What Punters Need to Know About Residential Building Contracts
Written by: Lovegrove & Cotton
Cost- Plus Contracts
If a domestic building contract is in excess of $500,000.00, a cost plus contract may be entered into. This is a contract where the builder can charge for the actual cost of the work plus a percentage for profit.
The Act provides however that CPC must provide a reasonable estimate of anticipated costs and the estimate must not be understated or exaggerated by one margin.
Payment and Stages of Payment
The Domestic Building Contracts Act (“DBCA”) provides that the parties can either use a prescribed Table’ A’ or Table ‘B’ method for payment. Table ‘A’ stipulates the mandatory payment stages such as ‘frame’ and provides a definition of each stage. Table ‘B’ allows for greater stage flexibility.
It is a breach of the Act for the Builder to claim payment for a given stage before has been completed. “Completed” does not, depending on all the circumstances, mean “completed without and defects.”
Things to Negotiate
The parties need to agree on the contract sum, when it will be paid and the time for completion.
Contracts may give the parties the ability to claim a time extension plus costs that flow from the other party’s time default.
These are typically called liquidated damages. The law provides that liquidated damages are the costs that represent the genuine pre-estimate of loss that may be sustained if there is a time overrun.
In the case of an Owner, this may be the rent that the Owner is compelled to pay if the builder is late. Conversely if the Owner is late in payment, the Builder will need to forecast a figure that represents the cost that the Builder will be out of pocket if the Owner is late.
It is critical that both Owner and Builder alike turn their minds to these calculations before the contract is entered into. If a party mistakenly underestimates the figures or in the worst case scenario puts a 0 dollar, then that party will be incarcerated with that figure.
Typically, a contract schedule will envisage that parties agree upon a percentage overhead for variations and extras. The amount should always be reasonable. In fact, fairness should permeate every aspect of the contract dealings.
Prime Cost and Provisional Sums
Sometimes, the parties may not be able to agree upon the cost of one of the components of the project. Case in point may be Italian marble that has to be imported. The parties can prescribe a reasonable cost for the same and if the amount exceeds the allowance, the Builder will be entitled to be paid the excess plus a contractually agreed overhead percentage margin.
These allowances nevertheless, pursuant to the DBCA have to be reasonable.
What is a Building Surveyor?
A building surveyor has to be used to issue a building permit, to carry out mandatory inspections under the Building Act 1993 and to issue the occupancy permit or certificate of final inspection.
It is illegal to carry building works without a building permit, or occupy premises without an occupancy permit.
Owners and Builders alike can access building surveyors from either the local government or the private sector. The peak body that represents building surveyors is the Australian Institute of Building Surveyors (“AIBS”).
Building Surveyors can also issue compliance notices and orders on Owners if Building Regulations are breached. It is an offence not to comply with the notices and orders.
Who in Victoria has to be insured?
The Building Act 1993 provides that engineers, architects, building surveyors, building inspectors, draft persons, residential and commercial builders have to be insured. No insurance, no registration.
Who has to be registered?
All of the above. Registration is effected through the Building Practitioners Board.
What are Protection works?
If an Owner intents carrying out building works that is likely to affect the structural integrity of an adjourning property, a protection works notice should be served upon the adjourning owner and the relevant building surveyor. Complete insurance will be required along with a report and the adjourning owner will often get costs for vetting and supervising protection works.
If either party disputes any aspect of the protection works, the matter can be appealed to the Building Appeals Board.
What is the Building Appeals Board (“BAB”)
The BAB is empowered by the Building Act 1993 to resolve disputes concerning building permits, notices and orders and protection works matters.