BASIC CONTRACT LAW - Pointsbuild Contract Law v3.pdf · Identify the common standard-form contracts and compare the standard-form contracts available from the Office of Fair Trading

BASIC

CONTRACT LAW

Version 3.0, January 2015

© Pointsbuild Pty Limited

TABLE OF CONTENTS ABOUT THE AUTHORS ..................................................................................................................... 1

INTRODUCTION ............................................................................................................................... 2

What Is A Contract And Does It Have To Be In Writing? .................................................................. 4

When Is A Contract Formed? ........................................................................................................... 6

What Should A Contract Cover? ....................................................................................................... 7

CONTRACTUAL PERFORMANCE – SPECIFICS ................................................................................. 9

SECURITY OF PAYMENT ................................................................................................................ 11

BUILDING CONTRACTS - RESIDENTIAL ......................................................................................... 12

Why do I need a written contract for residential building work? ................................................... 12

Standard-Form Contracts................................................................................................................ 12

Standard form contracts – a comparison........................................................................................ 13

Standard-Form Contract Summary ................................................................................................. 18

BUILDING CONTRACTS - COMMERCIAL AS4000 ........................................................................ 18

SECURITY OF PAYMENT AMENDMENT BILL 2013 ....................................................................... 22

PAGE 1 Basic Contract Law ©Pointsbuild Pty Limited

About the Authors

Step

hen

Bo

oth

• Stephen Booth has thirty years’ experience in legal practice andleads Coleman Greig’s Employment Law Team in the area ofemployment law, advising and representing employer and employeeclients in a wide range of areas including unfair dismissals,discrimination, legislative and award compliance, and workforcerestructuring and redundancies.

• Stephen studied LLM, Trade practices, Commercial Litigation at University of Technology, Sydney and BEc, LLB Economics Law at University of Sydney. He regularly provides training for clients’ staff on practical compliance with competition law and minimisation of trade practices risks, and on other compliance issues.

Mic

hae

l Sal

iba

• Michael Saliba has a particular interest in building and construction law, and has gained significant expertise in building and construction litigation in the Supreme and District Courts and in the Consumer Trader and Tenancy Tribunal. Michael has a family background in the building industry and he worked for Coleman and Greig Solicitors for eight years as a Senior Associate.

• Michael studied law at Sydney University and since leaving Coleman and Greig Solicitors, he has worked for UGL Infrastructure as Legal Counsel, UGL Limited as General Manager Engineering Major Projects East, and at present works at Tenix as Head of Legal, Engineering and Construction


Introduction A contract is any binding agreement between two parties and an agreement which the parties intend to be contractual. There will be what lawyers call ‘consideration’ on both sides, which means, each party will obtain benefits for which they give something in return in the course of performing the contract.

In NSW it is law that all residential building work over $1,000 (GST inclusive) needs to have a written contract and if the contract price is over $5,000 the contract needs to be more extensive in detail. The contract documents include: the contract, plans, quotation and the local government approval.

The Home Building Act 1989 (NSW), has statutory warranties to be implied into contract for residential building work including:

1. A warranty that the work will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract.

2. A warranty that all materials supplied by the holder or person will be good and suitable for the purpose for which they are used and that, unless otherwise stated in the contract, those materials will be new.

3. A warranty that the work will be done in accordance with, and will comply with, this or any other law.

4. A warranty that the work will be done with due diligence and within the time stipulated in the contract, or if no time is stipulated, within a reasonable time.

5. A warranty that, if the work consists of the construction of a dwelling, the making of alterations or additions to a dwelling or the repairing, renovation, decoration or protective treatment of a dwelling, the work will result, to the extent of the work conducted, in a dwelling that is reasonably fit for occupation as a dwelling.

6. A warranty that the work and any materials used in doing the work, will be reasonably fit for the specified purpose or result, if the person for whom the work is done expressly makes known to the holder of the contractor licence or person required to hold a contractor licence, or another person with express or apparent authority to enter into or vary contractual arrangements on behalf of the holder or person, the particular purpose for which the work is required or the result that the owner desires the work to achieve, so as to show that the owner relies on the holder's or person's skill and judgment.


This course aims to inform the learner about basic contract law pertaining to the building and construction industry. There are several types of building contracts available to the residential and commercial builders.

By the end of this course the learner should be able to:

Understand the general components surrounding commercial building contracts.

Identify the factors surrounding contractual performance;

What components should be included in a contract and how to comply with legislation;

Identify the common standard-form contracts and compare the standard-form contracts available from the Office of Fair Trading and the Housing Industry Association;

Understand why a contract is written and when a contract is required;

On 28th May 2014, the

Home Building Amendment Bill 2014 (Bill) passed through NSW Parliament.

The reforms in the Amendment Bill include:

Home building contracts

Statutory warranties

Dispute resolution

Owner Builders

Licensing


The Contract

Making a Contract and Getting Things Right at the Start! The contract is the basic reference point to verify the rights and obligations of each party named in the contract. Many builders say that once the contract is signed it should stay on the shelf and not to be looked at again. In an ideal situation that is fine but if there was a dispute (and you cannot tell in advance when this will occur) it is the contract to which both parties will refer to and establish who is in the right and who is in the wrong and what the consequences might be. It is important to get the contract right from the beginning and perform the work in accordance with the contract to avoid disputes at the completion of the project. It is paramount to have a building contract reflect what residential building work to be done, when the work is to be completed, who will complete the work and how much the project will cost. The contract should also include any other relevant matters that are necessary to sensibly govern the relationship between the owner and the builder and between the builder and any subcontractors.

