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Contracts  

Contract essentials 

By law, your chosen builder or tradesperson must give you a written contract if

  • the contract price is over $5,000 (including GST), or
  • the contract price is not known, is for the provision of labour and materials by the contractor the reasonable market cost of which is more than $5,000 (including GST).

Jobs worth between $5,000 and $20,000 require a ‘small job’ contract with minimum basic information, while building jobs worth more than $20,000 must be covered by more extensive written contracts.

Small jobs contracts 

Residential building work worth between $5,000 and $20,000 must be covered by a ‘small jobs’ contract. The written contract must be dated and signed by, or on behalf of,each party. It may specify that work be paid for at regular intervals.

It must contain:

  • the parties' names, including the name of the holder of the contractor licence as shown on the contractor licence
  • the number of the contractor licence
  • a description of the work
  • any plans or specifications for the work
  • the contract price if known.
  • a 'quality of construction' clause that states the work will comply with
    i) the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979
    ii) all other relevant codes, standards and specifications that the work is required to comply with under any law
    iii) the conditions of any relevant development consent or complying development certificate.
  • a clause that states that the contract may limit the liability of the contractor for failure to comply with the above work compliance clause if the failure relates solely to:
    i) a design or specification prepared by or on behalf of the home owner (but not the contractor) or
    ii) a design or specification required by the home owner if the contractor has advised the home owner in writing that they go against the 'work compliance clause'.

Contracts for large jobs 

Residential building work worth more than $20,000 requires an extensive home building contract and it must contain:

  • the date that it was signed by both you and your contractor
  • your name and the exact name on your contractor’s licence card and the licence number (go to our Home building online licence check to make sure the details are correct before you sign a contract)
  • a sufficient description of the work to be carried out
  • plans and specifications attached
  • relevant warranties required by the Home Building Act 1989 
  • the contract price, which must be prominently displayed on the first page and a warning with an explanation if the contract price is subject to change or if the price is not known
  • a clear statement setting out the cooling-off period of five clear business days after being given a copy of the contract where it is valued over $20,000
  • a checklist of 14 items
  • a caution about signing the contract if you cannot answer yes to all items in the check list
  • a progress payment schedule, which may only include the following types of payments:
    i) fixed payments to be made following the completion of specified stages of work. Payments must be of a specified amount or percentage of the contract price, and the stages of work must be described in clear and plain language.
    ii) payments to be made as work is performed and costs are incurred (and which may include the addition of a margin), at intervals fixed by the contract or on an ‘as invoiced’ basis. Claims for this second type of progress payment must be supported by invoices, receipts or other documentation.
    iii) a combination of the above two types of payments.
  • a termination clause, which must include a statement that the contract may be terminated in the circumstances provided by the general law and that this does not prevent the parties agreeing to additional circumstances in which the contract may be terminated
  • a note about your entitlement to a copy of the signed contract within five days of signing
  • a note that the contractor must give you an insurance certificate under the Home Building Compensation Fund (formally known as Home Warranty Insurance) if the contract is valued over $20,000
  • a statement of acknowledgment by you that you have:
    i) read and understood the Consumer building guide 
    ii) completed the check list and answered yes to all items on it
  • a clause that states that all plans and specifications to be done under the contract (including variations) are taken to form part of the contract
  • a clause that states that any agreement to vary the contract or any plans and specifications must be in writing and signed by you and your contractor
  • a clause that states that the work will comply with:
    i) the Building Code of Australia, to the extent required under the Environmental Planning and Assessment Act 1979
    ii)
    all other relevant codes, standards and specifications that the work is required to comply with under any law 
    iii) the conditions of any relevant development consent or complying development certificate
  • a clause that states that the contract may limit the liability of the contractor for failure to comply with the above work compliance clause if the failure relates solely to:
    i) a design or specification prepared by or on your behalf of the owner or a design or specification required by the owner if the contractor has advised the owner in writing that it contravenes the clause referred to immediately above.

Caution: Check that an insurance certificate is valid by contacting the insurance company shown on the certificate or checking the certificates register on the NSW Home Building Compensation Fund site.

Important: The builder or tradesperson must give you a copy of the contract within 5 business days after you sign it (the weekend, NSW public holidays and 27-31 December [inclusive] do not count).

