If your business (the Principal) is looking to engage a contractor to carry out construction, fit-out or repair and maintenance works, there are several key provisions that you need to be aware of as an in-house counsel. You must ensure the quality of construction works and reduce the risk of a contractor cutting corners and causing defects. There are ways of ensuring quality on a construction project, which are both preventative and reactionary. This article will explain why you should address quality considerations in construction contracts and how to protect your business against construction defects.

Contract Documents

Ensuring the designs and specifications for the construction works are accurate and complete is important in maintaining and fostering quality. Similarly, where the contractor is also preparing the designs for the works, including comprehensive design provisions relating to the submission and approval of designs is key.


In a construction contract, it is important to include warranties as to the quality of the construction works and, if relevant, the designs. A warranty is a promise that the work will be of a specific quality and that the contractor accepts responsibility to remedy certain issues that may arise. Many of the warranties seen in a construction contract are similar to those regularly seen in other commercial contracts. 

It is common and recommended that you ask your contractor to warrant that the works will be:

  • fit for their intended uses and purposes;
  • free from defects, which should ideally be broadly defined to extend to any defect, error, fault or omission in the works, including any aspect which does not comply with the requirements of the contract; and
  • buildable in accordance with the relevant designs and specifications.

Construction contracts will also typically include warranties that the contractor:

  • will comply with all applicable laws, codes (including the National Construction Code and Building Code of Australia) and Australian Standards;
  • has inspected the site and its surrounds, and any conditions affecting the site (ideally coupled with a no claim provision);
  • has the suitable qualifications, experience and licenses to carry out the works; and
  • has checked the designs for any errors, where they were not responsible for the designs.


The provision of security for the performance of the contractor’s obligations under a contract is standard in the construction industry. Security usually represents a percentage of the contract sum (typically 5%). You can ask for security in the form of:

  • retention moneys, where you retain a percentage of each claim for a progress payment made by the contractor, until you hold a percentage of the contract sum; or
  • two bank guarantees, including one to be released to the contractor on practical completion and the other at the expiry of the defects liability period, subject to any rights of recourse open to your business.

Generally, you should be entitled to “call on” or have recourse to the security to satisfy any costs, expenses or damages that you have suffered as a result of the contractor’s acts, omissions or breaches of the contract.

For example, where the contractor fails to remedy a defect or damage caused to property and you engage a separate contractor to fix the defect or damage, you would want to be able to use the security to cover the separate contractor’s fees.

Performance security is also a great way of incentivising the contractor to both: 

  • bring the works to practical completion on time; and
  • remedy defects during the defects liability period.

This is because they will seek to comply with their obligations to gain access to the security. Cash flow is essential in the construction industry and holding security can affect a contractor’s cash flow, which they could otherwise use on other projects. This means that you have more leverage over the contractor to ensure that they complete the project to a certain standard.

Key Takeaways

The nature of construction works is risky and construction contracts can be daunting in length and substance for anyone not familiar with them. However, there are various steps you can take to ensure that your contractor completes the project to a high standard. Addressing quality considerations in construction contracts is the best way to achieve this. You should check the accuracy of the contract documents before commencing the project. It is also wise to ask the contractor to make certain warranties regarding the quality of the works and their capacity to complete the project. Finally, you should request that the contractor provide performance security as an incentive to carry out the works to a high standard. If you would like legal assistance drafting or reviewing a construction contract, contact LegalVision’s construction lawyers on 1300 544 755 or fill out the form on this page.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy