Draft Sets of Special Conditions to be Inserted Into the Standard Form Home Building Contracts

The Standard Form Home Building Contracts in use in NSW are;

The Office of Fair Trading Home Building Contract

The Master Builders Association BC 4

The Housing Industry Association NSW Residential Building Contract for New Dwellings

The ABIC SW-2008-HNSW Contract

All these contracts are lump sum contracts. There are other Standard Form Contracts such as Cost Plus contracts and contracts for renovations with owners in residence for which these Special Conditions are not appropriate.

The Office of Fair Trading Home Building Contract

THIS IS THE MOST HIGHLY RECOMMENDED STANDARD FORM HOME BUILDING CONTRACT. IT IS A GOOD STARTING POINT AND IT IS FREE.

A copy of this contract may be obtained from the Office of Fair Trading website at http://www.fairtrading.nsw.gov.au/biz_res/ftweb/pdfs/About_us/Publications/Home_building_contract_over_5000.pdf

Special Conditions for the Office of Fair Trading Home Building Contract

Notwithstanding anything herein contained:

  1. Before signing this agreement the contractor shall have inspected the site, its access and its surroundings and shall have:

    1. examined all information relevant to the risks and contingencies and other circumstances having an effect on this agreement and obtainable by making reasonable inquires; and
    2. examined all information made available in writing by the owner to the contractor; and have used that information in the estimation the cost of provisional items.
  2. Should the contractor fail to complete the works in the completion period as provided for in the contract, the owner shall become entitled to liquidated damages of $[amount] per day or part thereof until the works are completed, which money may be deducted by the owner from progress payments as they fall due and to the extent that such liquidated damages are unpaid, the contract price shall be reduced, and, to the extent that such damages exceed the balance of the contract sum payable, they shall be a debt recoverable by the owner against the contractor.

  3. The contractor warrants that the progress payments set out herein equate to the value of the work done at that stage of the Building Works

  4. The contractor warrants that the provisional sums allowed have been estimated with reasonable care and skill and in the light of information necessary and available at the date of the contract and taking into account such factors as a competent and experienced contractor should have taken into account in estimating the provisional sums.

  5. Where part or all of the contract price is to be provided by a lending authority, with payments being based on the value of the work the subject of the contractor’s progress claim, then the Owner is not in breach if a lesser sum is paid to the contractor reflecting the extent that the lending authority’s reasonable valuation of the works is less than the amount of the progress claim.

  6. Practical completion cannot occur under this agreement until all rubbish and surplus materials related to the building works performed by the contractor have been removed from site.

Special Conditions for the Master Builders Association BC 4

The Master Builders Association BC 4 is a contract drafted by the Master Builder's Association. As a result, not surprisingly, it focuses on the rights of the builder and requires some adjustment. The following are my recommended amendments to the BC4. I do not say that they cover every possible situation, each contract must be considered in its own circumstances, but they are a good start.

THESE SPECIAL CONDITIONS ARE TO BE USED WITH GREAT CARE, AND ONLY IF YOU KNOW WHAT YOU ARE DOING.

Special Conditions for the Master Builders Housing Association BC4 Contract

Notwithstanding anything herein contained:

  1. The Owner's failure to provide evidence of title shall not constitute a breach of the contract until seven business days after the Builder has given notice in writing requiring the production of that evidence.

  2. Where provisional items are included in the contract the Builder guarantees that those items are reasonable estimates based on current costs at the time of contracting.

  3. Before signing this agreement the Builder shall have inspected the site, its access and its surroundings and shall have:

    1. examined all information relevant to the risks and contingencies and other circumstances having an effect on this agreement and obtainable by making reasonable inquires; and
    2. examined all information made available in writing by the Owner to the Builder; and have incorporated the costs of these in the contract sum.
  4. Failure to pay progress payments on the part of the Owner shall not constitute breach of contract nor shall it entitle the Builder to determine the contract where within the time from making such a payment the Owner deposits the money into an interest bearing account in the joint names of herself or himself and the Builder and the money cannot be withdrawn without the consent of both parties and gives the Builder notice in writing of the reasons for doing so.

  5. The works shall be to the standard of the Builder's exhibition home inspected by the Owner at [address].

  6. Except where an express exclusion has been made in this agreement, the contract sum includes all matters that could be reasonably necessary for the completion of the works covered by the agreement.