Download a home building contract for free.

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Other things to know before you sign a contract 

Before you sign any contract with the builder or tradesperson you should:

  • make sure there's nothing in your contract which makes you responsible for termite control instead of the builder or tradesperson
  • ensure that progress payments listed on the contract are for work actually done and not time on the job
  • make sure the dollar value placed on each stage of work is realistic
  • get more information about insurance from our Insurance page
  • be clear about the duration of warranties
  • discuss anything you don't understand with the builder or tradesperson
  • not sign if you're unhappy as you have the right to request changes to the contract
  • get legal advice before you make a change to a standard contract or if the builder or tradesperson has amended a standard contract, or included any special conditions.

Arbitration clauses are not permitted in a home building contract and are deemed void.

Important. A licence in the name of an individual does not permit the individual's company or partnership to make the contract, even if the individual is a director of the company or member of the partnership.

If the company or partnership is making the contract, the company or partnership needs to be licensed in the company or partnership name. Go to our Home building online licence check and look up the details of the contractor you are dealing with before you sign the contract.

Don't sign any contract  if it doesn't meet all the above criteria. Contact your nearest Fair Trading Centre for general enquiries, but check with your solicitor for legal advice.

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Statutory warranties 

The following warranties set out what you are entitled to under the contract between you and your builder and tradesperson.

Even if these warranties are not written into the contract you sign, the law says that they still apply to the work you are having done on your home. Statutory warranties are in effect for 6 years for major defects and 2 years for all other defects, commencing from the date when the work was completed.

These warranties are: 

  • the work will be performed with due care and skill
  • the work will be in accordance with any plans and specifications set out in the contract
  • all materials supplied will be suitable for the purpose for which they are to be used
  • materials will be new, unless otherwise specified
  • the work will be done in accordance to, and will comply with, the Home Building Act 1989 or any other law
  • the work will be done with due diligence and within the time stated in the contract, or otherwise in a reasonable time
  • the work will result in a dwelling that is reasonably fit to live in, if the work includes:
    i) construction of a dwelling
    ii) making of alterations or additions to a dwelling 
    iii) repairing, renovation, decoration or protective treatment of a dwelling
  • the work and any materials used in doing the work will be reasonably fit for the specified purpose or result that the owner has advised the contractor, while indicating that the owner relies on the contractor's skill and judgment.

For more information on defects, refer to our Frequently Asked Questions page.

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Definition of completed work 

The term 'completed' has a very important role in the legislation because it marks the beginning of the time periods for statutory warranties and insurance under the HBCF.

The Home Building Act 1989 has a clear definition of what is meant by 'completion'.

Residential building work is 'complete' when it is completed in accordance with the requirements of the contract.

If there is no contract, or the contract doesn’t specify 'completion', the work is regarded as 'complete' when it can be used for its intended purpose and is free of major defects. The earliest of the following events can be used to determine when this occurs:

  • the date the builder 'handed over' the project to the owner
  • the date the contractor last carried out work (other than remedying minor defects)
  • the date of the issue of an occupation certificate, or
  • 18 months after the owner–builder permit was issued (in the case of an owner–builder).

For strata schemes, the date of issue of the occupation certificate that allows occupation and use of the whole building will be the date of completion for strata buildings.

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Watch out for danger signs 

Be wary of:

  • a builder or tradesperson who encourages you to sign a contract quickly to avoid a price increase - this is usually just a sales pitch
  • a builder who suggests you get an owner-builder permit while they organise all the building work for you. This can be a ploy used by builders who don't have the right kind of licence, or can't get home warranty insurance. Sometimes, it's simply to avoid responsibility. If you become an owner-builder, you take on added responsibilities and place yourself at greater risk if the work is not done properly. See the page called Becoming an owner builder on this website for more information.
  • a builder or tradesperson who gives you a quote which seems extremely low compared with the others.

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Prime cost items 

Choose fittings and appliances before you sign. Make sure you give enough details about products you want, so prices quoted in the contract can be accurate. Where possible, list the brand names and models of all fittings, tiles, appliances, etc that you want used.

While it is best to get a fixed price for all work under a contract, certain fixtures such as a stove or special fittings may need to be selected after you sign the contract.

