Building contracts are equally important for residential projects. Without a contract, there is no certainty about what the builder is required to do and there is a real risk that the home owner will pay significantly more than they expected.
Builders are required by law to be registered in NSW and to provide consumers with a written contract where the costs of the works exceed $1,000. In NSW, the Home Building Act sets out other specific obligations builders must meet, particularly regarding the information and details they must include in their contracts.
Also, where the work is valued over $12,000, the builder must provide Home Warranty Insurance. In reality, this insurance provides very little protection to consumers as it only operates when a builder has died, disappears or, in the case of a company, is wound up. For this reason, if you are building a new home or undertaking renovations, it is very important for you to have a written contract in place which adequately protects your interests should a dispute arise.
In NSW, most builders use either the Master Builders Association or the Housing Industry Association standard contracts. These contracts tend to favour the builder and it is important that you understand the contract and its implications before you sign it. In addition, most contracts have a schedule which requires detailed information to be inserted. The parties need to ensure these schedules are fully and correctly completed and need to understand the details. For example, a builder may insert a schedule of progress payments which may require large amounts to be paid early in the construction period, which benefits the builder but leaves the consumer paying much more than the value of the work which has been completed. Ideally the progress payments claimed should match the amount of work finished at the time the payment must be made.
The NSW Department of Fair Trading also offers free contracts for home building work – both under and over $25,000 in value, which can be a good starting point.
There are also different kinds of contracts, such as:
- Costs Plus Contracts – you pay the builder for the work they do, usually based on the cost of the work plus a margin. These contracts do not have an upper limit – you pay the builder whatever they charge, subject to any agreement on schedule of rates – so it is very important that the scope of their works is fully and carefully defined
- Fixed Price Contracts – you agree upfront with the builder on a total project cost – this can be varied if you agree to change the specifications or ask the builder to do extra work
- Supervised Contracts – you agree with the builder that the work is to be supervised by your architect and each progress claim is checked by the architect before it is paid to the builder
We can advise you regarding your proposed building contract and help you ensure that you have a fair and workable contract with your builder.