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CONSTRUCTION CONTRACTS

A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function on their ultimate purpose or use.

Contract essentials

By law, your chosen builder or tradesperson must give you a written contract if:

• The contract price is over $1,000 (including GST); or
• The contract price is not known, the provision of labour and materials by the contractor is more than $1,000 (including GST).

Small jobs contracts/large jobs contracts

Jobs between $1,001 and $5,000 require a written ‘small job’ contract with minimum basic information, while building jobs worth more than $5,000 must be covered by more extensive written contracts.

Small jobs contracts

Small jobs contracts must include the following minimum information:

• The date of the contract
• Names and signatures of both parties
• The contractor’s license number
• A brief description of the work
• The price (if known)

Large jobs contracts

Residential building work worth more than $5,000 requires a more extensive home building contract and it must contain:

• The date that it was signed by both you and the contractor
• Your name and the exact name on your contractor’s license card and the license number
• A sufficient description of the work to be carried out
• Plans and specifications attached
• Relevant warranties required by the Home Building Act 1949
• The contract price which must be prominently displayed on the first page and a warning with an explanation if the contract price is subject to change or if the price is not known
• A clear statement setting out the cooling-off period of five clear business days after being given a copy of the contract where it is valued over $20,000.
• A checklist of 12 items
• A caution about signing the contract if you cannot answer yes to all items in the checklist
• A note that the contractor must give you a home warranty insurance certificate if the contract is valued over $20,000
• A statement and acknowledgment that you have read and understood the Consumer Building Guide and completed the checklist and answered yes to all items on it
• A clause that states that all plans and specifications to be done under the contract are taken to form part of the contract
• A clause that states that any agreement to vary the contract or any plans and specifications must be in writing and signed by you and your contractor
• A clause that states that the work will comply with the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979 and all other relevant codes, standards and specifications that the work is required to comply with under any law and the conditions of any relevant development consent or complying development certificate
• A clause that states that the contract may limit the liability of the contractor for failure to comply with the above work compliance clause if the failure relates solely to a design or specification prepared by or on your behalf of the owner or a design or specification required by the owner if the contractor has advised the owner in writing that it contravenes the clause referred to immediately above.

Please note that the builder or tradesperson must give you a copy of the contract within 5 business days after you sign it.

Statutory warranties

Even if these warranties are not written in the contract, the law says that they still apply to the work you are having done on your home.
Statutory warranties are in effect for 6 years for structural defects and 2 years for non-structural defects, commencing from the day the work was completed.

The warranties include that:

• The work will be performed in a proper and workmanlike manner
• The work will be in accordance with any plans and specifications set out in the contract
• All materials supplied will be suitable for the purpose for which they are to be used
• Materials will be new, unless otherwise specified
• The work will be done in accordance to, and will comply with, the Home Building Act 1989 or any other law
• The work will be done with due diligence and within the time stated in the contract or otherwise a reasonable time
• The work and any materials used doing the work will be reasonably fit for the specified purpose or result that the owner has advised the contractor, while indicating that the owner relies on the contractor’s skills and judgment.

Caution

At GMH Legal, we encourage you to be wary of the following situations:

• A builder of tradesperson who encourages you to sign a contract quickly to avoid a price increase
• A builder who suggests you get an owner-builder permit while they organise all the building work for you. This can be a ploy used by builders who don’t have the right kind of license, or cannot get home warranty insurance.
• A builder or tradesperson who gives you a quote which seems extremely low compared with others.

Deposits

Under NSW home building law, there is a maximum deposit that you can be asked to pay:

• If the contract price is $20,000 or less, you cannot be asked to pay more than 10% deposit
• If the contract price is more than $20,000, you cannot be asked to pay more than 5% deposit

If the work is required to be covered by home warranty insurance, it is illegal for the contractor to ask for a deposit or other payment under the contract unless home warranty insurance has been taken out, and a certificate of insurance is given to you.

Progress inspections

For large projects such as building a new home, you may consider getting a progress inspection done by an independent building consultant or architect before each payment is done.

If you do, it will be the consultant’s job to make sure all the work set out in the contract has been done and meets the appropriate standards. However, defective work may have been covered up with paint or internal wall cladding and may not be picked up by a building consultant.

Progress payments

For minor work, the builder or tradesperson will probably be happy if you pay within a week of the job being finished.

However, if the job is several thousand dollars or more, it is reasonable for the builder or tradesperson to ask you to make progress payments.

This is usually so they can pay for materials and labour as the job progresses.

Ending the contract

The contract normally contains provisions about ending the contract and these must be followed.

Ending the contract should be undertaken as a last resort and only after:

• Careful consideration
• Reasonable negotiation between both parties
• Obtaining specific legal advice

For more information about construction contracts, please do not hesitate to contact GMH Legal. Our team of experienced property Solicitors will study the Contract for you and guide you through every step of the commercial deal.