These items cannot be costed exactly before the work begins and are listed as 'prime cost' items (PCs) in the contract. The builder or tradesperson should allow a price, which covers their expected cost.

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Deposits 

For smaller jobs, such as changing a power point or unblocking a pipe, it's unlikely you'll be asked to pay a deposit. However, bigger jobs where a large component of the cost is in the materials, the builder or tradesperson may ask for a deposit.

Under NSW home building law, the maximum deposit you can be asked to pay is 10%.

If the work is required to be covered by insurance under the HBCF, it is illegal for the contractor to ask for a deposit or other payment under the contract unless the insurance has been taken out, and a certificate of the insurance is given to you.

Go to the Insurance page for more information.

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Additions and variations to a contract 

Before you sign a contract, be confident that you've thought of everything. Changing something later could blow out your budget.

Additions

An addition would be something you may have thought about after signing the original contract and wish to add to the building project.

Variations

A variation is a change or adjustment to what has already been agreed in the contract.

The builder or tradesperson may need to vary the contract because of a council requirement or unforeseen circumstances. If the reason for variation is the builder's or tradesperson's fault, you do not have to pay for any extra work to rectify the problem.

Variations must be in writing and attached to the contract and signed by both you and the contracting builder/tradesperson, or their nominated supervisor or agent.

In almost all circumstances, any variation or addition to a contract will have an impact on the contract price.  This impact will, in most cases, result in a price increase but may in some circumstances result in a price reduction.  In all circumstances, documents authorising variations MUST contain a statement explaining the cost implications of the variation and their impact on the overall contract price.  Ideally the basis for the calculation of the price change should be shown, rather than just a simple dollar amount.

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How to make a variation 

Before the work commences on the variation, the builder or tradesperson should give you:

  • a written description of the work
  • any plans or specifications for the work
  • the extra cost, and any extra time required to complete the work.

Both of you should sign this written notice if you agree on the work and price. Once this is done, the work may commence.

If the variation is needed because there is likely to be danger to someone or damage to property, there may not be time to put the details in writing. In this case, the written variation may be done after the work has been carried out. In all other instances, variations must be in writing.

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Progress payments 

For minor work the builder or tradesperson will probably be happy if you pay within a week of the job being finished.

However, if the job is several thousand dollars or more, it is reasonable for the builder or tradesperson to ask you to make progress payments. This is usually so they can pay for materials and labour as the job progresses.

All contracts over $20,000 in value must have a progress payment schedule. Progress payments must match the work carried out and, for cost plus contracts, be supported by receipts or other verifying documents.

Sometimes the bank lending you the money will have special requirements for progress payments. This may need to be included as additional clauses in the contract.

Your insurance policy under the HBCF may not meet the full cost of completing your home if you make progress payments that significantly exceed the actual work done.

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Progress inspections 

For large projects such as building a new home, you may consider getting a progress inspection done by an independent building consultant or architect before each payment is made.

If you do, it will be the consultant's job to make sure all the work set out in the contract has been done and meets the appropriate standards. However, defective work may have been covered up with paint or internal wall cladding and may not be picked up by a building consultant.

Ideally, the consultant should inspect the work at times when problems can be identified. Be prepared to pay between $250 and $500 for each inspection.

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Access to the site 

By the contractor

Most contracts allow the contractor to be given access to the site for the purpose of carrying out the works. You shouldn't interfere with this as it may interfere with the plan of work and incur extra costs. If you think the contractor has breached your contract, get legal advice.

Home owners cannot unreasonably refuse access to a contractor seeking to fix defects.

By the owner

The contractor should give you access to the site for the purpose of inspecting and viewing the works. It is recommended that owners and others who need access to the site make an appointment with the builder prior to attending the site for safety purposes as all visitors to a construction site must adhere to Work Cover requirements.

Persons needing access may include:

  • lending authorities
  • owner's agents
  • inspectors from statutory authorities regarding supply of gas, electricity and water 
  • council officers or private certifiers.

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Ending the contract 

The contract normally contains provisions about ending the contract and these must be followed.

Ending the contract should be undertaken as a last resort and only after:

  • careful consideration
  • reasonable negotiation between both parties 
  • obtaining specific legal advice.

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