Builders often rely on pro-forma contracts as they are standard and easier. But because they are standard, they do not always cover everything, so a builder may need to add special conditions. Any additions to a standard contract need to be carefully considered to ensure they are consistent with the standard provisions and capture the intent of the parties.
Below are 10 tips to keep in mind when preparing or amending a standard building contract:
- Building Period: Builders sometimes have a standard period, but is every project really standard or should some projects have longer (or shorter) periods depending on the project, location or client
- Documents: Building contracts often include additional documents, such as the specifications, plans and engineering design. But these documents are not always prepared by the builder, and therefore it is important to acknowledge in the contract particulars, who has prepared these documents, namely whether they have been prepared by the builder or by the owners
- Excluded Works: Whilst a lot of time may be spent on defining the building works, parties often don’t invest as much time defining what works are not included in the building contract. Excluded works should be clearly defined and all plans should clearly note any items/works not to be carried out by the builder
- Finance Period: The finance period is commonly set for 14 days or 21 days, but in today’s current environment, is that really a reasonable period?
- Prime Costs & Provisional Sums: Prime Costs (being for the fitting, fixtures and materials only) and Provisions Sums (being for the labour and materials) should be clearly defined with the builder’s margin identified and calculations expressed correctly in accordance with Part 2, Division 4 of the Domestic Building Contracts Act (Vic) (DBC Act)
- Progress claims: A builder should think carefully about their construction method and whether the definitions align with the process. Some examples to consider:
- Does the builder install the garage doors as part of lock-up? If the answer is no, the installation of garage doors should be excluded. The Court of Appeal in Cardona & Anor v Brown & Anor [2012] VSCA 174, held that the builder in that case was not entitled to claim the lock-up progress payment as the garage had not been completed as the doors were not installed.
- Does the builder include all fittings which are prescribed in the definition of fixing stage?
But remember, when amending the definitions of the stages, the builder must comply with the strict requirements of Regulation 13 of the Domestic Building Contracts Regulation 2017 (Vic), which also includes the additional requirement that the owner and the builder must sign an agreement panel on the new Form 2 before signing the contract. The Court of Appeal in Imerva Corporation Pty Ltd v Kuna [2017] VSCA 168 upheld that the Owners must sign the acknowledgement on the Form declaring that they have read the warning that they are using an alternative method of progress payments to those defined in s40 of the DBC Act. In this case, the builder was not entitled to payment in accordance with the amended amounts but needed to revert back to the payments in accordance s40 of the DBC Act.
- Don’t breach the DBC Act: Builders should make sure that special conditions are not prohibited under the DBC Act, some common examples may include:
- A price escalation clause which is prohibited under section 15 of the DBC Act. Section 15 of the DBC Act prohibits anyone inserting a provision in a contract which increases the contract price due to the increased cost of labour, materials, or increased costs due to the delays in carrying out the works.
- A clause which gives the builder a unilateral right to amend plans and/or the specification, as this would be a breach of section 37 of the DBC Act. Changes to the plans and/or specifications must be documented by a variation, agreed to by all parties (except in limited circumstances as permitted under the DBC Act) and signed.
- Commencement of Works: is there a standard period by which the builder must commence the works (e.g. within 21 days of the building permit). Is this possible considering everything that needs to be undertaken prior to getting out to site.
- Access to site: Owners are permitted to reasonable access to view the works (section 19 of the DBC Act), but a builder may include what they deem to be reasonable notice, and also any occupational health and safety requirements which must be satisfied.
- Handover & Maintenance: Builders should carefully consider what requirements need to be included in the building contract relating to the handover process and also maintenance obligations (for example, landscaping obligations).
If you’d like to learn more about preparing your contacts, contact us for an obligation free chat.