Guide

What to check before you sign a building contract

A building contract is the cheapest thing on the whole project to get right, and the most expensive thing to get wrong. This is what to look at before you put your name on it.

General information, not legal advice. This page sets out how the law generally applies. It does not take account of your circumstances, and you should get advice about your own situation before acting on it. The official sources this page is written from are listed on it; where they differ from anything here, they are the authority.

In short

For residential building work in New South Wales, the contract must be in writing once the price passes the amount the Home Building Act prescribes, and it must be dated and signed. The NSW Government publishes free contract templates for small and large jobs.

Check four things outside the document itself: that the contractor holds the right licence, that home building compensation cover has been obtained where the work requires it, that the deposit asked for is within the cap the Act sets, and that the scope attached to the contract really is the job you are expecting.

Do this first: ask for the contractor’s licence number and the insurance certificate, and read the scope and the plans before you read the clauses. Most disputes start in the attachments, not in the printed terms.

What the law requires the contract to be

For residential building work in New South Wales, the Home Building Act 1989 requires a written contract once the contract price passes the amount the Act prescribes, or where the price is unknown and the reasonable market cost of the labour and materials passes it. The contract must be dated and signed by each party or on their behalf.

There are two levels. Smaller jobs use a short form contract with the basic information in it. Larger jobs require considerably more, including the plans and specifications, a progress payment schedule, the insurance details and a statement about the cooling-off period.

You do not have to be given a contract drafted by a lawyer. The NSW Government publishes free templates for both levels, and a contractor using one of those is doing the right thing. What still needs reading is everything written into the blanks.

The amounts that decide which contract applies, and the deposit cap, are set by the Act and published on the NSW Government’s contracts page. Read them there rather than from any website that prints a figure, including this one.

Check the contractor before you check the clauses

Four checks, none of which takes long, and each of which is easier before you sign than afterwards.

The licence. Residential building work requires the right licence for the work being done. Ask for the number and check it with NSW Fair Trading's home building licence check, and make sure the name on the licence is the name on the contract.
The insurance. For work the Act covers, the contractor must obtain home building compensation cover and give you the certificate before starting work or taking any money from you, including the deposit. No certificate means no deposit.
The entity. Who exactly are you contracting with — a person, a company, a trust? A quote in one name and a contract in another is worth a question, because it decides who you would be claiming against later.
The deposit. The Home Building Act caps the deposit for residential building work. A contractor asking for more than the cap is not negotiating.

If a contractor is reluctant to give you a licence number or an insurance certificate, that is the answer to a question you have not asked yet.

Read the attachments before the terms

Most people open a building contract and start on clause 1. It is the wrong end. The printed clauses are usually a standard form and rarely the source of the argument. The argument comes from what is attached: the plans, the specifications, the schedule of inclusions and exclusions, and the priced breakdown.

Go through those looking for what is not there. Appliances, floor coverings, landscaping, driveways, fencing, site costs, rock excavation, connections to services — each of these is a standard source of a later bill when it turns out it was never in the price.

Then look at the provisional sums and prime cost items. Those are allowances for things that could not be priced exactly at signing. They are adjusted when the real cost is known, so an optimistic allowance is a bill you have not received yet. Ask how each one was arrived at.

Does the scope match the plans, and do the plans match what you have been discussing?
Is there an exclusions list, and have you read it line by line?
Are the provisional sums and prime cost items realistic, and does the contract say how they are adjusted?
Are the fittings and finishes specified, or described as words like standard or builder's range?
Who is responsible for approvals, connections and site preparation?

The five clauses that produce the disputes

Once the attachments are dealt with, these are the terms that decide what happens when something goes wrong.

Progress payments. What triggers each payment, and is it a stage of work rather than a date? Paying ahead of the work done is how owners end up funding a job they do not own yet.
Variations. How a change is instructed, priced and agreed, and the requirement that it be in writing and signed before the work is done. See our page on variations.
Extensions of time. What entitles the builder to more time, what notice they must give, and the liquidated damages rate if the job is late. See delay and extensions of time.
Defects liability. What happens between practical completion and the end of the defects period, and how you are to notify a defect. This is separate from your statutory warranties, which last longer.
Termination and suspension. What either side may do if things break down, and what notice is required first. Read this clause when you are calm, because you will only reach for it when you are not.

Statutory warranties are implied into the contract by section 18B of the Home Building Act whatever the document says. A clause that tries to exclude or restrict them is void, and being asked to sign one is a warning in itself.

After you sign, and the cooling-off period

A residential building contract above the higher amount the Act prescribes must tell you about a cooling-off period, which runs from the day you are given a signed copy. The length of it is set by the Act and stated on the NSW Government’s contracts page and in the contract itself. Check the date on your own copy.

Keep the signed copy, the plans, the specifications and every attachment together, and keep them somewhere you will find them in three years. A remarkable number of building disputes begin with nobody being able to produce the contract.

From the day work starts, keep a simple record: dated photographs, the messages, what was said at each site meeting and what was agreed. It takes minutes a week, and it is the evidence that decides a variation or delay argument later.

If you have already signed and are worried, the date matters. Raise it straight away rather than at the end of the week.

What usually happens

Ask for the licence number and the insurance certificate

Before you pay anything, including a deposit. Check the licence name against the name on the contract, and keep a copy of the certificate with the contract.

Read the scope, the plans and the exclusions

Look for what is missing rather than what is there. Write down every question and send them in one email, so the answers are in writing.

Work through the five clauses

Progress payments, variations, extensions of time, defects liability, termination. If any of them is unclear to you, it will be unclear to a tribunal as well.

Take advice before signing, not after

A review of a contract before signature is a short piece of work. Untangling the same document after a dispute has started is not.

Common questions

The builder says their contract is standard and cannot be changed.

A standard form is a starting point, not a law. Some terms are genuinely fixed by the Act, and the statutory warranties cannot be reduced at all. Beyond that, the special conditions, the scope and the payment schedule are ordinarily negotiable, and a contractor who will not discuss any of them has told you something useful about how the job will run.

Can I sign now and sort out the plans later?

It is a poor idea. For larger residential jobs the plans and specifications form part of the contract, and signing without them leaves the scope open to argument precisely where arguments happen. If the design is genuinely unfinished, that is a reason to wait or to use a separate preliminary agreement.

Do I need home building compensation cover if I am the owner?

The obligation to obtain the cover sits with the contractor for the work the Act requires it for, and the certificate must be given to you before work starts or any money is taken. Owner-builders are in a different position, and the State Insurance Regulatory Authority publishes information for them.

The quote and the contract have different numbers in them. Which one counts?

The contract, in almost every case. If the quote contained something you are relying on, it needs to be in the contract or attached to it. Send the difference back in writing before you sign rather than assuming it will be honoured.

Send us the contract

A contract review is most useful before signature, and it is a short piece of work. Send the document, the plans and the exclusions list and tell us when you are being asked to sign.