What Is A Contract And Does It Have To Be In Writing? A contract is any binding agreement between two parties and a contract can be in writing or made orally. The contract can be entered into by signing a document, agreeing over the phone or clicking an “I agree” button on a web page. However, under the (HB Act) Home Building Act 1989 (NSW), builders are required to establish a contract for residential building work in writing, otherwise, the builder is not in a position to enforce the contents in the contract. The HB Act, defines “residential building work” as any work including supervision or coordinating of work involved in: 1. The construction of a dwelling; or

2. The making of alterations or additions to a dwelling; or

3. The repairing, renovation, decoration or protective treatment of a dwelling. In the HB Act, “a dwelling” means a building or portion of a building that is designed, constructed or adapted for use as a dwelling. It includes a detached or semi-detached house, transportable house, terrace or town house, duplex, villa-home, strata or company title home unit or a residential flat. It also includes a swimming pool or spa constructed for use in conjunction with a dwelling. If you have any doubt as to the meaning of the dwelling, it is in your best interest to treat the project as it’s covered by the Act or seek professional advice.

http://www.austlii.edu.au/au/legis/nsw/consol_act/hba1989128/


The written contract needs to be written in English, dated and signed by, or on behalf of each of the parties including:

1. The names of the each of the parties, including the name and number as defined on the

contractor’s licence and duplicated exactly the same as on the contract. The contract must not include the name of any person other than the holder of a contractor licence as the holder’s name. This does not prevent the holder of a contractor licence with a business name registered under the Business Names Act 2002, from also referring in such a contract to the business name.

2. The contractor’s licence number. 3. A satisfactory description of the work to which the contract relates and any plans and

specifications for the work; and 4. The contract price if known in a prominent position on the first page of the contract.

5. If the contract price is not known or the contract allows for a variation in price, the contract

must contain a warning to this effect and explain the effect allowing the variation of the price. The warning and explanation must be placed next to the price if known but can be varied.

6. Any statutory warranties applicable to the work in the case of a contract doing residential

building work—a prominent statement setting out the cooling-off period which is five business days if the contract price is over $12,000.

These rules do not apply if the contract:

1. Is subordinate to a principal contract to do residential building work. For instance, if the

contract is a contract between a licensed builder and a licensed subcontractor; or

2. Is made between a licensed builder doing work on premises that the licensed builder owns and a licensed trade contractor; or

3. Is for any specialist work that is not also residential building work; or

4. Is for a contract price not exceeding $1,000 (GST inclusive) or, if the contract price is not

known and is for the provision of labour and materials by the contractor the reasonable market cost of which does not exceed $1,000 (GST inclusive).

Separately from these rules for residential building work, if there is a written contract it may consist of anything from a fully negotiated and detailed written contract, to a few written points scrawled on a sheet of paper; either alone or as part of a contract along with any other verbally agreed terms. It is important to know that if you use a contract that is less formal in detail that it can create a greater scope for a dispute.

If a dispute is raised between the home owner and builder and there is no written contract, inevitably each party remembers events differently, even if both parties try to recall the truth to the best of their ability. This is why it is so important that the agreed terms in the contract are correctly stated so there is no doubt about the terms and conditions of agreement.


When Is A Contract Formed? A contract is formed when an offer intended to be contractual is accepted by another party and all of the essential elements in the contract have been covered. A contract lacking the key elements (e.g. agreement on the work to be done or price) may be incomplete and therefore, void for uncertainty.

If Bob the Builder makes an offer to purchase a house owned by Mrs Williams and Mrs Williams responds with a counter offer, then the original offer is rejected, and no contract is formed. It is important to see whether Party A accepts Party B’s counter offer or; makes another proposal for consideration.

A contract is reached when a complete proposal is accepted by both parties equally, and if the contract is in writing, it is signified by both parties signing the contract. There are some circumstances where a contract is formed even though no document has been signed and where the party's conduct indicates that a contract was in existence at some point.

If there is a dispute, it will be a matter for the Court to establish all of the components of the contract based on the documents and the evidence of the party as to what occurred. Once a contract is complete, and binding agreement has been made between the builder and home owner, any variation to the contract terms can only be added by agreement of both parties. If a contract has been signed for building work and the builder sends the home owner a document stating additional terms, those terms may not form part of the original contract because they were additional. This may occur when detailed terms and conditions were not revealed at the negotiation phase but when the builder sends the invoice or order form to the home owner and his terms and conditions are in fine print on the reverse of the document.

If the terms are accepted by the home owner as part of the contract, the builder cannot enforce the additional terms as part of the original contract. It is in the interest of both the builder and home owner to have all of the intended terms and conditions deliberated early in the negotiation stage of the project, so both parties are clearly informed of the terms forming the contract. Terms may be implied into a contract by a Court but only such reasonable terms that are necessary for the contract to operate.


What Should A Contract Cover? This is a broad question to answer definitively, but the important issues to include in a contract are:

The builder can use a standard-form contract which is a printed document containing provisions on a wide variety of matters. The Home Building Act 1989 (NSW), provides that certain statutory warranties are implied into every contract to do residential building work. There are standard-form contracts designed for small scale building projects where there is no supervising architect required. In NSW, the most frequently standard-form contracts sought are from Housing Industry Authority, The Office of Fair Trading and The Master Builders Association. If the standard-form contract is not suitable for your business, adapt your own contract template and use a standard-form contract as a guide. From a practical point of view, the provisions of the contract should reflect a fair balance between the interests of both parties, otherwise the project is likely to be deficient for both builder and home owner. However, fairness isn’t a legal requirement and there is no law that says the matters in the contract must be fair. Nevertheless, if a contract shows bias to one of the parties which takes advantage of the other with whom has a greater bargaining power over the other person; this situation may necessitate the Contracts Review Act or similar laws, which allow the contract to be varied or set aside.

