Understanding Building Contracts in WA: A Beginner’s Guide

When building a house in Western Australia, parties involved have to sign a contract which binds and obliges them to comply with the conditions. A building contract is designed to protect both parties in the building process, and ensures everyone is on the same page before construction gets started. But what exactly is a building contract?

A building contract is a legally binding document between a builder and client outlining the terms of a construction project, including the associated costs, timeline and warranties. Building contracts protect customers and builders, so it’s a legal requirement to have one.  

We understand that not everyone is familiar or well-versed in legalities and policies. As such, this beginner’s guide is written in such a way that both builders and clients in Western Australia are able to comprehend. 

The guide to WA building contracts will explain key terms and outline your rights and protections. Continue reading to learn more!

What Is A Building Contract?

A building contract is a written contract between a builder and their client, containing the details of the building work to be done. This includes all specifications, working drawings, and information. The type of contract will depend on whether the building work is for residential or commercial purposes. 

Like all contracts, the building contract should be signed and dated by both parties. To confirm the type of contract your project needs, you may reach out to the Master Builders Association of WA, the Housing Industry Association, or the Australian Institute of Architects.

Having a poorly written contract, or no contract at all, creates a lot of risk for builders and customers. This is why WA has dedicated legal requirements around home building contracts, including the Home Building Contracts Act 1991.

What Legislation Covers Building Contracts in Western Australia? 

The most recent legislation around home building contracts in WA is the Home Building Contracts Act 1991 and the Construction Contracts Act 2004. Let’s take a look at what each law covers and what it means for customers. 

Home Building Contracts Act 1991

The Home Building Contracts Act 1991 regulates contracts between people who are undertaking home building or similar work for a homeowner, including owner-builders in WA.

Western Australia’s Home Building Contracts Act applies to entities who sign an ‘associated work’ or ‘home building work contract’, in which the fixed price contract has a value that falls between $7,500 to $500,000. Under the act, a ‘builder’ is any person/s who carries on a business that performs home building work or related work for others, regardless if the person is a registered builder or not. The legislation does not cover contracts between tradies and builders.

The legislation considers the following to be ‘home building’ or ‘associated’ work:

  • The erection of a new house or additions to a preexisting house
  • The installation of a swimming pool
  • Cabinetry work for either a bathroom or kitchen
  • The construction of a pergola, shed or garage
  • Performing landscaping work

Before a building contract is signed, legislation requires the builder to provide the owner(s) with a copy of the ‘Notice for the Home Owner’, which is a summary of these legal requirements. The notice is Schedule 1 of the Home Building Contracts Regulations 1992.

Construction Contracts Act 2004 

The most recent WA legislation involving building contracts is the Construction Contracts Act 2004 (WA). The legislation came into effect on 01 January 2005. It creates provisions for good payment practices in building work, including:

  1. The prohibition of clauses in contracts which slow or halt payments
  2. How terms within a contract are interpreted without specific provisions
  3. Whether or not unfixed materials can be used when a contract party becomes insolvent
  4. Establishment of a system for the timely adjudication of payment disputes

The Construction Contracts Act 2004 covers all contracts for:

  • any construction performed on a worksite in Western Australia
  • the materials supplied to the site
  • off-site fabrication, which includes the delivery to the building location
  • and professional construction-related work

How Does A Building Contract Work?

A building contract is a legal document which sets forth the rights and responsibilities agreed by both the builder and the client. The basic requirements is that the contract shall be in writing and contains all provisions, terms and conditions of the agreement, and is signed and dated by both parties.

The Housing Industry Association and Master Builders Association have a number of standard contract templates which can be revised to suit the parties’ situation. Once a building contract is signed by both parties, they are obligated to follow the guidelines stated in the contract. 

By having a detailed and thorough contract to build a home, the expectations and commitments of each party are made clear. The building company commits to fulfil the expectations laid out in the contract, while the client promises to stick to the agreed payment schedule. 

If a breach of contract is committed by either the client or the builder, legal action can be taken. However, this is a rare occurrence, as the contract also outlines a dispute resolution process both parties can take if any issues arise. 

Items that should be included in a building contract include: 

  1. Name of the client
  2. Name of the contractor and the builder’s licence number
  3. Detailed description of the work to be undertaken
  4. Price (if already known at the time the contract was made)
  5. Compliance quality clause which promises that the work will be in compliance with the Australian Building Code, as well as any other relevant codes and standards
  6. An agreed-upon progress payment schedule
  7. Contingency plans for any possible delays
  8. A termination clause
  9. The insurance certificate details for the contractor
  10. 5-day cooling-off period wherein the homeowner may cancel the contract. A cooling off period is not required under WA legislation, however it can be included voluntarily when a contract is written. 

