Whether you’re a builder, developer, architect or owner, common disputes in building and construction tend to arise because of poorly drafted agreements Janelle Boutros, Partner shares her recommendations on how to mitigate your risk.
For builders, developers, architects and owners, common disputes in building and construction works tend to arise because of poorly drafted agreements. Whether it is delays in construction, disagreements of variations, or what constitutes “completion”, these issues can lead to delays in payment and labour.
As such, it is important to explore the key areas that can ensure the success or failure of your project.
Types of contracts
Under The Home Building Act 1989, builders/tradespeople are required to provide a written contract if the project meets certain costs (including the provision of labour and materials).
Projects under $5,000
The Act no longer requires contracts for work valued under $5,000 (including labour and materials). That said, we still recommend having a written agreement in place.
Projects $5,000 – $20,000
Any residential building/construction work worth $5,000 – $20,000 must be covered by a “Small Jobs Contract” and include specific clauses, such as the “Quality of Construction” clause which states the work will comply with the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979.
Projects over $20,000
Any residential building work that exceeds $20,000 requires an “Extensive Home Building Contract” and compulsory Home Building Compensation Cover. It must also include several clauses and checklists as required under the Home Building Act.
What to Look For in a Home Building Contract
Regardless of the size of your project, there are a few elements that will require a closer look in order to protect your investment.
1. Contract Type
There are a few different types of payment contracts you could negotiate:
- Standard contract
This is a common type of contract and can be obtained from the Master Builders Association (MBA) or Housing Industry Association. It contains fairly standard terms but can be customised slightly for your particular project.
- Fixed priced contract
This is another common contract used for residential building projects. In this instance, the price is a fixed, lump sum.
- Cost-plus contract
There is no limit on the final price, however the owner agrees to cover all costs. This contract is usually utilised in projects where the estimated total cost exceeds $500,000 or, for whatever reason, cannot be estimated until building works have commenced.
- Custom contract
This is a contract which has been specifically written for your project.
In addition to the contract price, it is also important to include information such as:
- Any non-refundable deposits
- Schedule of progress payments (including due dates and fees)
- Penalties for late fees
- How changes in expected costs will be handled
- Final payment terms
One of the most common disputes during construction projects is over variations – the owner will have a change of mind, or there will be a misalignment of expectations. Lack of clarity or vague wording in contracts can often lead to disagreements over what constitutes a “variation” and how the contract is interpreted. Therefore, make sure you include specifics such as:
- The brand name and model number for every item (fixtures, paint, powerpoints, tapware, etc.)
- Details on the number of coats of paint to be used, as well as any applications preferred
- Clear amounts for every item (cement, door handles, toilets, etc.)
It’s also worth including restrictions and instructions regarding any potential variations and how these will be approved and implemented.
4. Extension of Time
Another common source of disputes in construction projects is the time taken to finish the works. All parties should be aware that, depending on the contract, the Owner may be able to claim liquidated damages or withhold the respective amount from the final payment. As such, clear guideline processes around the extension of time and how parties are notified will set clear expectations for all.
5. Dispute Resolution
Dispute all the best preparation and communication, disputes can still arise, and so it is essential to include a transparent process for resolving disputes and claims with regard to the performance or completion of a job. Depending on the contract, this may mean waiving your rights to file a lawsuit, so we recommend clarifying the mediation methods beforehand.
There are a few ways that you can mitigate the risk when it comes to your next building project, but the best solution is to enlist an experienced lawyer who can provide you with a watertight contract. Contact the team at AV Lawyers today to arrange a free consultation.