8.0 Before you sign the building contract - Land and Planning Services

Consumer guide8.0 Before you sign thebuilding contractThe builder should visit your building site to clarify whatextras may be required to address the particular siteconditions. Such extras may include: A surcharge for building outside the builder’snormal geographical area; Site access problems for delivery of materials; Unusual footings; Extra long connections to drainage, water orelectricity; Engineering fees; Rock excavation; and Drilling under roads for service connections.Have you compared the different itemised quotes andbuilder’s past work? Ask the builder to provide you withcontact referees and a list of addresses for buildingwork they have carried out in the past 12 months.It is important that you are able to communicate wellverbally and in writing with your builder. The quality ofyour relationship with your builder will affect the qualityof your building experience. If you have any doubts,keep looking.Ask past clients: Did the builder provide documents that clearlydetailed and priced the work to be done? Did the builder provide good customer service? Did the builder stick to the agreed costs andtimings? Would you engage that builder again?The contents of a building contract are generally negotiable inthe Northern Territory. However, the Building Act prescribessome matters that MUST be included in a building contract forthe following residential building work: A detached class 1a building (for example, a house); A class 10 building attached to a class 1a building (forexample, a carport or verandah) if constructed at thesame time as the class 1 a (for instance, the house); A retaining wall relating to the structural integrity of ahouse; Extensions to the internal floor area (e.g. adding aroom);AND If the building work is worth more than $12,000The mandatory provisions for that type of work are as follows: A prescribed building contractor must not commenceor continue to carry out the building work unless thebuilding contractor has entered into a contract with theowner of the land (which must be in writing)- Section48B A contract must include provisions which relate to thework to be undertaken on a single project - Regulation41H(a) A contract must identify the building contractor -Regulation 41H(b)Make sure that the person or entity who you are contractingwith is the same as the person or entity who/which isregistered as a building contractor. Contact the BuildingPractitioners Board for this information. For example, if youare negotiating with John Smith to build your house checkwhether John Smith is a registered builder. When you reviewthe contract make sure that John Smith is specified as thebuilding contractor. If, for instance, the contract says that thebuilder is John Smith Building Company you will need tocheck that the company is a registered building contractor andthat John Smith is authorised to sign the contract on behalf ofthe Company. A contract must specify the builder’s registrationnumber - Regulation 41H(c)Again, check that the registration number on the contractmatches your builder’s registration number. Check yourbuilder’s registration number by contacting the BuildingPractitioners Board.16

Consumer guide A contract must specify the extent of the work tobe undertaken and the total contracted price. -Regulation 41H(d)The extent of the work may be detailed by reference toplans and specifications as well as a description inwriting. The total contracted price is subject to changedue to things such as prime cost items/provisionalsums and if variations occur. Those variations aredifferent from cost-plus contracts, which are prohibitedby this provision. Read your contract carefully tounderstand how the total contracted price may beaffected. Consider whether the plans andspecifications are clearly detailed and checked. Youshould consider speaking with someone withknowledge of construction matters who may be able toadvise you whether there is sufficient detail. A contract must specify the amount of anydeposit payable and the deposit must not bemore than 5% of the total contracted price -Regulation 41H(e) A contract must specify the percentage of thetotal contracted price which is only payable aftercompletion of all contracted stages of thebuilding works and when the owner has receivedeither an occupancy permit or a builder’sdeclaration and a copy of all relevant documentsor certificates have been provided to the owner.This percentage amount must not be less than3% of the total contracted price (the Final Stagepayment) - Regulations 41H(f), 41HA and41HB(e) A contract must specify either the standardprogress payments or a variation of the standardunder a progress payment agreement -Regulation 41H(f)&(g) Standard progress payments are set out inregulation 41HA(1) and specify the percentagesof the total contracted price, payable as progresspayments, to be made after completion of thebase stage, the enclosed stage, the fixing stage,the frame stage and the practical completionstage. Each of those stages is defined inregulation 41HA (2). An example of the standardprogress payments on a $500,000 build is at theend of this list. A varied progress payment agreement may vary both thestages of work and the percentages payable for the workexcept for the mandatory limits on the deposit and thefinal payment. This agreement must be made in theapproved form, available from Building Advisory Serviceswebsite at http://www.lands.nt.gov.au/building/factsheetsforms-faqs/forms- Regulation 41H(g), 41HB and 41HE A contract must include a provision in relation todispute resolution. Such a provision is of no effect if itpurports to restrict or remove a person’s right toaccess a dispute resolution process available under alaw in force in the Territory. Such a provision is of noeffect if it requires a dispute to be referred to a thirdparty for a final and binding decision - Regulations41H(h) and 41HC and Section 54BAThis does not prevent the parties from agreeing, once adispute has arisen, to appoint a third person to determinethe dispute (expert determination, arbitration, andmediation) or referring the matter to the Commissioner ofResidential Building Disputes if the matter concerns aconsumer guarantee dispute. An example of a disputeresolution clause is at the end of this list. When you receive a claim for a progress payment,the invoice from your builder must include adeclaration to the effect that the work to which theclaim relates has been completed - Regulation 41HF. A contract must include the consumer guaranteesprescribed in section 54B of the Building Act.It is an offence under the Building Act not to include theconsumer guarantees in the contract and any provisionattempting to restrict or remove a person’s rights in relationto the consumer guarantees has no effect. The consumerguarantees are: The builder will carry out the building work in aproper and workmanlike manner and in accordancewith the plans and specifications specified in thebuilding permit for the work and specified in thiscontract. All materials supplied by the builder will be good andsuitable for the purpose for which they are to beused. All materials supplied by the builder will be newunless there is a special condition in this contractspecifying otherwise.Building and Renovating in the NT17