There are also important considerations to remember for these contracts, such as:

  • Dispute Resolution – If a dispute arises between the parties for any reason, and the contract does not stipulate or detail an agreed upon resolution, then the Consumer Affairs Department of WA shall assist by way of mediation. Any form of mediation should be aimed at reaching an amicable and just outcome for both parties. However, it is highly advised to first speak with your builder to see if you can reach an outcome that is suitable for you both. These disputes sometimes originate from a simple miscommunication or misunderstanding, so a constructive conversation with the other party can usually resolve the problem.

  • Price Increases – ‘Rise and fall’ clauses in a contract are not allowed under the Home Building Contracts Act 1991. This means that the figure that has been agreed upon by both parties should be followed as much as possible. However, a clause isn’t classified as a ‘rise and fall clause’ if builders can pass on incurred costs as a result of duty or increased taxes.
    • Rise and Fall Clause – a clause usually found in building contracts that permits the increase or decrease in the final pricing according to fluctuations of material prices, wages, or variations to building work.

  • Contract Variations – Generally speaking, any variation that is done to a contract for home building should be written, and should indicate the date, together with the signature of both parties. A copy should be given to the homeowner before any varying work begins. Some exceptions can be made if the changes were a result from a surveyor providing directions, or changes arising from circumstances which where unforseen at the time the contract was signed.

  • Defects in Workmanship – A builder is liable to honour (at no cost to the client) issues in home building work granted that the client was provided written information in less than four months of construction completion.

  • Home Indemnity Insurance – The Home Indemnity Insurance insures the homeowner and any other partial owners against the deposit loss (up to $20,000), or the finalisation of the building project (up to $100,000) in the event that the builder passes, disappears, or becomes insolvent from the expected date of completion up to six years later. It is also compulsory for residential building works above $20,000 to be covered by HII, except those that involve ‘associated works’ only (e.g. landscaping, creation of carports, swimming pools, or pergolas).

    • The only time HII becomes compulsory is if the work is undertaken under a building contract that also includes development or remodelling of a home, and the price exceeds $20,000.

    • Prior to starting any building work or the requesting of payment, such as a deposit, the builder should take out an HII and provide the homeowner a certificate which confirms insurance cover has been taken out and is active.

  • Penalties – The Home Building Contracts Act 1991 contains provisions for the protection of clients and builders. There is a penalty of up to $10,000 for an individual builder who fails to comply with its provisions, and up to $50,000 if the builder is a company. It is recommended to seek legal advice before entering into home building, to ensure that all obligations are complied with under the building contracts act.

When Do I Need A Building Contract in WA?

A building contract will be required for individuals or builders who plan to undertake a construction project, such as the construction of a home, as defined and stipulated under the Home Building Contracts Act 1991.

The legislation considers the following as home building or associated work: 

  • erecting a new house or creating additions to an existing house
  • installing a swimming pool
  • undertaking cabinetry work for either a kitchen or a bathroom
  • constructing a garage, shed, or a pergola
  • performing landscaping work, 
  • and other similar work. 

This means that the construction of granny flats also requires a building contract, among other relevant permits.

Keep in mind that a contract is only required if and when the fixed price will fall between $7,500 to $500,000, and applies regardless of the builder’s registration status.

What Different Types of Building Contracts Are There?

The most common types of building contracts are:

  • Lump Sum Contracts
  • Cost Plus Contracts 
  • Small Job Contracts 
  • Large Job Contracts 

Each type has its own advantages and disadvantages, with others (such small jobs) specifically meant for a certain price threshold.

Lump Sum Contracts

Also referred to as fixed-price contracts, a lump sum contract states a lump sum for the build at the outset. The price cannot be revised unless variations are introduced to the project, such as a choice of tiles, kitchen benchtop, or other materials. 

However, the price is not really final as there are usually instances in which some type of work could not be precisely priced until it was undertaken or finished. In these instances, a provisional sum is indicated within the contract and is understandably subject to change.

Cost Plus Contracts

A Cost Plus Contract has an uncapped budget in which the homeowner will pay all costs with an additional margin for overheads. This is commonly used on building projects over $500,000 where the budget is difficult to estimate until the work has commenced. 

Due to the nature of the contract, the client will be in charge of purchasing the materials needed for the building work, effectively taking on some costs that would have otherwise been handled by the builder in a lump sum contract.

