Addressing adverse work conditions

Contract Pitfalls

MBA Lawyers receives many inquiries from members that appear to indicate some pitfalls that builder’s regularly fall into. Below is a few of those that keep reoccurring.

HEAD CONTRACT Cost Plus (Residential)

BC4 Deposits

In the BC4 the deposit is not taken into account in calculating the staged claims. The staged claims should add up to 100% of the contract price. The deposit is only taken into account when crediting it to the final stage.

Variations

Variations that are not properly documented is the most consistent issue that cause builders to not get

MBA6937 Contracts_CostPlusRes.indd 1

paid. Variations should always be in writing and signed by the owner and the builder. Emails are considered to be signed by the sender so are satisfactory to detail a variation. Phone texts are discouraged, as they are not directly authorised by the contract, but are better than nothing. Properly documented variations ensure the builder is entitled to get paid. If not, the builder risks an owner refusing to acknowledge or pay the variation.

Cost Plus

In the Cost Plus Residential Contract there is provision for the builder to nominate an agreed rate for himself and other employees • Conflict Resolution • Alternative Dispute Resolution

MBA6937 Contracts_ResBC4.indd 1 For residential work undertaken on a cost plus fixed fee or percentage margin.

HEAD CONTRACT Residential Building (BC4)

26/2/08 11:48:27 AM at Schedule 2(a). This is not for the subcontractor’s rates. When claiming under a MBA Cost Plus Contract (residential or commercial) you must supply copies of documents that evidence the costs. The contract requires you to claim all costs (materials, subcontractor invoices and builder’s employee hours) as GST exclusive, then add the fees (percentage or fixed), then calculate

GST on that total. Hours for the builders or employees should be kept, say in the form of a schedule or otherwise, have a brief description of the work done, and shouldn’t include time taken for lunch or other breaks.

Lump sum contract for new houses, major residential renovations or small multi unit developments with no architect supervision.

Prime Cost and Provisional Sums

Make sure you are aware of how contracts treat these items. The

BC4 treats them as only the cost of an item for PC’s and of the work and item for PS’s, and is not for any part of the builder’s mark up, which should be in the balance of the contract price.

PC and PS allowances are for specific scopes of materials or work/materials.

If the cost of that scope is greater than the allowance then contracts will generally allow the builder to claim up to

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allowance plus a mark up on that amount. If more work or materials are needed than the scope of the allowance then that would be a variation and require a written sign off from the owner.

Extensions of Time

Some contracts require extension of time applications within a specified time of the delay occurring (eg Fair Trading, ABIC and Australian Standard contracts). In these contracts the builder should ensure he makes all extension of time applications within time or potentially miss out. Most MBANSW contracts allow for a claim at any time and the delay in making the application will not invalidate it.

Contracting with Friends or Family

For residential work, always ensure that the requirements of Home Building Act are

Master Builders Association of NSW ABN 96 550 042 906 complied with, regardless of who you are 52 Parramatta Road Forest Lodge NSW 2037 Private Bag 9 Broadway NSW 2007 T: (02) 8586 3555 F: (02) 9660 3700 enquiries@mbansw.asn.au www.mbansw.com.au

contracting with. Do not put your livelihood at

MBA8245 Contracts_ResMinorWorks.indd 1-2 risk by doing “shortcuts” with family and friends. Explain it to them as legal requirements that cannot be dispensed with. This is especially so for having a formal contract and Home Building Compensation Insurance for all residential contracts over $20,000. Even for doing work on an hourly rate needs to be in writing and comply required by after which will cause delay and

HEAD CONTRACT

Residential - Minor Works

Minor Works

For residential work between $5,000 and $20,000 a contract is still required to be in writing and contain certain information, such as names of the parties, contractor licence

For small residential projects. Especially suited to jobs under $20,000 which do not insurance.

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with the Home Building Act.

Selections

Delays in clients making selections are a primary source of delay for builders. A builder should advise the client of when selections are delay costs in accordance with the contract.

require home warranty number, description of the work, price, and any plans/specifications. Usually a quotation signed by both parties will suffice. The MBANSW Minor Works Contract is designed for this price category but will enable the builder to go over the $20,000 amount where there are variations taking the price above $20,000. The builder would then only have to supply a copy of the Consumer Guide and the Certifiers Information Sheet.

Doing “Freebies”

If you do any work or supply materials without charging, only do so on the proviso that all future claims are paid on time. It’s best to confirm this in writing. This way if the client doesn’t pay at a later time you can resurrect these costs. If you have any difficulties or enquiries then contact MBA Lawyers on 02 8586 3517.

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