1
CERTIFICATE IV IN RESIDENTIAL
CONSTRUCTION
Course No. 19734
 CPCCBC4003A – Select
and Prepare
Construction Contract
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
2
Contents
The law of contract
4
Valid contracts
5
Essentials of a valid contract
Forms of contract
5
7
Simple and formal contracts
8
Express and implied contracts
8
Operation of the contract
9
Preparation of contracts
Blanks, ambiguities, erasures and alterations
12
12
Marking of documents and execution of the contract
13
Types of contracting arrangements
14
The project team in the traditional method
Building contracts in general
14
16
Types of contracts
16
Lump-sum with rise and fall
16
Cost plus a fee
16
Cost plus a percentage
17
Do-and-charge
17
Standard printed contract forms
18
Head contract
18
Subcontracts
18
Demolition contract
19
Supply agreement
19
Standard building contracts
19
Conditions of contract
21
General conditions
21
Contract documents
23
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
3
Conditions of agreement
23
Drawings
23
Specification
24
Bill of quantities
24
Evidence of insurance
25
Evidence of liquidity/bank guarantee
25
Summary
25
Answers to activities
Error! Bookmark not defined.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
4
The law of contract
Contracts are vital to the construction delivery process. A builder’s only
obligation to build is created by a contract. More often than not, the contract
is the builder’s only record of right to payment. Contracts direct and rule
every move.
A contract involves an agreement which gives rise to rights and obligations
that are enforceable by law. Basic to the nature of a contract is the concept
of agreement or bargain, with each side contributing something to make it
binding.
A building contract is where one person, the builder, agrees to supply labour
and materials for the construction of a building (or other building works) for
the benefit of the client who agrees to pay for such works.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
5
Valid contracts
A valid contract is an agreement between two or more parties where legal
rights and obligations are created which are enforceable by law.
Essentials of a valid contract
There are seven elements that are generally considered essential to the
validity of a contract:
1. there must be an intention to create a legal relationship
2. there must be an offer and acceptance
3. there must be valuable consideration
4. the parties must have legal capacity to act
5. there must be genuine consent by the parties
6. legality of the object of the agreement must be ensured
7. the terms of the contract must be sufficiently certain.
Intention
Unless the intention of the parties is to constitute an agreement enforceable
at law, there can be no valid contract.
Offer and acceptance
Offer
An offer is a proposal by one party to enter into a legally binding contract
with another. It may be in writing, verbal or implied by conduct. For
example, a builder submits a tender to a client. This is an offer.
It is necessary for an offer to be communicated by one person to another
person before an acceptance of that offer can eventuate.
The offer may be revoked. This may be done at any time before acceptance.
However, in the case of offers given under seal or supported by
consideration, the offeror is bound by contract not to revoke the offer within
the time specified.
The offer may lapse through non-acceptance within the time stated, or if no
time is stated, then within a reasonable time (this decision would rest with
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
6
the court). A counter offer constitutes a rejection of the original offer. The
death or loss of contractual capacity of either party before acceptance will
also cause the offer to lapse.
Acceptance
Acceptance occurs when the party to whom an offer is made agrees to the
offer. This acceptance may be made verbally, in writing or by subsequent
conduct, and must be made in the manner indicated by the offer or.
Acceptance must be unconditional – otherwise, it amounts to a counter
offer. Acceptance cannot be revoked without the consent of the offer or.
An example of an offer and acceptance is when a builder submits a price for
work to be done to a client. That client agrees to that price and its associated
conditions – this is the acceptance.
Consideration
A contract can only be binding on the parties if there has been consideration
given by each party to the other. It must be something of value. In a building
contract, the consideration is the price paid for the work but it could be a
right, an interest or a profit.
Legal capacity of the parties to act
Not all persons can enter into a contract. Some persons, such as minors or
bankrupts, have a limited capacity to contract.
Consent of all parties
This must be genuine and not in any way induced.
Legality of object
Contracts must not violate statutes, statutory regulations or common law.
Certainty
There may be no contract if the alleged contract lacks sufficient certainty
and completeness. For example, a contract to build a house for $300 000
without an agreement on the size, location or anything else to identify better
what is to be built for $300 000, would be void.
Activity 1
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
7
1
What is a valid contract?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
2
List and describe the six essentials of a valid contract.
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
8
Forms of contract
Simple and formal contracts
Formal contracts
These are contracts under seal.
A contract under seal prevents a party to it from denying the facts expressed
in it, which is not the case in the matter of simple contracts. The term
estoppel (inability to deny stated details of contract) is at times used to
describe a contract under seal. This form of contract is uncommon in the
residential building industry. It more often than not, benefits the client more
so than the builder.
Simple contracts
All contracts not executed under seal are termed ‘simple contracts’. Simple
contracts may be formed:

by means of a verbal agreement. When the contract is formed
verbally, the contents are a matter of evidence for the judge. .To
prove the content of a verbal contract is often difficult. It is for this
reason that the parties to a contract should make the terms of the
contract in writing.