Small Jobs Contracts

A Small Jobs Contracts, sometimes referred to as Small Works Contract, is a kind of building contract used only for residential construction work whose price falls between $5,000 and $20,000. 

This contract is more common among renovation works and additions due to the price limitation.

Large Jobs Contract

A Large Jobs Contract is a kind of building contract used only for residential construction work whose price exceeds $20,000.

What Is Included In A Building Contract?

The standard building contract contains everything necessary to outline the timeline and costs of a construction project, including:

  • Payments
  • Constraints
  • Time Frames
  • Scope of Work
  • Potential Losses
  • Warranties

Inclusions & Exclusions

Inclusions refer to the tasks, items, and works that are explicitly included in a building project. On the other hand, exclusions specifically state which items, tasks, or works are not covered in the building project. 

This is similar to the scope of work because it details what type of work and how much of that work will be undertaken by the builder. Although the provision of an exhaustive list of inclusions and exclusions ensures that everything stipulated will be done by the builder, it also restricts some flexibility or ‘wiggle room’, which can be useful in unexpected scenarios that may occur during the construction.

Payment Schedule

The payment schedule and cost estimates are among, if not the most critical part of a construction contract. A cost estimate should already be sent to the client prior to the drafting of the contract. 

It is advised to settle on a non-refundable deposit, with phased payments based on project milestones.

Project Constraints

Project constraints can refer to technical, legal, economic, time, environmental, social or management constraints. Basically anything that impedes progress towards the completion of the structure. Constraints should be identified and explicitly described in as much detail as possible. 

Understanding how these constraints affect the building project will help mitigate any miscommunication between the builder and the client.

Time Frame

Also commonly referred to as the timeline, this portion details projected completion of certain aspects of the structure (e.g. a specific date of completion for the bathroom, the kitchen, etc.) as well as the overall completion of the structure itself. 

Included in this portion is the date of effectivity of the contract, the parties to the contract, their addresses, and the projected end of the project. It is important to remember that the contract has to include clear resolutions for when the project cannot be complete on time due to whatever reason.

Scope of Work

This will specify the type of construction work the contract is intended for. For instance, if the project is for the bathroom, then this portion will detail exactly which parts of the bathroom are to be built, to what degree they are to be modified, and what kind of modification will be done. 

Usually the exact process is detailed or listed to ensure clarity and prevent miscommunication that could result in a problem between the client’s expectation and the builder’s intended work. 

Consequential Loss

There are two recognised types of loss that can result from a breach of contract; Direct Losses, and Indirect (Consequential) Losses. The latter in particular refers to those that do not surface due to a natural series of events, but rather one that was caused by certain circumstances. 

This kind of loss can only be considered recoverable if both parties are able to reasonably agree on the specific circumstance occurring when they both entered into the contract.

Warranties

Warranties will give clients peace of mind by guaranteeing the work for a specified period of time, which is usually one year. 

A lot of clients will refuse to work with a contractor if they are unable to offer some kind of warranty. Remember, clients need to know that the builder will stand behind the quality of their work. This means the builder will take responsibility for any issues or problems that may arise due to poor workmanship.

Who Can Write A Building Contract?

A building contract is often written by the main builder and a licensed lawyer. If you are building a home, it’s best to contact your own lawyer to have them read over the building contract before you sign it. 

What Do I Need To Do Before Signing A Building Contract?

Before you sign a building contract, it’s important to read it yourself and have it vetted by a lawyer. This will allow you to catch any project specific mistakes you would be aware of, and any legal mistakes that a lawyer will check for. 

If you have any questions about your building contract and the terms included in it, you should also speak to your builder. 

Related Questions

What Is The 45 Day Building Clause?

The 45 Day Building Clause is a clause found in building contracts specifying that builders have 45 working days to begin the build once several other clauses have been met. 

The responsibility of the 45 day building clause does not fall solely on the builder, because the client also has to prove that they own the block and have finance approval. Failure to provide the aforementioned to a builder within a specified time can prompt the builder to cancel the contract or renegotiate the price.

Can I Get Out Of A Building Contract in WA?

Legislation in Western Australia does not require building contracts to include a ‘cooling off period’, so the client cannot get out or opt out of the contract simply because they have changed their mind. For your peace of mind, you should make sure you’re up to date on all the contract details ahead of signing.

Disclaimer:

This article is published in good faith and for general informational purposes only. It does not take into consideration your individual circumstances and does not constitute an estimate for any specific project. Central Avenue Homes does not make any warranties about the ongoing completeness, reliability and accuracy of this information. Construction costs and other financial details vary and you should always seek a specific quote. 

 

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