Negotiating the Contract It is important that when a contract is negotiated, neither party makes misleading statements or acts in a misleading or deceptive way towards the other. Material misleading conduct (claims which are untrue, half-truths etc.) may be a basis for a claim of damages, or to have the contract set aside under the Trade Practices Act, Section 52, or the Fair Trading Act, Section 42. For instance, if a builder mislead a home owner by telling them that he had worked previously on other major projects and this is an untruth and the home owner’s decision to sign contract is reliant on that untruth, the contract may be set aside. If the home owner suffers damage because he believed the builder had skill in alliance with major project work and the builder performs to a skill level deficient of what was expected, this could cause the contract to be set aside and the home owner may be eligible for damages or may be able to get out of the contract.

Parties•Name the persons in the contract and ensure they are the correct names of companies or individuals behind the business names.

Scope of the work•What work is to be done, is there a plan which defines what is to be done, including what materials are to be used?

Price

•What is the price, when is it to be paid and are there to be progress payments, if so, at what points in time? Are there to be retentions of payment and when are they to be released and in what circumstances can payment be withheld?

The ‘rules of the game’

•The rules refer to the various processes to be followed, notices to be given, so the issues that do arise during the building contract can be dealt with, like variations or claims for extension of time.

Things which are not part of the contract

•Specify items in the contract that may not form part of the scope of work such as a price for an unforeseen excavation


Signing the Contract

It is not a basis to set aside a contract because one party signed the document without properly reading the contract. If one party signs a contract without reading the document, the other party is still entitled to rely on the document as a valid and enforceable agreement.

However, if in fact someone has not read the contract because they were pressed to sign or were misled about its contents, then there may be means in which the contract can later be cancelled or modified.

Copies of the Contract

It is important that both parties have a copy of the contract and for the document to be given the worth which it has legally so that both parties comply with its provisions and are not surprised about matters of which they have no knowledge or no ready means of checking. The Home Building Act 1989 (NSW), Section 7B, requires the holder of the builders licence to give a copy of the signed contract to the home owner within five business days after entering the contract. Failure to do so is a breach of the Act.

Performing the Contract

When a contract has been established between the home owner and the builder, it is important to

understand that the terms of the contract need to be at the right level of complexity or simplicity. If you choose to use a standard-form contract which requires notices to be giving for a variety of matters and this is not the normal way you conduct your business; this can create problems for the project. The builder would be in a better position to adopt a standard-form contract which compliments the way the builder conducts his business, or adapt his business methods to comply with the terms of the contract he has chosen to use.


Contractual Performance – Specifics

Time The contract ordinarily specifies the time for when the building contract starts and when performance is due. There are often sanctions for failure to comply such as liquidated damages clauses for late performance. Time may be suspended during periods of inclement weather or for other reasons outside the control of the builder. The provisions in the contract state that the builder has to give notice to the home owner when time is to be suspended and notifying how much time is to be claimed or not claimed counting towards the deadline. Compliance with these rules is fundamental if you as the builder is to rely on that fact to a claim for liquidated damages for failure to meet the deadline.

Cas

e St

ud

y •A builder is contracted to perform residentialbuilding work to be completed over a periodof three months.

The builder provided a provision in thecontract for wet weather stating “the builderis required to give five days’ notice of a delayoccurring for inclement weather”consequently, the builder can claimextensions of time for weather delaying theproject.

The building work is suspended due to rainbut the builder fails to give the proper noticeto the home owner as specified in contract.The project completion is overdue and adispute arises between the home owner andthe builder.

The builder relies on the wet weatherprovision to get an extension of time butunfortunately it is outside the time limitsstipulated. The project was delayed evenfurther, when the builder contracted with thehome owner believing that he could acceptmaterials and equipment delivered onsite viaa pathway at the side of the house, however,this pathway proved to be too narrow andanother access route was necessary whichdelayed building work further.

•The builder was irresponsible for notinspecting the building site thoroughly and tobe pre-informed that the pathway was toonarrow to receive deliveries. If the builderprepared suitably, he could have inserted aprovision in the contract to allow for a timeextension and accept delivery of materials viaa route more suitable.

The absence of notices and properprecautions in the contract, substantiallyweakens the builder’s situation at Mediationand if the dispute doesn’t resolve, it would befurther weakened if the case proceeded toCourt.


The Parties Involved It is essential to be clear about which individual or company is the contractual party on each side. Often matters will need to be certified under the building contract by a superintendent or the architect, or, some other party other than the owner or builder. The importance of having an independent person is to remove the issue from the control of the owner and builder as directly interested parties. It is fundamental to obtain the certificate at the appropriate time rather than assuming that things will work smoothly.

Variations

Building contracts frequently require variations and these need to be notified in writing and authorised in advance for them to be contractually binding. It is a common view of the community, that builder’s under-quote to get the job and then attempt to recoup some of the profit they expect to make on the project by claiming variations. This is viewed with suspicion, since they inherently take the costs of the job above the agreed price.

Claims for variation work can raise issues about the true scope of work that was agreed to initially. To rely on alterations in the scope of work under the original building contract, it is essential to have the variations in writing and approved as it is to have a contract in the first place. Failing to do so effectively, means there is no contract with the respect to variations and the builder’s chances of proving that the work was done at the request of the owner have diminished. The builder is entitled to a reasonable price for that work outside the scope of the main contract.

Retentions

Building contracts commonly provide for a retention period in which 5% to 10% of the contract price is retained by the owner, to secure performance of any incomplete or faulty work during the rectification period. Prompt performance of these obligations is essential for the builder to obtain the final payment. The home owner has obligations under the contract to pay money, to give access to the site and not to interfere with the works. Regulating these obligations actively during the contract is also essential.

Completing, Terminating and Enforcing the Contract

In an idyllic situation, the building work is finished, the builder has been paid and no issues have arisen between the home owner and the builder. However, sometimes the builder has difficulty obtaining the final 10% of the contract price owing because the home owner may try to control the final contract price as much as builders might inflate the price through variation work.

For a builder to be in the best position to receive the final payment of the contract, he needs to have fulfilled all the obligations of building work in accordance with the contract and given the appropriate notices, extensions and had any variations approved. Defective and incomplete work or work that is arguably so, creates a way for the home owner to raise a dispute and the final amount due on completion.


The balance between the value of work provided and money paid, is a very important standing in the balance of commercial power between parties in a building contract. The first question asked in a dispute case, is whether the owner has paid more than the value of the work completed at a particular point, or; the builder is behind in payments and has performed work to a greater value than the money received. Ensuring provisions in the contract for any progress payments keeps this equation in balance and it’s important for the commercial reality of resolving any disputes.

Breach of the contract by either party may result in termination. It is important to strictly adhere to

the conditions regarding notice, if termination is to be achieved successfully. With the exception of urgent cases, this usually means notice of a breach must be given and time allowed for rectification before the contract can be terminated.

Termination will result in claims for any money due at the time on either side and a possible claim for damages for breach of contract; depending on whether there was grounds for termination or not.

The dissatisfied home owner will often litigate for extra costs of having the job completed and it is notorious that builders either won’t quote at all, or quote high for completing partially finished work; not surprisingly since the nuisance factor and the risk involved is high.

Security of Payment

The Building Industry Security of Payments Act 1999, provides a mechanism for prompt resolution of building disputes. Essentially, claims that are designated as payment claims, program a strict sequence of time limits for responses by way of a payment schedule, initiations of the adjudication process and the conduct of the adjudication process.

The HB Act does not apply to contracts for the carrying out of residential building work within the meaning of the Home Building Act 1989, on such part of any premises as the party for whom the work is carried out resides in or proposes to reside in (so the exclusion only applies to an owner’s own residence, not an investment property).

Failure to comply strictly with the time limits results in disappointment and the existence of a debt, which is enforceable through the Courts. While the intention of the legislation is to allow builders to promptly recover monies due to them without obstruction, this system is not as simple as it appears. For instance, a debt based on a payment claim is not necessarily certain to form the basis of a statutory demand threatening under the Corporations Act.

While a debt arising under the legislation is enforceable immediately without the default party being able to mount a cross claim, this does not prevent that party going to Court to indicate its rights in the ordinary way.

Although this avenue will take much longer than the time scale for payment under the legislation, it is also common for proceedings to enforce a payment claim being met by disputes as to whether the work involved was work within the scope of the legislation or, whether there was a building contract or construction contract in the first instance; if not, then the legislation does not apply.

Although a payment claim which was not answered with a payment schedule creates a debt due and is payable, it’s still possible for a home owner to raise claims under Commonwealth Law like the Trade Practices Act.


Building Contracts - Residential

The Home Building Act 1989 (NSW), regulates contracts for all types of residential, construction and building works.

Why do I need a written contract for residential building work? It is law and good practice to have a building contract when you are undertaking residential building work over one thousand dollars. Residential building work means any work involved in or coordinating or supervising any work involved in: 1. The construction of a dwelling; or

2. The making of alterations or additions to a dwelling; or

3. The repairing, renovation, declaration or protective treatment of a dwelling.

Standard-Form Contracts Standard-form contracts are available for residential and commercial building works from many businesses The Office of Fair Trading (OFT) and the Housing Industry Authority (HIA) both offer standard-form contracts which are similar in nature but at a glance it’s difficult to see why a builder would choose one contract over the other. The contract from OFT is concise and differs from the HIA contract, in that it provides explanations, notes and warnings for items of contention. This feature is useful for home owner and builder, particularly if they’re not experienced with the use of a building contract. The warnings and notes serve as an indicator to builders to obtain legal advice or further clarification before executing the contract. The OFT contract includes all the statutory items required under the HB Act, which serve as protection for both builders and home owners, including checklists and home owner warranty insurance requirements.


Standard form contracts – a comparison The OFT and HIA standard-form contract are the same in the following parts: 1. Time for completion;

2. Extensions of time;

3. Completion of work;

4. Statutory warranties;

5. Cooling off period.

Under the HB Act, any contract over twelve thousand dollars must include a five business days ‘cooling off period’. Both the OFT and HIA contracts comply with the HB Act and include this provision.

Deposit A builder cannot request a deposit from the home owner until the Home Warranty Insurance Certificate has been issued to the owner. The OFT standard-form contract includes a provision to request a deposit.

The deposit cannot exceed the maximum allowable under the Act, which is 10% of the contract price if the contract is twenty thousand dollars or under; or 5% if the contract price is over twenty thousand dollars.

