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If you are undertaking building work, you should ensure that you have a construction contract in place. There are a number of different types of standard form contracts and you must make sure that the terms of the agreement are fair and reasonable. This article will explore:

  • common standard form contracts used in Australia;
  • why they are often used; and
  • what you should look out for when entering into a construction contract.

When Do I Need a Construction Contract?

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 and reduce 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 Are Standard Form Contracts Used?

Standard form contracts are industry standard and are often used because most participants in the construction industry will have some familiarity with them. Standard form contracts are able to be used without requiring substantial change. However, they are often amended by parties, often extensively. 

When receiving a standard form contract, it is worthwhile requesting from the other side a Word compare. This sets out any amendments made to the standard form contract. You should also have a lawyer review the contract to ensure it protects your interests.

What Types of Standard Form Contracts Are Used?

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 construct;
  • value and size of the project;
  • complexity of the work;
  • state legislative requirements; and
  • party who administers the contract (architect, superintendent or builder). 

There are 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:

  • AS4300 – General Conditions of Contract for Design and Construct;
  • AS4902 – General Conditions of Contract for Design and Construct);
  • AS4000 – General Conditions of Contract for Construct only;
  • AS2124 – General Conditions of Contract; and
  • AS4906 – Minor Works Contract Conditions (Principal administered).

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.

What Are the 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, a construction project will either be priced:

  • 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 contact LegalVision’s building and construction lawyers on 1300 544 755 or fill out the form on this page.

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