Reading time: 4 minutes

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.


Rogue Directors and Business Divorces: How to Remove a Director

Thursday 28 April | 11:00 - 11:45am

Removing a board director is not simple. Join our free webinar to learn how to handle rogue directors. Register today.
Register Now

Employment Essentials for Tech Businesses

Thursday 5 May | 11:00 - 11:45am

Protect your tech business and your employees by understanding your employment legal obligations. Register for our free webinar today.
Register Now

Corporate Governance 101: Responsibilities for New Directors

Friday 6 May | 11:00 - 11:45am

If you are a new company director, join our free webinar to understand your legal compliance obligations. Register today.
Register Now

How to Protect and Enforce Your Trade Mark

Wednesday 11 May | 11:00 - 11:45am

Protect your business’ brand from copycats and competitors. Register for this free webinar to learn how.
Register Now

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer