Building Contract
By this stage everything is all worked out and falling into place, you have your builder, the working plans, engineering if required, and you’ve accepted a building proposal… now it’s time to sign the building contract.
If you’re doing domestic building work over $3,300, you need a contract to bind yourself and the builder for the building project.
The builder will engage a private certifier to start your project. The certifier needs to apply for your building approvals with both your details and the nominated builders’ details.
HIA and Master Builders Contracts
The are 2 main contracts builders will use depending on which organisation they belong to. Building contracts are designed to protect both parties and if you are unsure, seek legal advice to ensure that you are aware of your rights and obligations. The QLD government recommends that homeowners do seek independent legal advice before entering into a building contract. Like any contract, it should be reviewed and if needed, terms negotiated.
Reputation is everything and it’s in the builders’ best interest to be honest, upfront and for the project to run smoothly.
Check the specifications on your proposal
To ensure everything on your brief is covered, all that is required for engineering and design…thoroughly check the builders specifications. This proposal will form part of your contract so we encourage you to check inclusions and exclusions listed. If you miss or forget about something, it’s likely to become a variation down the track. If you aren’t sure always ask the builder, you could ask your design professional to cast their eyes over the builders’ specifications.
Provisional Sums and Prime Cost Item Allowances
In any contract whether Fixed or Cost Plus (see below), these are variable items. PC Items refer to materials such as plumbing and electrical fixtures, tiles, flooring and glazing. If exact items are not selected by time of contract the builder will specify a range and budget in your proposal.
PS Allowances e materials and labour – used where not all variables are known. Examples might be excavating whereby the amount of rock below is unknown, therefore the time, labour and materials can only be estimated. Another example might be custom tiles that need to be cut on site and require extra labour to handle and lay the tiles. None of which is run of the mill and therefore estimated beforehand.
Fixed Price vs Cost Plus Contracts
Really there are two types of residential contracts. Fixed price contracts will still likely have unfixed components until you make your selections (for example tiles, plumbing and electrical fixtures). But essentially everything else is fixed unless you make a change to the scope of works. For example you select more expensive plumbing fixtures or decide to tile 100% of walls as well as floors. Obviously there are more possibilities but you get the idea. The claim stages are called progress payments and they may be broken down into standard or customised stages for your particular project.
Cost Plus contracts on the other hand are just the actual cost, plus the builders margin. If you have chosen a reputable builder to run with, both of these options are ok. The thing to remember is that Cost Plus contracts are required to have a reasonably accurate estimate for the project and they are not a “sky is the limit” budget. Again coming back to reputation for builders is everything. The contract must include this estimate – and this is what QBCC Home Warranty Insurance and QLeave Levy is based upon.
The claim stages are again called progress payments and they are usually broken down into periodic claims as costs accumulate for your project. Progress payments should be accompanied with a transparent breakdown of materials and labour and Variations should still be documented in the same way. Any variation should be quoted and signed before any extra work is performed or any cost incurred. This variation is then noted against the estimated project cost.
A builders preference is Fixed, everyone knows the final cost and much less paperwork.
Contract payments
Deposits
If the cost of your building contract is $20,000 or higher, the maximum deposit is 5% of the total contract price.
If the contract price is between $3,300 and $19,999, the maximum deposit will be 10% of the contract price. If more than 50% of the contract value is undertaken offsite (i.e. custom cabinetry in a kitchen renovation), the building contractor can ask for up to 20% deposit.
Progress payments
For all contracts priced $3,300 and above, the number and timing of progress payments is negotiated with the builder and they are relative the amount of work performed. Like the deposit, the Final Progress payment is also 5% of the project price and progress payments are split by stage (i.e. demolition, foundations, framing etc) up to the contract balance. If you are on a Fixed Price contract you’ll have progress claims outlined in the contract. If you are on a Cost Plus Contract you’ll have Periodic Progress claims (i.e. most commonly fortnightly or monthly).
QBCC Insurance & QLeave Levy
All builds $3,300 and more require QBCC Home Warranty Insurance. All jobs valued at $150,000 ex GST in QLD are also subject to QLeave Long Service Leave Levy. These fees are based on the build cost and are usually charged separately to the contract. They do not attract builder margin – they are simply reimbursed.
Insurance
One other thing to remember is your home insurance. The builder has insurance to cover the build however if you’re extending, altering or renovating your existing home, call your home insurer and discuss what your building plans to find out if this will create any gaps in your home insurance.