Consumer guide The builder will carry out the building workin accordance with the Building Act, theBuilding Regulations, the NationalConstruction Code and other laws in force inthe Northern Territory. The builder will carry out the building workwith reasonable care and skill. The builder will complete the building workby the date or within the period specified inthis contract or if no date or period isspecified, within a reasonable period. It is also an offence under the Building Act fora builder to demand or receive any payment(whether a deposit or otherwise) under aresidential building contract, BEFOREResidential Building Cover has been takenout, and a copy of the policy or certificate hasbeen provided to the owner.Example - Standard progress stages andpercentage of total contracted price for each stagebased on a build of $500,000.DepositNo morethan 5%$25,000Example - Dispute resolution – suggested clauseThe following paragraphs comprise a suggested clause whichcomplies with the Building Act. You need to check the disputeresolution clause in your contract and ensure that it does notrequire you from the outset of a dispute to take the matter to athird party for binding resolution.If the owner or builder considers that a dispute has arisenin relation to any matter covered by this contract, duringthe progress of the work, that person must promptly writeto the other party and give notice of the matters indispute.Upon notification of a dispute the parties are to attempt toresolve the dispute informally.If the parties cannot resolve the matter informally, theowner or builder may refer the dispute to theCommissioner of Residential Building Disputes for amediation or conciliation.If the dispute relates to a consumer guarantee and theparties cannot resolve the matter informally, the owner orbuilder may apply to the Commissioner of ResidentialBuilding Disputes for a technical inspection and report.If the dispute does not relate to a consumer guaranteeand the parties cannot resolve the matter themselves,they may enter into a separate agreement to mutuallyrefer the dispute to a third party with the ability to mediatethe matter, arbitrate the matter or give an expertdetermination.Base stage – oncompletionFrame stage – oncompletionEnclosed stage – oncompletionFixing stage – oncompletionPractical completion –when reachedFinal completion – afterissue of OP or BCNo morethan 10%No morethan 20%No morethan 25%No morethan 30%No morethan 7%$50,000$100,000$125,000$150,000$35,000At least 3% $15,000Total 100% $500,000In the event that the parties are unable to resolve thedispute, either party may pursue other legal avenuesavailable to them.Notwithstanding the existence of a dispute, the partiesmust continue to perform their obligations under thecontract unless they lawfully cease to perform inaccordance with a specific provision in this contract.Work not subject to the requirements in the Building Actand RegulationsIf your proposed building work is not of the type subject tothe requirements in the Building Act and Regulationsdiscussed above, regardless of the size and price, NTConsumer Affairs still recommends that you have a writtencontract or agreement. The contract or agreement shouldinclude plans and specifications for the work, items to besupplied, the amount agreed upon, and full details of thetrader including an address and an Australian BusinessNumber (ABN).18

