Agreements and contracts

Before signing a contract, know what you want, what to look out for, your rights and responsibilities, and when you need a building permit.

Before agreeing on work

Agreements and contracts

A contract exists when one party makes an offer and the other party accepts it, even if they haven't signed anything or the agreement was made verbally. If possible, you should get the details of the agreement in writing.

For work worth $10,000 or more, you must have a written contract with a registered builder. This is known as a major domestic building contract. For work that is under $10,000, it is still recommended that you use a written contract.

You can engage a professional to manage a building contract or building works on your behalf, such as an architect, building consultant or project manager. They can ensure the building work meets the standards and quality stated in the contract.

What you should include in a contract

Certain information must be included in major domestic building contracts. This is to protect you and the builder if things go wrong. Consumer Affairs Victoria provides a helpful building contracts checklist.

Some examples of information that should be in a contract include:

• the specifications or scope of works with details of exactly what’s included and specifically excluded
• timeframes for the work, including start dates
• how to address delays and extra costs
• how to address variations to the contract and the costs incurred if you change your mind
• who will supply the materials, whether it’s you, the builder or a separate company
• who will do the work (and be listed on the building permit as the builder) and what work will be done by someone else under a separate contract
• details of the work to be completed at each stage
• progress payments required at each stage
• dates progress payments are due and methods of payment.

Know what you want

Knowing exactly what you want and making it clear can prevent misunderstandings later. Consider how your plans fit in your budget and allow for unexpected costs or changes.

Decide on:

• the plans, specifications and scope of works with details of exactly what’s included and specifically excluded
• specify the features, brands, models, materials, colours, finishes, layouts and quantities that are important to you of all fixtures and fittings
• sustainability and energy efficiency in designs, such as double glazing, insulation, water saving taps and appliances
• standards and quality of work and materials.

If you don’t know how to express what you want, show a building designer, architect or draftsperson photos of designs, styles, colours, layouts and floorplans that you like. They can interpret your vision, draw plans and explain the options that fit into your budget.

Make sure all the plans and designs are finished before building begins. Starting work before they are finished is risky and could cost you more money in the future.

Types of building contracts

Fixed price contracts

Fixed price contracts are where the costs for the project are set at the beginning.

Unless your contract includes an agreement for you to cover extra costs, the builder must pay for any additional costs if they go over budget. This can give your builder incentive to complete the project on time and within budget, but can also mean that the work is priced slightly higher.

Cost plus contracts

Cost plus contracts are where the owner agrees to pay the builder for the actual cost of the work plus an additional percentage, which lets the builder make a profit.

This means that the final price is not known when the contract is signed. This may give you some flexibility but will need you to closely monitor the work and track expenses as you will be billed for each job or item as it is purchased. Cost plus contracts are only allowed for projects worth $1 million or more.

Standard form building contracts

Standard form building contracts are offered by organisations such Housing Industry Association (HIA), Master Builders Association Victoria (MBAV), Standards Australia and Consumer Affairs Victoria (CAV). The Australian Building Industry Contracts (ABIC) are contracts designed for architects to administer. Standard form building contracts are available in fixed price, cost plus and other types.

While you are not required to use a standard form contract, they are common across the building industry. These contracts can still be changed to add, remove or amend terms. Make sure you read your contract and understand all of it before signing it, even if it is a standard one.

Signing a contract

Always read contracts thoroughly before signing and look out for unfair contract terms. For large building projects, have the contract reviewed by a lawyer, but remember that doing this means you are no longer entitled to a cooling off period after signing.

Deposits

Deposits must never exceed 10% if the total contract price is under $20,000 and 5% if the contract price is $20,000 or more. It is illegal under the Domestic Building Contracts Act 1995 for a practitioner to request a higher deposit.

Prime cost items

Prime cost items are items that have not been specified or whose price is not known at the time you enter into a building contract. Examples include taps, door handles, tiles and cooktops. It’s best to by specifying makes, models and prices at the start of a contract so you can avoid unexpected costs later.

Provisional sums

Provisional sums are estimated costs of carrying out particular work (and supplying required materials) when the cost of the work cannot be determined by the builder at the time you enter into a contract. Examples include excavations when soil conditions are uncertain. Provisional sums should be avoided where possible as they can lead to unexpected costs.

Always keep a copy of the signed contract.

Legal matters

Consumer warranties and guarantees

Implied warranties and consumer guarantees are automatically applied when you have an agreement with a builder or tradesperson, even if you don’t have a signed contract. They state that work should be performed:

• in a workman-like manner
• with reasonable care and skill
• using materials that are fit for purpose
• within the date specified in the contract or, if not specified, within reasonable time.

Builders and tradespersons may offer warranties over and above what is required under the building laws and Australian Consumer Law (ACL). Such promises (e.g., that a shelf can hold 100kg or a solar panel is guaranteed to last 25 years), whether they are verbal or in writing are subject to the ACL. You may have claim to a repair, replacement or compensation from the supplier when a good or service doesn’t meet the stated or agreed quality, standard or performance. You may also be provided with manufacturer warranties for parts of your building.

Always keep a record of any additional warranties offered by a builder, tradesperson or supplier.

Permits

Your contract should state who is responsible for obtaining a building or planning permit if they are required, whether it’s you, your architect, builder or another professional.

When to get a building surveyor

If your project requires a building permit, you (or someone authorised to act on your behalf) must engage a building surveyor to obtain one. You can engage either a municipal building surveyor or a private building surveyor.

Once a building surveyor takes on the project, they become your relevant building surveyor (RBS). The RBS is there to ensure building works comply with the building laws.

Your builder may suggest a private building surveyor, but they cannot appoint them on your behalf. You are free to engage a building surveyor of your choice.

Required certificates

Registered practitioners must issue certificates for certain types of work to confirm that the work meets the safety standards:

• Certificates of electrical safety
• Compliance certificates for plumbing
• Compliance certificates for gasfitting

At the end of a building project, if the RBS is satisfied that the building is suitable to live in, they must issue:

• an occupancy permit for new builds
• a certificate of final inspection for a renovation or extension.