  7. Except where an emergency gives rise to the need to proceed with a variation immediately, the Builder shall not proceed with a variation before he or she has given the Owner notice in writing of the cost of that variation and the variation has been approved by the Owner in writing.

  8. The Builder warrants that each of the progress payments set out in the contract equates to the value of the work done during that stage of the building works.

  9. Payment of a progress payment by the Owner is not an admission that the work subject of the progress claim has been completed satisfactorily or in accordance with the contract documents.

  10. Where the need for a variation arises from inaccuracy or incorrectness of plans and specifications provided by the Builder or from breach of copyright by the Builder the cost of the variation shall be at the expense of the Builder.

  11. Should the Builder fail to bring the works to Practical Completion by the Date for Practical Completion , the Owner shall become entitled to liquidated damages of $...........[amount] per day or part thereof until the works are completed, which money may be deducted by the Owner from progress payments as they fall due and to the extent that such liquidated damages are unpaid, the contract price shall be reduced, and, to the extent that such damages exceed the balance of the contract sum payable, they shall be a debt recoverable by the Owner against the Builder. Nothing in this contract is to have the effect of depriving the Owner of the right to claim damages for delay by the Builder. The Owner has the right to claim liquidated damages at any time after the Date for Practical Completion

  12. Practical completion cannot occur under this agreement until all builder's rubbish and surplus material has been removed from the site.

  13. Within seven business days of the service of the notice of practical completion the Owner may give the Builder a notice of those things still required by the contract to be completed and the Builder shall complete those items within the following seven business days.

  14. If the Builder becomes insolvent including becoming bankrupt or goes into liquidation, administration or receivership or is unable to complete the contract, fails to complete the works in the contract period as extended under this contract, or, if no contract period is agreed, within a reasonable time; fails to remedy defective work or replace faulty or unsuitable materials when it is appropriate to do so, then the Owner may, where such default may be remedied, issue a written notice requiring that the default be remedied in ten business days of receipt of the notice by the Builder or within such other reasonable period as may be agreed. If the default is not remedied within the period aforesaid, or if the default is not capable of being remedied, the Owner may terminate the contract by written notice to the Builder. The time when It is appropriate to remedy defective work or replace faulty or unsuitable materials is before the continued process of the works makes it unreasonably more expensive to do so.

  15. Where part or all of the contract price is to be provided by a lending authority, with payments being based on the value of the work the subject of the Builder’s progress claim, then the Owner is not in breach if a lesser sum is paid to the Builder reflecting the extent that the lending authority’s reasonable valuation of the works is less than the amount of the progress claim.

The Housing Industry Association Contract for New Dwellings

The Housing Industry Association Plain English Contract is a contract drafted by the Housing Industry Association. As a result, not surprisingly, it also focuses on the rights of the builder and requires some adjustment. The following are my recommended amendments to the Housing Industry Association Plain English Contract. I say again that they do not cover every possible situation, and that each contract must be considered in its own circumstances, but they are a good start.

Special Conditions for the Housing Industry Association NSW Residential Building Contract for New Dwellings

Notwithstanding anything herein contained:

  1. Where the plans and specifications are provided by the builder any delay arising from inaccuracy or incorrectness in the plans and specifications or breach of copyright shall not entitle the builder to an extension of time or an additional payment.

  2. The party providing the plans and specifications warrants the following:

    1. That the plans and specifications are accurate and correct in every way.
    2. That the plans and specifications do not infringe any copyright.
  3. Before signing this agreement the builder shall have inspected the site, its access and i ts surroundings and shall have:

    1. examined all information relevant to the risks and contingencies and other circumstances having an effect on this agreement and obtainable by making reasonable inquires; and
    2. examined all information made available in writing by the Owner to the Builder; and have incorporated the costs of these in the contract sum.
  4. The builder warrants that the provision of all weather access of the type referred to in this contract will cost $[amount] excluding the council footpath crossing deposit which is payable by and refundable to the builder.

  5. The builder warrants that each of the progress payments set out in the contract equates to the value of the work done during that stage of the Building Works.

  6. Payment of a progress claim by the owner is not an admission that the work subject of the progress claim has been completed satisfactorily or in accordance with the contract documents.

  7. Where the need for a variation arises from the inaccuracy or incorrectness of plans and specifications provided by the builder or from breach of copyright by the builder the cost of the variation shall be at the expense of the builder.

  8. Where provisional sums are included in the contract price the builder warrants that those sums are reasonable estimates based on the costs current at the time of contracting.