implied from the conduct of the parties

in writing. Under the Home Building Act 1989, a written contract
must be made for residential building work where the value of the
contract is more than $5,000. Regardless of the value of work, it is
vital that all agreements are in writing.
Express and implied contracts
Express contracts
This is the normal form of a building contract, its characteristics being:

a statement of responsibilities as regards various forms of
commitments and the times at which they will be implemented
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
9

reference to various documents (such as plans, specification, bill of
quantities etc) which form part of the contract documents

time for completion

penalty clauses.
Implied contracts
This is a contract without words. It results from failure either by ignorance
or design by parties concerned to enter into a properly valid contract. Again,
due to legislation, these types of contracts in the residential building
industry are not relevant.
Operation of the contract
Privity of contract
This is the term used to describe the legal relationship that exists between
the parties to a contract. The general rule is that only the parties to the
contract can:

acquire rights under it

Incur obligations/liabilities under it.
The person offering should carry out his or her obligation and the person
giving the consideration should receive the benefits accruing therefrom.
Discharge or termination of contract
A contract may be discharged or terminated in the following ways:

performance by both parties of their respective obligations

both parties agreeing to terminate

operation of law

impossibility of performance

lapse of time

Breach of contract.
Performance
This is the usual method of completing a contract. This is where the actual
performance of the specified contract conditions has been met.
Operation of law
A contract may be discharged independently of the wishes of the parties by:
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
10

bankruptcy

Substantial alteration to the provisions of the contract.
Impossibility of performance
Where the performance of the contract is obviously absurd, legal precedent
has established that the parties could not have intended to be legally bound
by such an agreement: that in fact, there was no contract. For example, if it
were known to one of the parties that the land on which a building was to be
built was contaminated and unable to be excavated.
Lapse of time (Liquidated Damages)
Generally speaking, a contract is not discharged by the passage of time.
However, penalties apply for a party not meeting their obligations within the
time periods specified, over and above approved extension of times.
Breach of contract
The breach may be either a total or partial failure
to comply with the contract’s obligations or
conditions.
Damages
The object of awarding damages for breach of contract is to compensate the
injured party for any losses resulting from such a breach. These damages are
usually for late completion by the builder (liquidated damages) or late or
non-payment by the client.
Liquidated damages are where the parties to a contract agree ahead of time
an amount for damages for delay. The parties are at liberty to agree upon an
amount which is more or less than what will be the actual damages.
However, in residential building, they generally reflect market rental value
of the property.
In today’s environment of increased litigation, clients are increasingly aware
of liquidated damages and their application.
Activity 2
What are liquidated damages? When could they be applied?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
11
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
12
Preparation of contracts
Blanks, ambiguities, erasures and
alterations
It is essential when preparing and signing contracts to complete the missing
spaces where required, any blanks, ambiguities, erasures or alterations.

Missing details such as contract price and time for completion need
to be completed.

Blanks must be ruled and initialled.

Erasures should not be permitted, particularly when using standard
forms of contracts.

