Articles

Introduction

Understanding the complexities of the Domestic Building Contracts Act 1995 (DBCA) is crucial for contractors and builders operating in Victoria, especially when knowing the thresholds for compliant contracts. This guide covers the key considerations and requirements when engaging in domestic building work, highlighting the obligations under section 31 of the DBCA.

1. Accountability Beyond Registered Builders

When issues arise on a building site, it’s not only the registered domestic builder who may be held accountable by the property owners. Contractors who are involved in specific areas of a project can also face challenges related to the stringent requirements of the DBCA.

2. Major Domestic Building Contract Thresholds

Two key thresholds in the DBCA determine when certain compliance measures apply:

• $10,000 Threshold: Work priced above this amount is classified as a “major domestic building contract,” requiring specific contractual provisions.^[1]
• $16,000 Threshold: For work over this value, contractors must meet warranty insurance requirements.^[2]

3. Case Study: Compliance Challenges for Contractors

A notable case involved a restumping contractor found guilty of non-compliance with section 31 of the DBCA. The contractor’s work exceeded the then-required $5,000 threshold, but the written contract lacked the necessary compliance elements, leading to a formal reprimand.

4. Essential Elements of a Compliant Contract under Section 31

Section 31 outlines several mandatory elements for compliant contracts when the work exceeds the prescribed threshold:^[3]

• The written agreement must set out the contract price, how it is calculated, and refer to the plans and specifications;
• It must state the date the contract is made;
• It must state the date of when the work is to start, or how that date is to be determined;
• It must include a checklist for the owner to work through before signing the contract;
• It must have the “cooling off” notice to allow the owner to withdraw within 5 days;
• It must contain warnings about how the price may increase to reflect approved variations, changes to prime costs and provisional sums or “cost escalation clauses;
• The times or stages when progress payment claims may be made must be specified;
• Has a separate section that defines the key words and phrases used in the contract.

5. The Impact of Direct Contracts with Owners

The restumping contractor had initially been briefed to restump the front of the dwelling only, as part of a $100,000 plus project to renovate an existing home. He had been subcontracted by the Builder to do this work, but after a dispute descended over the Builder’s relationship with the Owners, the contractor agreed to invoice the Owners direct. Later he was asked to also restump the rear of the house.

An argument was presented that the front restumping and rear restumping were two separate and distinct contracts formed by their respective quotations, while the first quotation at least was made to the Builder thereby making the front restumping a subcontract with the Builder. In addition to that, the original price of the rear restumping was less than the $5,000 threshold value.

Whilst these appeared to be good, arguable points, the Board preferred to focus on the fact the first invoice for the front works was higher than the $5,000 value by a fair margin (including variations) and this invoice was sent direct to the Owners. There is another perspective that the contractor should have been aware of the ramifications of doing domestic building work that is over $5,000 and contracting directly with the Owners (albeit part way through the process).

6. Lessons from the Building Practitioners Board

The case raises an important question: should a contractor formalize a compliant written agreement under section 31 once it becomes evident that they are directly contracting with the owners? The Board’s decision implies that the answer is “yes.” This highlights the need for contractors to recognize changes in their contractual role and ensure compliance with the DBCA.

7. Importance of Seeking Legal Advice

Section 31 aims to protect owners’ rights by ensuring that building contracts contain the necessary components.^[4]Contractors, especially when working directly with owners, must understand these requirements to avoid legal pitfalls. Seeking legal advice can help ensure compliance with the DBCA, particularly when the work value surpasses $10,000.

Conclusion

Navigating the requirements of the Domestic Building Contracts Act 1995, particularly under section 31, is critical for builders in Victoria. Understanding when a compliant domestic building contract is necessary will ensure no one places themselves in harm’s way and either knowingly or inadvertently breaks the law. For any work domestic building work that exceeds $10,000, compliance with these statutory requirements is a must, period. 

Written by Justin Cotton, Director of Lovegrove & Cotton

Disclaimer:
The information provided in this article is for general informational purposes only. It does not constitute legal advice. For specific legal advice related to building regulations and compliance, please consult a qualified construction lawyer.

Footnotes

^[1] “From 1 August 2017, the threshold amount for a major domestic building contract increased from $5,000 to $10,000. By law, as a registered building practitioner, you must use a written major domestic building contract for work worth more than $10,000 (even if your client is an owner builder).” Preparing a major domestic building contract – checklist – Consumer Affairs Victoria

^[2] “Your builder must also take out Domestic Building Insurance if the cost of the work is more than $16,000.” Domestic Building Consumer Guide – Consumer Affairs Victoria

^[3] DOMESTIC BUILDING CONTRACTS ACT 1995 – SECT 31 General contents etc. of a contract (austlii.edu.au)

^[4] “If a major domestic building contract does not contain a notice advising the building owner of the building owner’s possible rights under section 34 (as required by section 31(1)(n)), the building owner may withdraw from the contract within 7 days of becoming aware that the contract should have contained such a notice.” DOMESTIC BUILDING CONTRACTS ACT 1995 – SECT 35 Building owner may withdraw from a contract if cooling-off warning not given (austlii.edu.au) breaks the law. For any work domestic building work that exceeds $10,000, compliance with these statutory requirements is a must, period.