  9. The building works must be completed to the same standard as the builder 's exhibition home inspected by the owner at [address.]

  10. Practical completion cannot occur under this agreement until all builder's rubbish and surplus material has been removed from the site.

  11. Except where an express exclusion has been made in this agreement, the contract price includes all matters that could be reasonably necessary for the completion of the works covered by the agreement.

  12. Except where an emergency gives rise to the need to proceed with a variation immediately, the builder shall not proceed with a variation before he or she has given the owner notice in writing of the cost of that variation and that the variation has been approved by the owner in writing.

  13. Within seven business days of the service of the notice of practical completion the owner may give to the builder a notice of those things still required by the contract to be completed and the builder shall complete those items within the following seven business days.

  14. Failure to pay progress payments on the part of the owner shall not constitute breach of contract nor shall it entitle the builder to determine the contract where within the time from making such a payment the owner deposits the money into an interest bearing account in the joint names of herself or himself and the builder and the money cannot be withdrawn without the consent of both parties and gives the builder notice in writing of the reasons for doing so.

  15. Where no amount is indicated in the item dealing with liquidated damages in the schedule to the contract, then the owner shall retain the right to seek general damages for delay in addition to the $1.00 per day default amount.

  16. If the builder becomes insolvent including becoming bankrupt or goes into liquidation, administration or receivership or is unable to complete the contract, fails to complete the works in the contract period as extended under this contract, or, if no contract period is agreed, within a reasonable time; fails to remedy defective work or replace faulty or unsuitable materials when it is appropriate to do so, then the owner may, where such default may be remedied, issue a written notice requiring that the default be remedied in ten business days of receipt of the notice by the builder or within such other reasonable period as may be agreed. If the default is not remedied within the period aforesaid, or if the default is not capable of being remedied, the Owner may terminate the contract by written notice to the Builder. The time when It is appropriate to remedy defective work or replace faulty or unsuitable materials is before the continued process of the works makes it unreasonably more expensive to do so.

  17. Where part or all of the contract price is to be provided by a lending authority, with payments being based on the value of the work the subject of the Builder’s progress claim, then the Owner is not in breach if a lesser sum is paid to the Builder reflecting the extent that the lending authority’s reasonable valuation of the works is less than the amount of the progress claim.

  18. Clause 5.1 is deleted. (This clause provides that the builder may at any time require the owner to deposit that part of the contract price which is coming from the owners' own funds, as opposed to monies coming from a finance provider, into a joint deposit in the name of the owner and the builder requiring the signatures of both parties to release monies. In some circumstances it may be necessary to protect the rights of the builder but in an ordinary contract it puts unfair pressure on the owners.)

  19. If the Owner enters into occupation of the site with the permission of the Builder that act of entry, by itself, does not constitute a repudiation of the contract giving rise in the Builder to a right to terminate the contract.

The ABIC SW-2008-HNSW Contract

This contract is designed for use in residential building works in New South Wales only where there is an architect supervising the work.

Special Conditions for the ABIC SW-2008-HNSW Contract
  1. If an *insolvency event occurs in relation to the contractor, and the contract be terminated, the security provided to the owner under the contract will be available to the owner, at the owner’s discretion, to pay subcontractors or suppliers for any work, materials or equipment performed, supplied or provided for the works whether that work, material or equipment was performed, provided or supplied prior to, or after, the date of the contractor’s insolvency. In any case the owner may pay any supplier or sub-contractor for any materials or goods delivered or works executed for the purposes of this contract (whether before or after the date of determination) in so far as the price therefore has not already been paid by the contractor.

    (Normally the security is only available to pay for work the owner engages the subcontractor to do after the contractor’s insolvency. Sometimes an unpaid subcontractor is able to hold the owner to ransom until paid all the money it is owed. This condition allows the owner to use the security to pay unpaid subcontractors for work performed before the contractor’s insolvency. See Australasian Conference Association Ltd v Mainline Constructions Pty Ltd (In Liq) [1978] HCA 45; (1978) 141 CLR 335 (24 November 1978) It is better if the security is in the form of a bank guarantee as then there is no question of the payments being made out of money potentially owing to the contractor.)

  2. The contractor warrants that the provisional sums and Prime Cost sums allowed have been estimated with reasonable care and skill and in the light of information necessary and available at the date of the contract and taking into account such factors as a competent and experienced contractor should have taken into account in estimating the provisional and Prime Cost sums.