THIS HAS CLAUSE HAS BEEN APPROVED FOR AMENDMENT UNDER THE HOME BUILDING AMENDMENT ACT

2014. THE REFORM STATES THAT: “THE MAXIMUM DEPOSIT PAYABLE BY AN OWNER WILL INCREASE FROM

5% TO 10% FOR RESIDENTIAL BUILDING CONTRACTS OVER $20,000.” THIS CHANGE WILL APPLY TO ALL

NEW CONTRACTS ENTERED INTO AFTER THE AMENDMENTS ARE PROCLAIMED. IT IS ANTICIPATED THAT THE

COMMENCEMENT DATE WILL BE ON OR BEFORE 1 DECEMBER 2014.1

The HIA contract does not have a provision to request a deposit from the home owner.

Provisional sums Clause 10 of the OFT standard-form contract, deals with provisional sums. Provisional sums are an estimate of the cost of works included in the contract for which the contractor cannot give a definitive price like rock excavation or piercing. Provisional sums should only be used when a contractor cannot price the work before it is undertaken. The HIA standard-form contract does not specifically deal with provisional sum items. Provisional sums are frequently the cause of much concern with developers and home owners because they are ultimately an unknown or an estimate. The builder should notify the owner of any relevant increase on provisional sum items as soon they become aware of them, which is the cause of many disputes in residential construction.

1 Bannermans Lawyers – Builders to Benefit from Home Building Reforms


Prime cost items Clause 11 of the OFT standard-form contract, deals with prime cost items. These items can be described as certain fixtures and fittings that will need to be selected after the signing of the contract, e.g. kitchen and bathroom products. The OFT standard-form contract deals specifically with prime cost items and provides a feature to list and price each item. The HIA standard-form contract does not specifically deal with prime cost items and they should be included as a special condition or as an annexure to the contract.

Progress payments Clause 12 of the OFT standard-form contract deals with progress payments. Progress payments are payments made at specific stages when identifiable work is undertaken. The OFT standard-form contract differs from the HIA standard-form contract in that it specifies when progress payments are to be made. The HIA standard-form contract deals with the process and requirements for progress payments, but needs a Progress Payments Schedule to be attached or added as a special condition for the terms and conditions to be clear to both builder and home owner.

Work done or material supplied by the home owner Clause 16 of the OFT standard-form contract, deals with work done and materials supplied by the home owner. If the home owner and the contractor have agreed that the owner will undertake any works, it is stipulated in this part of the contract. Builders should be aware when executing contracts that any works to be undertaken by the home owner may require council approval or an owner builder permit. The HIA contract does not deal with this issue.

Approvals Clause 17 of the OFT standard-form contract deals with approvals in general. The contract states that the builder will obtain all necessary building approvals prior to the signing the contract. Under the HIA standard-form contract the builder is not responsible for obtaining the final certificate. It also obligates the builder to obtain all statutory certificates required for occupation.

Insurance Clause 22 of the OFT standard-form contract deals with insurance. Essentially, the insurance requirements are the same for both OFT and HIA contracts. Both contracts require public liability insurance and property damage insurance. The contracts require the provision of Home Warranty Insurance to cover for defects if the total cost of the contract is in excess of $12,000.

ARE YOU? Builders should make enquiries of their insurance providers for Professional Indemnity Insurance as it is common for builders’ insurance policies to not cover them for negligent acts or omissions of either themselves or their employees.


Defects rectification

Clause 23 of the OFT standard-form contract deals with the ‘defects rectification period’. The contents of this clause is essentially the same as the HIA contract. Both contracts provide a defects liability period of 13 weeks from the day of the practical completion date. The difference between the two clauses, is that in the OFT standard-form contract, the owner must notify the builder of defects no later than ten days after the expiry of the 13 week period. Under the HIA standard-form contract, the owner must notify the builder of defects within the defects liability period.

Termination

Clauses 25 and 26 of the OFT standard-form contract deal with circumstances in which a contract may be terminated by the home owner or the builder.

The circumstances in which a home owner may terminate the contract under Clause 25 are extensive and include but are not limited to, the contractor failing to proceed diligently with work (which is a subjective, opinion-based, reason). By comparison, under the HIA standard-form contract, a builder may be in the breach of the contract if:

1. The builder has his licence cancelled.

2. The builder suspends the carrying out of building works other than under Clause 27.

In summary, the OFT standard-form contract seems to support the home owner and the HIA standard-form contract seems to support the builder in relation to circumstances that may amount to a breach of contract. The OFT standard-form contract has numerous circumstances in which the builder may be held liable for breach of contract.

Clause 28 in the HIA standard-form contract deals with the ending of the contract or breach of the contract. Clause 28.9 deals with circumstances in which the builder has substantially breached the contract, e.g. if the builder had his licence cancelled.

Dispute resolution Clause 27 of the OFT standard-form contract identifies the approach to manage a dispute resolution. The Clause enables the assistance of the Office of Commissioner for Fair Trading, to assist in the resolution process if resolution has not been reached earlier. The HIA contract does not have this feature and requires special conditions to either refer the matter to the Office of the Commissioner for Fair Trading or to a mediation process.

Builder’s obligations Clause 2 of the HIA standard-form contract clearly identifies that the builder must carry out and complete the building works in accordance with this contract. The HB Act identifies the builder’s statutory warranties applicable to the provision of building works and the statutory warranties are the same for the OFT standard-form contract.


Accuracy of documents – owner’s warranties Clause 6 of the HIA standard-form contract deals with any inaccuracy of the contract and outlines the warranties that the home owner provides in relation to the accuracy of documents. Further, it provides a process by which any inconsistency, error or ambiguity can be resolved. The OFT contract only requires that the inconsistency be discussed between the parties.

Time - delay and extensions Clause 9 of the HIA standard-form contract deals with delays and extensions of time. The Clause automatically entitles the builder to a reasonable extension of the contract period if the building works are delayed due to a cause ‘beyond the sole control of the builder’. The contract states the process involved in obtaining that extension of time and provides a list of possible causes deemed beyond the control of the builder. The OFT contract doesn’t have the same inherent entitlement to an extension of time for the builder but does provide the home owner additional time to dispute the extension of time claimed by a builder that may result in the project being delayed further.

Possession of the site Clause 11 of the HIA standard-form contract deals with site possession and access. The HIA contract gives the builder exclusive possession of the site to carry out the scope of building works and clearly states obligations of the home owner in relation to site access, both before commencement of construction and during building works. The OFT standard-form contract discusses site access, however, transfers the responsibility to the builder to obtain access and it doesn’t clearly identify the parameters of access during the building works.

Hidden site conditions

Clause 12 of the HIA standard-form contract provides the builder with some additional protection if there are any hidden site conditions arising during the building works. The HIA standard-form contract provides a process in which the builder may notify the owner of the hidden site conditions and promptly deals with the additional work required. No corresponding clause exists in the OFT standard-form contract.

Interest for late payment

Clause 14 of the HIA standard-form contract deals with interest on late payment of the contract price. Interest can be charged on any amount to be paid by the owner to the builder but the OFT contract does not have a feature for interest on late payments.

Risk Clause 19 of the HIA standard-form contract deals with risk. The HIA standard-form contract stipulates that the builder is responsible for loss or damage to the building works carried out on site up to the date of practical completion. The risk is limited to the extent that it is caused or contributed to by an act of omission of the owner. The OFT standard-form contract is different, as risk is not transferred at the date of practical completion and alternatively may carry over until final completion.


Practical completion Clause 22 of the HIA standard-form contract deals with practical completion. Practical completion means the building works are complete except for minor omissions and defects which do not prevent the building works from being reasonably capable of being used for their usual purpose. The HIA standard-form contract sets out a process for dealing with practical completion and that involves notices provided by the builder to the owner and requirements to meet on site for the inspection of the works. The HIA standard-form contract deals specifically with the obligations of both parties and the steps to be taken to reach practical completion. It also deals with the process if the parties don’t agree and outlines the steps to be taken by each party. The OFT standard-form contract does not have the same regulated steps. Under the OFT standard-form contract if the parties fail to agree the dispute resolution is invoked. The HIA standard-form contract clearly defines a process whereby practical completion can be achieved in a timely and efficient process. The OFT standard-form contract does not have this feature.

Final certificate Clause 23 of the HIA standard-form contract deals with the final certificate and states that the builder is not required to obtain the final occupation certificate in relation to the building works. This differs in the OFT contract, which duties the builder with the responsibility of obtaining all relevant approvals under the contract.

Owner taking early possession Clause 24 of the HIA standard-form contract deals with early possession. If the owner takes early possession of the building or site without the builder’s consent, then the owner can be found to be in substantial breach of the contract and the builder will be entitled to recover damages. There is no corresponding clause in the OFT contract and the HIA contract provides additional protection to the builder in obtaining the final payment.

Charge over site Clause 26 of the HIA standard-form contract states that the owner charges the site with the due payment to the builder of all money that is or may become payable under the contract. This provides a contractual protection to the builder to ensure that he gets paid in accordance with the contract. It also ensures that disputes ultimately get dealt with. The charge is limited to the extent that a Court or tribunal makes an order that the owner pays the builder. There is no corresponding clause in the OFT contract.

Debt collection Clause 31 of the HIA standard-form contract deals with debt collection costs. It states that the owner must pay the builder any debt collection costs including any legal fees and costs associated with the recover or attempted recovery of an amount under this contract. The OFT standard-form contract does not have a corresponding clause.


Standard-Form Contract Summary It is clear that while there are many similarities between the OFT standard-form contract and the HIA standard-form contract, the OFT standard-form contract has many clauses supporting the consumer, whilst the Housing Industry Authority contract has many clauses supporting the builder; including a number protection mechanisms to ensure that all avenues of dispute or contention are covered by contractual clauses. The contract you prefer will depend on your business needs and experience, however; caution should be taken to draft any additions into the contract and seek professional advice where necessary. The HIA contracts and other products related to the building industry, can be purchased online at Housing Industry Authority. The Office Fair Trading contract can be purchased at Office Fair Trading Centres, post offices or local councils; or online at the NSW Government shop at Office of Fair Trading. For more information about a detailed list of items to be include in a building contract go to the OFT website www.fairtrading.nsw.gov.au/Builders.

Building Contracts - Commercial AS4000

General Conditions on the Contract Australian Standard 4000, models general conditions of a construction contract suitable for extensive application to commercial construction and building contracts. AS4000 is useful in dealing with contract and subcontract applications and variations. The builder can access an “internal use only” copy of this contract at www.saiglobal.com to see whether it is suitable for use in your business. While the standard is extensive and detailed, it is reasonably clear in its application to the three main parties: the superintendent, the contractor and the principal. The contract has the flexibility of being either performance or payment or via a bill of quantity. The bill of quantity option provides the flexibility to allow the contract to be applied in a wide variety of construction situations. The comments listed below deal with the particular features of the Standard.

