Read Before You Sign – Understanding A Building Contract

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Read Before You Sign – Understanding A Building Contract
If you are using a building practitioner to build your new home, you will need to sign a contract. This can be an intimidating and unfamiliar document to navigate.

Inspector Alan Green, contract review specialist for The Hub, says ‘most people engaging in the construction of a house are unaware of the importance of a building contract. It may be the single largest financial commitment people can undertake during their lifetime. Some people sign and forget – this is a mistake’.

While contracts are a necessity and provide protection for all parties involved, a contract is a legally binding document, and should be read and understood thoroughly before signing.

What should you be aware of before signing a contract?

Do you Need a Contract?

 If your planned works will exceed $10,000, the answer is ‘yes’.  If the contract is for more than $16,000, the contract should also include details of the builder’s domestic building insurance.

 A contract must include the following:

  • the contractor’s business name and ABN
  • their building registration license number
  • the date of the contract
  • a detailed description of the work to be carried out

You can check that your builder is registered by checking the VBA’s Practitioner register.

A domestic building contract must be in clear English and must give clear advice about the five-day cooling-off period. You have five business days after receiving a signed copy of your major domestic building contract to withdraw without penalty. You are not liable for any of the builder’s financial losses, but you are liable for any incidental expenses that the contractor has incurred up to this point.

If your contract does not advise of a five-day cooling-off period, you may withdraw from the contract within seven days of becoming aware of its omission.

It pays to get the advice of an independent professional such as a builder or building inspector to look at your contract and review it professionally. The following things should be considered when looking at your contract:

Inclusions and Exclusions

All important documents such as plans, specifications and any other inclusions should be set out in the document.

Alan says that ‘the contract, contract drawings and specification form the basis of the working relationship with the builder. It is important to ensure as much detail as possible is included in the contract and attachments to avoid disputes later. The detail should include types of finishes required, type of light fittings and plumbing fixtures, light switches and power outlets.’

Fixed vs. Provisional Sums

Ideally, your contract will contain mainly fixed costs, with as few provisional costs as possible. Provisional sums are estimates for work where costs can’t be estimated accurately beforehand.

Prime costs are items such as fittings included in the contract but which have not been selected at the time of the contract signing, or where the price is not known when the contract is signed.

Timelines and Payment Stages

Although it’s impossible to anticipate exactly how your build will progress, you builder should be able to put together a timeline for you on when each stage of your build will be completed. Never sign a contract that does not set out a timeline.

Keeping on Track

A great deal of the success of the construction of a house depends on the ability and experience of the site supervisor’,  said Alan, ‘ however for obvious reasons, the selection of the site supervisor is under the control of the builder’.

He warns, ‘do not get complacent during the construction period. Try to keep abreast of all the works and the progress on site without interfering in the day-to-day operations of the builder.’

Alan also notes that ‘record-keeping and written instructions help keep the contract running smoothly and can eliminate disputes at the end of the contract’.

Appoint an independent inspector to check the builder’s work at each stage, to make sure your home is being built to standard and that you are getting what you are paying for.

Sign and Counter-Sign

Alan stresses that ‘it’s important to read and understand the documentation including the builder’s and owner’s obligations sections in the contract. Understand both your responsibilities and the builder’s responsibilities’.

Read each page thoroughly and ask for clarification on anything you don’t understand. Have the contract witnessed properly and initial every single page and document relevant to the project.  Make sure to counter-sign the contract so that you and your builder have a clear understanding of what is being agreed upon.

 ‘Most disputes between the builder and owner arise from the mismatched expectations between each party’, said Alan.  ‘Owner’s expectations invariably differ from the builder’s expectations. The more detailed the contract and drawings the closer these expectations align’.

How Can The Hub Help?

Don’t leave anything to chance. Engage us to review your contract before you commit to such a large financial investment.

The Hub also offers all stage inspections, from contract review through to post-build maintenance. We offer discounts when you book four or more stage inspections with us.

If you find yourself in dispute with your builder and need a VCAT report or expert witness, The Hub can also help.

Related: The VCAT Process

Call us on 1800 071 283 or ask us for a free quote today.

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