If you are undertaking building work, it is essential to have a construction contract in place. There are several different types of standard form contracts, and each will contain various terms outlining the arrangement between both parties. You should always ensure your contractual terms are fair and reasonable. This article will explore common standard form contracts used in Australia and key provisions to include.
When Do I Need a Construction Contract?
A construction contract is a legally binding agreement between a principal or owner and a contractor or builder. The contract is in relation to a project involving building or construction works.
Importantly, the law requires you, as a builder, to have a written contract with a homeowner for any residential or domestic building work. You should also have a written contract in place for any commercial construction works. This way, the parties to the contract are aware of their obligations, reducing the chance of disputes.
A construction contract outlines the key commercial and legal terms of the arrangement between the parties, including:
- cost;
- time;
- quality-related matters;
- specifications; and
- scope of work for the project.
A well-drafted construction contract is helpful to provide certainty for both parties in relation to a construction project. Construction works involve a unique risk profile which makes them different from other commercial arrangements. A construction contract will allocate these construction-specific risks and liabilities between the parties.
Why Use a Standard Form Contract?
Standard form contracts are industry standard in the construction industry. Most people in the industry would have some familiarity with them. As a builder or building company, you can use standard form contracts without requiring substantial change. However, you do have the option to make amendments.
Whilst most standard form contracts are regularly updated, some were drafted over ten years ago. As a result, they do not always take into account more recent legislative changes (such as security of payment and work health and safety legislation). Also, standard form contracts do not necessarily reflect the parties’ project-specific needs and commercial interests.
It is recommended that you engage a qualified lawyer to review standard terms in your contracts. A lawyer can ensure the terms accurately reflect the parties’ agreed risk allocation and that the contract complies with all relevant laws.
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Types of Standard Form Contracts
The type of standard form contract that you may opt to use will vary depending on the:
- type of work (whether that be commercial, residential, design or design and construction;
- value and size of the project;
- the complexity of the work;
- state legislative requirements; and
- a party who administers the contract (architect, superintendent or builder).
The table below discusses some commonly used standard form contracts in the Australian building industry.
| Name | Details | When it is Used |
| Australian Standards Contracts | Prepared by Standards Australia, an independent not-for-profit organisation recognised by the Australian Government. Types of contracts are:
| Used mainly for commercial projects, however, they can be used for larger residential projects. |
| Masters Building Association Contracts | These contracts are weighted towards the builder (often quite heavily). | Used for both residential and commercial projects. |
| Australian Building Industry Contracts (ABIC) | Prepared by the Australian Institute of Architects and Master Builders Australia Limited. | Used mainly for projects involving the architect as Superintendent. |
| Housing Industry of Australia- HIA | These contracts are weighted towards the builder (often quite heavily). | Used for residential projects. |
| Government Contracts | GC21 – General Conditions of Contract. | Mainly used for government-funded projects. |
Key Inclusions in a Standard Form Construction Contract
The clauses in standard form construction contracts break down the delegation of risk between the principal and the contractor. Construction contracts contain:
- time;
- cost; and
- quality considerations.
The allocation of risk varies between the different types of standard form contracts.
For example, the standard form contracts prepared by the Master Builders Associations, HIA and the ABI, generally allocate risk in a way that is favourable to the contractor. The Australian Standard contracts (in their unamended form) are generally more balanced documents.
Time
Construction projects almost always involve delays and differ from other general commercial arrangements when it comes to time-related matters.
For example, most Australian Standards construction contracts contain the concept of practical completion and a defects liability period, which runs for a period (usually 12 months) following practical completion.
Cost
Standard form contracts may have different pricing structures. Generally, you can price a construction project in one of the following ways:
- on a lump sum, like a fixed price;
- through a schedule of rates; or
- cost-plus, meaning the actual costs of the works plus the contractor’s margin.
It is important to understand the pricing structure of a project. This will determine the type of construction contract you should use.
Quality
Construction contracts also contain provisions dealing with the quality of the workmanship and materials. These provisions will vary depending on the standard form contract. For example, for commercial projects, it is common for the contractor to provide security for the performance of their obligations under the contract. This is typically in the form of bank guarantees or retention money.
Most Australian standard construction contracts allow for this. However, security is less common in a residential setting. So. Master Builders Association and HIA contracts will not contain security provisions.
Key Takeaways
It is recommended to have a written contract in place when embarking on a construction project. Using a standard form agreement can be useful where the other party has familiarity with the contract. The allocation of risk between the contractor and the principal will differ depending on the standard form contract used. You should have your construction contract reviewed before signing it to ensure that the distribution of risk is fair and reasonable.
If you would like help in having a construction contract drafted or reviewed, our experienced building and construction lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A construction contract is necessary for any building or construction project, whether residential, domestic or commercial. A written contract is mandatory for residential or domestic building work involving a homeowner. For commercial construction projects, a written contract is highly recommended due to the complexities and investments involved. Construction contracts outline crucial aspects like cost, timeframes, quality standards, specifications and the scope of work. By providing a clear framework, construction contracts provide certainty throughout the project and ensure that parties understand their obligations, ultimately reducing the likelihood of disputes.
Standard form contracts (e.g. Australian Standards, FIDIC, ABIC, MBA) are widely used in the construction industry for their familiarity and acceptance among industry participants. Drafted by reputable organisations or industry associations, these templates cover essential elements of construction projects and generally provide a balanced starting point, saving parties time and effort during the contract drafting process. Standard form contracts also offer flexibility, as parties can make amendments to the standard terms to suit their specific project needs.
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