Security Clause 5 of the contract, deals with security and has provision for both principal security and contractor security and also the facility to change the security to either retention or some other form including a Deed of Guarantee, undertaking or cash. The standard formula for retention is 10% of each progress payment claim to a maximum value of 5% of the contract sum. The contract also provides facility for the release and reduction of that retention, usually 50% at practical completion, with the remainder to be released at the completion of the defects liability period.

http://hia.com.au/store/products.aspx?region=N&category=CONSDOCS

http://www.fairtrading.nsw.gov.au/corporate/publications/publications%20building.html

http://www.fairtrading.nsw.gov.au/Builders

http://www.saiglobal.com/


Contract documents and discrepancies Clause 8 deals with contract documents, including what occurs in the event of a discrepancy, those documents supplied by the principal and those documents supplied by the contractor. The contract document also has a confidentiality clause.

Novation to sub-contractor

Clause 9.4 deals with novation of the contract. The contract has the facility to novate the head contract out to a selected subcontractor. The builder must be aware that there may well be additional special conditions attached to the novated contract, which they should be comfortable with before executing the contract.

The contractor should also ensure that the relevant protection, warranties or Deed of Guarantee, are in place with new subcontract and to ensure that they are satisfied with the protection mechanism before novation of the contract.

Indemnity Clause 15 of the contract deals with the indemnity via the contractor and the indemnity via the principal, for damage to persons and property other than for work under construction. Clause 15 spells out clearly the indemnity position of each party.

Insurance Clause 16 deals with insurance of work and has alternatives for the contractor to insure or the principal to insure. The flexibility of these clauses allows the contract to be applied to numerous circumstances and construction situations. Clause17 (Public Liability Insurance) deals with the situation of who is to supply public liability insurance. In most construction situations, the contractor is to supply public liability insurance, however, the contract has facility for the principal to be the party to effect a policy for public liability.

Superintendent Clause 20 of the contract deals with the superintendent. The superintendent is an individual or group allocated the task of the day to day management of the contract. The superintendent may give a direction either orally or in writing and the contractor shall be bound by that direction.

Programing Clause 32 deals with programing. The construction program deals with the various stages or portions of the work under construction with which the contractor will be reasonably expected to comply. It should be attached to the contract and will be deemed a contract document. The construction program becomes an integral part of the contract and the contractor should not depart from it without specific direction from the superintendent or principal.


Time, progress and extension of time Clause 34 deals with time and progress and Clause 34.3 deals with claims for extension. Contractors will be entitled to an extension of time for carrying out work under the contract as the superintendent assesses if: 1. Contractor is or will be delayed in reaching practical completion by a qualifying cause of delay

and;

2. The contractor gives the superintendent, within 28 days of when the contractor should reasonably have become aware of that causation occurring, a written claim for an extension of time, evidencing the facts of causation and of the delay to the work under contracts.

A qualifying cause of delay is:

1. Any act or omission of the superintendent, the principal or its consultants, agents or

contractors;

2. Other than: 1. the breach or omission by the contractor;

2. industrial conditions or inclement weather occurring after the date for practical completion;

and

3. stated in item 23.

Clause 34.5 deals with the process when the contractor claims an extension of time (EOT). The contractor makes the claim for extension of time and within 28 days the superintendent shall give the contractor a written direction that EOT has been assessed. If this does not take place there is a deeming provision in the contract that deems and makes direction as claimed.

Clause 34.6 deals with practical completion. The contractor shall notify the superintendent within 14 days of when it anticipates reaching practical completion. The contractor shall in writing request the superintendent issue a certificate of practical completion. The superintendent must do this within 14 days or give reasons why practical completion has not been reached. Clause 34.7 deals with liquidated damages. The contract allows liquidated damages if the work under construction does not reach practical completion by the date of practical completion. The contractor should ensure that it gives itself sufficient time to undertake the works under contract and if there is any qualifying delaying cause the contractor must issue the notice to the superintendent immediately so as not to be liable for liquidated damages. Liquidated damages are the single most destructive or costly item for contractors and can be the difference between making a profit, breaking even, or being indebted to the principal. Clause 34.8 ‘Bonus for Early Completion’ and Clause 34.9 ‘Delay Damages’, are rarely used in commercial contracts; the Principal will almost invariably delete them. Clause 35 deals with the defects liability period. For large commercial construction this is usually 12 months, however, the contract allows this to be in accordance with the parties’ requirements. The defects liability clause is standard.


Variations Clause 36 deals with variations. The contractor shall not issue a variation unless directed in writing by the superintendent or principal. The superintendent may direct that the contractor vary the works under the contracts in numerous ways including increasing or omitting a new part. A variation may occur up to and including the date before practical completion. If a contractor receives a proposed variation from the superintendent, then it should as soon as practicable, notify the superintendent of additional proposed costs and the effect that it may have on the final construction program and date for practical completion. If the superintendent and contractor agree to a variation, it must be in writing and signed by both parties. The effect of the variation will be either added to or deducted from the end contract price.

Default and insolvency Clause 39 deals with Default or Insolvency. This clause deals with both the contractor’s default and rights and the principal’s default and rights. The clause identifies situations in which the principal may take works out of the contractor’s possession and use materials, equipment and other things, intended for the work under construction, take possession of construction plans and other things in the vicinity of the site, as reasonably required by the principal, to facilitate completion of the works. When the principal takes the works out of the contractor’s hands the superintendent then has to assess the cost of having an additional subcontractor complete those works and deduct it from the contract sum.