Consumer guideA building contract outlines the general rights andresponsibilities of you and the builder. Yourbuilder’s responsibility is to build your home inaccordance with the agreed and approved plansand contract documents.All building contracts, regardless of the price willbe either subject to other legislation such as theAustralian Consumer Laws, or the general lawand require the builder to: Carry out the work in a proper andworkmanlike manner, in accordance with theplans and specifications set out in yourcontract; Ensure all materials supplied by the builderare good and suitable for any specifiedpurpose; Carry out the work in accordance with allrelevant laws and legal requirements; Carry out the work with due care and skilland complete the works by the date (orwithin the period) specified by the contract,and if no time is set, within a reasonabletime; and Ensure new homes, extensions, renovationsare suitable for occupation when completed.Your responsibility is to pay for work inaccordance with the contract, and tocommunicate your choices, decisions, changesand any concerns you may have to the builder. Ifeither of the parties fails to do what they say, theymay be in breach.8.1 Contract checklist Once you have selected the builder, is thecontract in English and legible? Do youunderstand the contract? Do you need legaladvice? Are the contract documents fullycompleted? There should be no blank spacesand the contract should include everything thathas been discussed. If the work is of the type that is subject to specificrequirements under the Building Act andRegulations (as discussed in 8.0 above), doesthe contract include and or comply with all of therequirements? Make sure you understand what the building stages meanand familiarise yourself with some building terms, forinstance the term ‘lock-up stage’ often has quite adifferent meaning for a builder than for an owner. If you want your building work to be built to a higherstandard than is specified by the National ConstructionCode, you will need to include details of the applicablestandards in your contract. Your contract should specify a commencement date andan end date or a fixed period (e.g. build will be completed16 weeks from the date the building permit is issued). You should include provisions about what happens wherea contract is extended or delayed. Where will you live ifthere is a substantial delay? - Is there a penalty for latecompletion which would cover rental accommodation foryou? Do you understand your rights to visit the building site forthe purpose of inspecting and viewing the works? If you have informed the builder of any specialrequirements and finishes, are they clearly written in thecontract? Monitor progress payments and the work that is to bedone for each stage. If you pay more money than youare supposed to under stages of your contract youwill not be covered if your builder defaults (even if thework is covered by a Fidelity Certificate). If you areuncertain whether work under a particular stage hasbeen completed or not you should speak with yourbuilder and your certifier about it. You may consideremploying a quantity surveyor to assess whether thework claimed has in fact been completed. Also, be aware of the consequences of paying aprogress payment late. Late payment may disrupt thebuild and delay completion. At worst it can result in acontract being terminated, which can have veryserious consequences. Are you or the builder able to make any changes(variations) under the contract, once the project hasstarted? If so you need to ensure that any changes tothe contract are priced; recorded in writing supportedby plans and specifications (if applicable); and areasonable estimate of any delay to the work whichmay result from the variation is provided by thebuilder. If you are borrowing money for your build, you mayneed to include provisions in your contract that arerequired by your lending institution such as stages forprogress payments, inspections of the work and turnaround for payments.Building and Renovating in the NT19

Consumer guide Be clear about who is supplying what – forinstance, are you responsible for purchasingand supplying appliances or fittings such astapware. Make sure you understand how‘prime cost’ items and ‘provisional’ items aredealt with under the contract. Be clear about what happens if you findyourself in dispute with your builder,contracts usually specify a method forbringing disputes to each other’s attentionand how to resolve disputes. If you don’tfollow the method set down in your contractyou may jeopardise your position andinadvertently breach your contract.The following is relevant once you haveentered into a contract: Your builder cannot commence work or demandor receive any payment under the contractwithout having Residential Building Cover inplace and providing you with a copy of theFidelity Certificate. If your builder is still workingon your build or has finished but is stillcontactable and solvent and not de-registered,the Building Act provides for dispute resolutionbefore the Commissioner of Residential BuildingDisputes for certain building work. Please visitBuilding Advisory Services, or NT ConsumerAffairs websites for more information about thisprocess at www.nt.gov.au/building orwww.consumeraffairs.nt.gov.au.You can minimise the risks associated withbuilding a new home by ensuring that you havefully considered and researched all aspects ofentering into such a transaction. This couldinclude, but is not limited to obtaining advice from alegal practitioner, your lending institution, yourcertifier, or a quantity surveyor. It is also advisableto ask your builder for referees and contact theBuilding Practitioners Board to ensure that yourbuilder is registered.8.2 Are terms of your contract unfair?Laws protecting you from unfair terms inconsumer contracts came into effect on1 July 2010.The laws offer you increased protection in circumstanceswhere you have little or no opportunity to negotiate with thebusiness. For more information on: How you can tell if a term in your contract isunfair; If there are any terms or contracts that thelaw does not apply, or What you can do if there is an unfair term inyour contract?Visit the Australian Competition and Consumer Commissionwebsite: www.accc.gov.au/consumers/contractsagreements/unfair-contract-terms.8.3 Tips for avoiding contractual disputes8.3.1 Builders and trade contractorsBuilders and trade contractors should ensure that: Their registration or licence is current andappropriate for the work to be done; The nature of the work to be done, how long it willtake and exactly what it will cost, are explained andgiven in writing to you; Any variations (e.g. price or scope of works) are putin writing and given to you; All parties understand their rights and responsibilitiesand sign the contract; and You are given a copy of the contract at theappropriate time.8.3.2 ConsumersYou should ensure that: You are clear and consistent in describing thebuilding works you want; You talk with your builder regularly about theprogress of the building project and discuss anyconcerns you have as soon as they arise. Askquestions if in doubt; You regularly inspect the work with the builder or sitesupervisor (e.g. at progress payment stages); and You keep a diary of progress and meetings relating tothe building project (including photographs withdates), and discuss any concerns you have as soonas they arise.20