Get informed about building contracts

Your building contract is a legal agreement between you and your builder. It should declare all of the costs involved to see your building project through to completion.  The larger and more costly your project is, the more complex the contract will be.

Here are some types of building contracts to help you get informed.

Small job contract

A small job contract applies to projects costing between $1000 and $5000. These include basic information such as a brief description of the work to be done, the contractor’s licence number, the cost, signatures of both client and contractor and the date.

Home building contract

A home building contract applies to jobs costing more than $5000. As these are more extensive, more information must be included:

• A detailed description of the work to be done
• Any plans and specifications should be attached, along with a statement that the work will be done according to those plans and specifications
• Costs, and if any are not known, this should be stated in the contract, as well as the reason why they are not known
• A clause specifying that any variations to the plans and/or specifications and the contract will be provided in writing and will be signed off by both the client and the contractor.

Some states and territories have their own requirements. For example, in New South Wales, if a contract price is more than $20,000, the builder’s legal obligation to hold Home Warranty Insurance must be stated in the contract.  Such extra requirements are designed to protect the client if the contractor fails to complete the project.

Fixed price contract

It is not always possible for a contractor to provide a fixed price for a project, and there are some circumstances where this can be an advantage for the client. There are some alternatives, however.

Cost plus contract

In a cost-plus contract, the client agrees that the contractor will be reimbursed for all expenses arising during the building project (such as materials, labour, sub-contractors and more); added to this is a fixed fee or a fixed percentage of the total cost. These contracts should include an estimated cost, a method of accurately tracking materials and labour costs, and a reporting schedule so that the client is kept up to date on the costs.

Design and construct contract

This type of contract, often known as a D&C, incorporates both the design and construction costs of a home extension or building. It can be a cost-plus contract or a fixed-price contract. Design and construct contracts might also include prime cost items like kitchens and lighting fixtures. If these prime costs change because the client decides on more or less expensive items, adjustments can be made in the contract.

It makes sense to know more about building contracts if you are preparing to get quotes on a project. It can help you put together a detailed project outline that contractors can use to make up their quotes. Knowing about contracts also comes in handy once you receive an initial quote and want to negotiate the price.

Ask your contractor about any aspects you aren’t clear on, and if any revisions to that contract are needed, you can work that out with the builder before you sign.  Taking an informed and professional approach is something both you and your contractor will appreciate.