    (Even if you are unsure if there will be any provisional or Prime Cost sums it is possible that the contract may later allow for such and this clause will then come into play.)

  3. Failure to meet a substantial obligation by the contractor, as referred to in Clause Q1, includes if:

    1. the contractor becomes unable to complete the contract,
    2. the contractor fails to complete the works in the contract period as extended under this contract, or, if no contract period is agreed, within a reasonable time;
    3. the contractor fails to remedy defective work or replace faulty or unsuitable materials such that the continuation of the works will make rectification of the defective work or replacement of the faulty or unsuitable materials unreasonably more expensive

    (I think the concept of substantial obligation as used in the ABIC SW-2008 H NSW, without more, is too vague a concept for what is essentially an ejector seat clause to enable the owner to terminate promptly without having strictly to prove repudiation. These notice of default provisions in a building contract are intended to enable an owner whose project has taken too long to complete to serve a notice on the contractor complaining of that default. The notice allows the contractor the contractually agreed notice period (usually ten working days) to remedy the default specified in the notice. The sting in the tail of the notice is that if the recipient of the notice does not take reasonable steps to remedy the default in the time allowed, the aggrieved party can then serve a notice terminating the contract. The provisions are necessary because at common law, in order to terminate the contract, an aggrieved party has to be able to show that the other party has repudiated the contract, that is, has shown by its conduct that it did not intend to carry out the contract at all. This is almost never the case in a building contract where the builder is taking too long to complete the works, because invariably the builder's intention is to carry out the contract, but as and when it suits him to do so. In Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd Mason CJ said that there was a difference between evincing an intention to carry out a contract only if and when it suited the party to do so, and evincing an intention to carry it out as and when it suited the party to do it. He said that in the first case, the party intended not to carry the contract out at all, in the event that it did not suit him which is a repudiation, whereas in the second case, the party intended to carry out the contract, but only to carry it out as and when it suited him which is not a repudiation. In the second case it is only if the inference is that the defaulting party intends so to delay performance that the promisee will be substantially deprived of the benefit of the promise, that repudiation can be inferred. The inference is not lightly drawn: Progressive Mailing House Pty.Ltd. v. Tabali Pty.Ltd. The definitions of substantial failure above are intended to avoid that problem.)

  4. Any security provided in the form of a guarantee shall be provided by a body authorised by the Australian Prudential Regulation Authority to describe itself as a “bank”.

    (I prefer bank guarantees to insurance bonds.)

  5. Delay for any disruptive weather conditions for which a delay may be granted is limited to the duration of the disruptive weather and shall not include any delay caused by damage to the works including but not limited to waterlogged soil, damaged earthworks or water filled earthworks.

    Excavations are prone to water damage and soil can quickly become waterlogged often leading to extension of times claims that exceed the weather event by a number of days.

  6. The Builder agrees to attend weekly site meetings if requested by the Architect or Owner.

    (This ensures that, if required, regular communications will take place and if, owing to a dispute, communications cease, the builder will be in breach by failing to attend these meetings.)

  7. Payment of a progress payment by the Owner is not an admission that the work subject of the progress claim has been completed satisfactorily or in accordance with the contract documents.

    (Sometimes builders argue (incorrectly) that because payment was made the work must have been acceptable. This makes clear that this argument is invalid.)

  8. Practical completion cannot occur under this agreement until all rubbish and surplus materials related to the building works performed by the Builder have been removed from site.

    (Ordinarily rubbish to be removed is dealt with as a defect, this clause will ensure the owners have a clean site at the date of practical completion.)

  9. Where part or all of the contract price is to be provided by a lending authority, with payments being based on the value of the work the subject of the Contractor’s progress claim, then the Owner is not in breach if a lesser sum is paid to the Contractor reflecting the extent that the lending authority’s reasonable valuation of the works is less than the amount of the progress claim or the amount certified by the Architect.

    (You need to include this clause if the owners are relying on funds from a lending authority who intend to release the funds based on the progress of the works. If this is the case this will avoid the situation where the owners are short of available funds if the Architect values the work higher than the bank’s representative.)

  10. Before signing this agreement the Contractor shall have inspected the site, its access and its surroundings and shall have:

    1. examined all information relevant to the risks and contingencies and other circumstances having an effect on this agreement and obtainable by making reasonable inquires; and
    2. examined all information made available in writing by the Owner to the Contractor; and have incorporated the costs of these in the contract sum.

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