Co-authored by Jace Coaldrake-Redhouse
Standard form home building contracts are commonly used for residential building work throughout Australia. They play a vital role in protecting the interests of both homeowners and builders during construction projects in Australia.
Understanding the features and potential risks associated with each contract, such as those provided by Housing Industry Association (HIA), Master Builders Association, NSW Fair Trading, and Australian Building Industry Contracts (ABIC) is essential for making informed decisions and ensuring a successful and low-stress building experience.
Before signing a standard form building contract, it is crucial to ensure that you understand the terms fully and ensure that your rights and interests are adequately protected. Each of the common standard form contracts are discussed below:
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HIA contracts
The HIA is an industry association representing builders, contractors and suppliers in the residential and commercial construction sector. HIA contracts are standardised forms that outline the terms and conditions for construction projects, including:
- new homes
- alterations, additions and renovations
- building specifications
- small works.
As an industry association representing construction practitioners, HIA contracts are designed to favour building contractors. There are a number of clauses homeowners should be aware of before entering into these contracts:
The essential requirements
The HIA contract template has an essential requirements section. If a homeowner fails to satisfy any of the essential requirements, the builder may terminate the contract and be entitled to payment. Examples of essential requirements including providing confirmations from lenders regarding the amount of finance, and written evidence of security accounts held by the homeowner.
Variations
For the HIA fixed price contract, the variations clause is broad. This means that the contract price can increase substantially if there is an increase in a tax, levy or charge after the contract is signed, or where there are adjustments in prime cost and provisional sum items. Under the variations clause, the builder doesn’t have to provide reasons to refuse to carry out a variation. Any accepted variations are due and payable at the next progress payment.
Provisional sum items and prime cost items
The HIA fixed price contract includes allowances for provisional sum and price cost items. If these items are included in the contract, any costs incurred by the builder over and above the allowance designated in the contract are added to the contract price, along with the specified builders margin.
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Master Builders contracts
The Master Builders Association represents a significant portion of the building and construction industry in Australia, promoting the interests of the industry and its members. As an industry association, their contracts are designed for building contractors. The Master Builders NSW BC4 contract is one of the more popular contracts used by building practitioners in NSW.
Clauses homeowners should be aware of include:
Termination clauses
Under the current BC4 contract, where a show cause notice is issued, the builder is allowed 25-days to remedy any default under the agreement. The homeowner is only allowed 10-days.
Variations
Under the BC4 contract, where a variation is made to remove work, the only reduction to the contract price is for the cost of the works. It does not include the allowances already made for preliminaries and overheads.
Administrative timing
A number of clauses within the BC4 contract place time limits on owners. For example, disputing payment claims or extensions of time. The prescribed number of days is usually five days so, if homeowners aren’t monitoring and rapidly responding to any notices received, they are susceptible to large claims with limited recourse.
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Fair Trading contracts
Government authorities in various states and territories have designed standard form building contracts for use in residential building contracts. These contracts aim to create a standardised framework for homebuilding agreements which are fair and uncomplicated. As these contracts are usually designed by consumer protection authorities, they are often homeowner and developer friendly. For the same reason, they tend to be relatively simple and aren’t designed for complicated or large-scale projects.
Clauses in Fair Trading contracts include:
Timing for payments
Under the NSW Fair Trading home building contract, the timing for payment of progress claims for homeowners is five working days. In effect, this means homeowners have five working days to make payment in full or in part, or provide the builder with a dispute notice by way of a payment schedule. If no payment or dispute is made or raised, the builder is entitled to the full value of the claim with interest at the rate of the Commonwealth Bank Overdraft Index Rate plus 2% per annum.
Failure to comply with payment requirements in the Fair Trading contract can also lead to termination of the contract.
Prime cost and provisional sum items
Similar to the BC4 contract, the Fair Trading contract makes allowances for provisional sum and prime cost items which once exceeded, entitle the builder to claim the full amount over and above the allowance, along with the builders margin specified in the contract. These items can drastically increase the cost of the works, so estimates for these items should be considered carefully.
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ABIC
ABIC are a joint initiative between the Australian Institute of Architects (AIA) and Master Builders Australia. They are specifically tailored for residential construction projects where members of the AIA act as the superintendent for the project for the duration of the construction period.
ABIC agreements are typically more detailed than other standard form contracts and are designed with building contractors in mind. ABIC contracts come in many forms, including:
- Major works contracts
- Simple works contracts
- Commercial costs plus contracts
- Early works contracts
- Basic works contracts for small projects or subcontracts.
Conclusion
The home building contract governs the relationship between the owner and builder. A carefully considered and prepared contract will help the build run smoothly, improve the relationship between the parties and avoid costly disputes. On the flip side, a one-sided or inappropriate contract will be more likely to lead to disputes, disgruntled clients and expense later on.
Ensuring the contract is suited to your circumstances is crucial. If special conditions are added to any standard form contract, they must be carefully considered to ensure they interact smoothly and fairly with the standard terms.
If you would like help with understanding, drafting or preparing a home building contract, please contact Coleman Greig’s experienced Building and Construction lawyers.