Notices of claim Clause 41 deals with notification of claims and provides that the prescribed notices are a written notice of the general basis and quantum of the claim. A “prescribed notice” has its meaning detailed in Sub clause 41.1. Giving a notice under Clause 41.1, evokes the general contractual requirement that the notice must contain at least the following items: 1. The notice must be in writing;

2. The notice of claim must state generically what the claim is about;

3. The notice must say how much the claim is for;

4. The notice of claim must be made as soon as practicable (which is unclear but will generally

mean in a timely manner.)


Notices of dispute Clause 42.1 deals with notices of dispute and details the differing forums in which a contractor may issue a notice of dispute. Those include superintendent’s direction, a claim in tort, a claim under statute for restitution or, unjust enrichment or quantum meruit, a claim for rectification or frustration, or like claim under the law governing the contract. Essentially, Clause 42 takes parties well beyond a straight contract claim or dispute. The contract does provide facility for conferencing and arbitration and parties must at least attempt to resolve their issues before referring the matter to arbitration. It is clear that the AS4000 contract is amenable to the user’s requirement and able to be amended with either special conditions or otherwise varied to suit almost any construction situation.

Security of Payment Amendment Bill 2013

The Building and Construction Industry Security of Payment Amendment Bill 2013, reforms the Security of Payment Act 1999 and includes amendments to: 1. Introduce prompt or maximum payment terms for progress payments;

2. Require that payment claims made by a head contractor include a supporting statement

declaring that subcontractors it has engaged have been paid what is and due and payable;

3. Remove the requirement that a payment claim must state that it is being made under the Act.

These laws take effect from the beginning of April 2014, but do not apply to a residential builder who contracts directly with a consumer that lives or intends to live in the premises where the work is to be conducted, nor to any subcontracting arrangements that you may enter into for the work on those premises. The basis of the amendments came from the Collins Inquiry which was finalised in January 2013. The NSW Government responded to the recommendations from the inquiry and amended the Act in November 2013. The government also announced that there would be a comprehensive review of the legislation

Congratulations… You have completed the course and earned two points towards your twelve annual CPD points required to renew your builders licence. If audited by the Office of Fair Trading (NSW) the Tax Receipt is the evidence of the CPD training you have undertaken. Copies of tax invoices are retained in Pointsbuild’s database for your convenience. If you would like to complete one of our other courses similar to this one consider:

Legal CPD Courses

1. Basic Contract Law

2. The Building Code of Australia

3. Home Building Act Course #1

4. Home Building Act Course #2

5. The Security of Payment Act

6. Employment Law

7. Family Law in the Workplace

Visit our website…

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A Message from the Managing Director

Pointsbuild Pty Ltd was established in 2007 and is proud to be a leader in providing online training to the building and construction industry throughout Australia. Building professionals including builders, sustainability assessors and architects, can obtain their Continuing Professional Development (CPD) courses for the ongoing accreditation and licence renewal. Currently, Pointsbuild delivers over 1,000 online training courses per month.

Pointsbuild has established a credible reputation in delivering online courses and we are honoured to be associated with the following organisations in the building and construction industry.

Public Sector:

Industry Associations:

Educational Institutions:

Enterprise:

Pointsbuild experience and expertise

Since its inception Pointsbuild has delivered over 25,000 training courses to builders, architects, certifiers, sustainability assessors and swimming pool builders in all states and territories of Australia and over 21 countries across the world.

Pointsbuild boasts the highest number of CPD Courses available to of any CPD providers and is the only approved CPD provider to the building and construction industry that offers courses in English, Korean, Arabic and Chinese (Cantonese).

Pointsbuild is the only provider whose courses are approved for builders (via various state

government programs), Building Sustainability Assessors (via ABSA), Architects (Via the AIA /refuel network), Certifiers (via the NSW Building Professionals Board).

In order to keep a building licence, many building, planning and property professionals must demonstrate that they have participated in continuing professional development (CPD) each year. CPD points are mandatory in NSW, ACT and Tasmania and are actively encouraged in the other states.

This commitment to CPD is growing in significance, as an increasing number of builders recognise

the benefits of adopting a more planned and structured approach to professional development. Not only is it important to keep up-to-date and know “the what” but also to know “the why” and “the how”.

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coaching, technical and work health and safety training for builders, building sustainability assessors, architects and certifiers.

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of Fair Trading), Victoria (via the Victorian Building Authority) and Tasmania (via the Department for Workplace Standards).

Pointsbuild has strong relationships with several of the leading peak industry organisations and is

viewed as a critical way for the construction industry professionals to gain continual learning.

Peak industry bodies include: − The Australian Institute of Building (AIB); − The Australian Institute of Quantity Surveyors (AIQS); − The Masters Builders Association (MBA); − The Housing Industry Association (HIA); and − The Construction Industry Training Advisory Board (CITAB).

Builders in NSW, Victoria and Tasmania, require 12 CPD points annually to retain their building

licence.

Pointsbuild provide the following online education services to the building industry: − Continuing Professional Development (‘CPD’) Courses − Business Coaching – endorsed and accredited − Energy Efficiency Training Program - accredited Units of Competency − Certificate IV in Building & Construction CPC40110 (by RPL & TAA) − CPD Programs for Certifiers (by the NSW Building Professionals Board)

Pointsbuild is a growing company and in addition to its own experience, we are drawing on the experience of several other organisations to provide current and innovative training material for the building and construction industry.

Thank you for training with Pointsbuild Pty Ltd.

Managing Director

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NOTES

Documents

BASIC CONTRACT LAW - Pointsbuild Contract Law v3.pdf · Identify the common standard-form contracts and compare the standard-form contracts available from the Office of Fair Trading