A Guide to Home Construction Contract

Domestic Building Contract Act

The construction contracts may appear complex to untrained eyes, but the government has taken steps to protect consumers through the Domestic Building Contract Act.

This act is a type of building contract that has the status of an Act. As the laws or an Act always take precedence over contracts, thus safeguarding owners (consumers) from agreeing to unreasonable changes in their contract, thereby protecting unskilled owners (consumers) from unwittingly forfeiting their rights.

As a result, owners should focus on the key areas that impact their goals, namely time, cost, quality, and risks. It is generally acceptable to trust the General Conditions in a contract as a fair and reasonable position for both the builder and the owner.

What are General Conditions in Construction Contracts?

General conditions are a set of standard clauses in a construction contract that outline the responsibilities of all parties involved in a project. They serve as the backbone of a contract and provide clarity on the expectations and obligations of both the owner and the builder.

What do General Conditions Cover?

General conditions in domestic building contracts are consistent and aligned with the Domestic Building Contract Act. They typically cover several key areas, including administration, payment, quality, time, risk, and dispute resolution.

Administration: The administration provisions outline how the project will be managed and administered, including the roles and responsibilities of the owner and builder.

Note that while the architect, superintendent, or bank may have a role in the project, any contract is an agreement between only two parties, the client and builder. Any authority for the architect, superintendent, or bank must be stated and agreed in the contract and outlined in the general or special conditions.

Price & Payment Terms: The payment provisions outline how the builder will be paid for their services, including the payment schedule, retentions, and any penalties for late payment.

Quality: The quality provisions outline the standards the works need to meet. This should have been agreed upon earlier in the process.

Time: The time provisions outline when the builder must complete the project and hand over the works to the owner.

Dispute Resolution: The dispute resolution provisions outline the steps that will be taken in the event of a dispute between the owner and builder, such as mediation, arbitration, or other methods of resolving conflicts.

Risk: Risk allocation is a crucial aspect of the Domestic Building Contract Act, as it aims to assign most risks to the builder, thereby relieving the owner of any worries except for paying a predetermined sum at a specific stage.

However, due to the competitive nature of the construction industry, builders may attempt to shift these risks back to the owner to make the initial contract price appear lower, thus increasing their chances of securing the project. This risk re-assignment can take various forms, such as: extremely low liquidated damage; provisional sum or prime cost sum; exclusions in the contract; or, at times, offering Cost Plus contracts; just to name a few.

As an owner, it is essential not to assume at the first instant that any of these risk re-assignment methods are intended to unreasonably transfer risks back to you. Instead, it is important to understand why the builder is proposing them. Sometimes, inadequate documentation or fluctuating market conditions may be the cause of the builder's concerns. Knowing the builder's concerns can help you make a better decision.

Why are General Conditions Important?

General conditions are important because they are used many times over many other projects.  These clauses were challenged and tested by different people and different cases in court, and the court has made decisions to the interpretation of these clauses. 

It provides a clear understanding of the expectations and obligations of both the owner and builder, minimize the risk of disputes, and ensure the success of a construction project. By following the provisions outlined in the general conditions, owners and builders can avoid misunderstandings, ensure a smooth construction process, and achieve their desired outcome.

What are Special Conditions and why are they important?

Special conditions refer to agreements between the owner and the builder that cover anything not included in the general conditions. For instance, the owner may require that construction work progresses steadily during the agreed-upon period of construction. It is highly unlikely that a construction contract spanning 12 months would allow for the site to remain vacant for 11 months, with the entire building completed only in the final month.

Special Conditions are these specific clauses added to the Special Condition section of the building contract.

What to do before Signing the Contract?

Before signing a contract, ensure that the builder's contract does not rewrite the building products or quality in a manner that conflicts with the architectural documents, specification and engineering documents provided.

Check for ‘Exclusions’ or alternatives in the contract, such as a different materials or building products in the building contract.

To minimise the risk of the builder selecting alternative materials, it is recommended to include the architectural and engineering drawings in the contract and have both the client and builder sign off on the information.

However, this is not a foolproof solution, as the builder's contract may have clauses that the agreed specification overrides the drawings. To ensure the quality is as agreed upon, request your architect to compare the builder's quote against the architectural and engineering documents and provide a list of differences. This will allow you to make better decisions before signing and proceeding.