manage variations to the build.
It should also include how to manage any matters relating to the build that could lead to disputes.
Different contract types
Building contracts come in different forms and it’s important to understand the differences between them.
The four main types are standard, fixed-price, cost-plus and custom:
- The standard contract is the most common. It can generally be obtained from the Housing Industry Association or the Master Builders Association (MBA). There is room for negotiation, however, the contract generally contains standard terms. While general in nature, the contract contains space for both parties to personalise the document so it’s specific to each building project.
- A fixed priced contract states the pricing terms as a fixed lump sum that cannot be changed. This is the most common contract used for domestic building. There are, of course, ways the contract price can be changed through variations to the scope of works. The contract should also include prime cost items. These are fixtures and finishes the builder allocates a sum for, but the cost may change, depending on the preferences of the owner – such as selection of taps or tiles.
- A cost-plus contract is one where there is no limit for the final price. In this situation, the parties agree to the owner covering all costs, plus an agreed margin for overheads. When it comes to domestic building projects, a cost-plus contract can only be used when the estimated total cost will total more than $500,000 or when the full extent of the work can only be estimated once building has actually commenced.
- Custom contract is one that is specifically designed for you and your building work.
Regardless of the contract you decide on, it’s important to seek independent legal advice, no matter how much you trust your builder.
Getting help with contracts
Whatever point you’re at during the building process, there are industry bodies available to help. In Australia, the main bodies are the Housing Industry Association and the Master Builders Association. The Australian Institute of Architects can also be a valuable resource. The HIA and MBA provide standard contracts for building works that can be adapted according to state and individual situations. Both can also handle disputes, should they arise.
Have you had any issues dealing with building contracts? How did you solve them? Share your stories in the comments below.