Alterations should be made in ink, or in the case of large alterations,
they should be completely retyped and stuck over the appropriate
area of the contract. Alterations should be initialled.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
13
Marking of documents and execution
of the contract
Documents relating to the contract must be accurately described in the
agreement and also annexed to that agreement in a formal manner.
In the case of a building contract, the agreement should describe all
drawings by their respective reference numbers and date of issue. The
specifications should be described by the numbers of pages as well as by the
full title of the specification.
To execute the contract both parties sign in the required spaces with all
documents initialled. Each page of the contract should also be initialled.
Some other documents that may be included in the annexure of the contract
include conditions of development consent of the respective property and
your tender letter.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
14
Types of contracting arrangements
All building works are executed under some form of contracting
arrangement. In the traditional method, the client selects an architect and
other consultants to design and document the project. The client then forms
a contract with a builder to carry out the building work. The contract is
usually awarded under competitive bidding. It can be a firm, lump sum or
cost-plus arrangement, with or without then architect supervising.
When building works are straightforward and very predictable in their
construction techniques, the type of contracting arrangement would
generally be a firm, lump sum. An example of this would be a brick-veneer
cottage on a level block of land. If the proposed work is difficult to establish
or its extent is difficult to establish, the contracting arrangement chosen may
be cost-plus.
The project team in the traditional
method
The client will first appoint a design consultant (architect) to produce design
documentation. They may also administer the building contract during
construction. The design consultant also contracts other specialist
consultants (such as engineers) to complete the documentation.
The main contract is formed between the client and builder. The architect
has no contractual arrangement with the builder; however, they may
communicate and administer the contract on behalf of the client. The builder
breaks down the project into specific trade packages and lets separate
contracts to different sub contractors.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
15
NB The client usually engages consultants via agreements of performance based
on a fee.
Figure 1 Project team
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
16
Building contracts in general
As a builder, you may wish to use your own form of building contract. This
is quite common in the project home industry. However, many builders
choose to use a standard form of contract, which is usually written in ‘Plain
English’. These forms of contract can be purchased from an industry
association such as The Office of Fair Trading
(http://www.fairtrading.nsw.gov.au/building), Master Builders Association
(http://www.mbansw.asn.au/) or the Housing Industry Association
(http://www.buildingonline.com.au/). We will discuss the different forms of
standard contracts later on in this unit.
Types of contracts
Lump-sum
In this form of contract, the contractor completes the work as documented
for a fixed amount of money. An architect may or may not supervise the
work.
Lump-sum with rise and fall
This is the same as lump sum but with a provision for an increase or
decrease in the cost of materials, plant and/or labour that may occur during
the course of construction. This type of contract is rarely used in the
residential building industry.
Cost plus a fee
This is used where the work is difficult or its extent is difficult to establish.
The builder is paid for the invoice costs of materials, labour and subcontract
amounts.
In addition the contractor receives a predetermined fee during the works or
on completion.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
17
Cost plus a percentage
This is used in similar circumstances as for the previous item. The
exception is that the contractor receives additional payment in the form of a
percentage of the total cost. The percentage, like the fee in the previous
item, pays the contractor for builder’s overhead and profit.
Do-and-charge
This form of contracting arrangement is difficult and not recommended for
the following reasons:

It is difficult to establish sound contract conditions and agreement.

Projects of this nature have historically ended with an argument
between contractor and proprietor.

It creates an opportunity for exploitation of one of the parties
involved.
Due to the unknown cost implications, it is difficult to believe that anyone in
this tough commercial world would contemplate building work being done
under these arrangements. However, some building works are done this
way.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
18
Standard printed contract forms
There will be standard printed contract forms for any type of contracting
arrangement that a builder may feel is appropriate. The builder just needs to
choose the correct contract form and use it. Later in this unit, some standard
contract forms will be listed. First, though, we will briefly discuss head or
main contracts, subcontracts, demolition contracts and supply agreements.
Head contract
This is the contract between the proprietor and the contractor. It may be that
the building works are to be supervised by an architect. If so, it is still the
head contract that applies.
The contract will be for an undertaking that the contractor will complete a
defined amount of building work for an agreed return.
Invariably the contract will contain a clause indemnifying the proprietor
against any claims that may be made by the contractor’s subcontractors
against the proprietor.
Subcontracts
These are contracts between the head contractor and the subcontract trades
companies or tradespersons. Subcontractors who engage in building trades
work with the main contractor are subject to the same conditions and
agreement of the main contract.
Standard printed subcontract forms are usually available from the same
suppliers that stock head contract forms.
The producers of these standard forms have arranged the marriage of
compatible main contract and subcontract forms. This enables the
contractor to easily apply the conditions of agreement to the subcontractor’s
work.
Subletting of subcontracts
The building contractor signs the main contract with the proprietor, and also
signs subcontracts with the tradespeople who are subcontracting (e.g. for
work involving brickwork, false ceilings, concrete works and structural
steel).
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
19
The subcontractor, within the organisation of the company, may decide to
establish a piecework arrangement or further subcontract to the site staff
performing the work.
This is, in fact, an arrangement where a subcontractor is subcontracting to a
subcontractor, who is subcontracting to the main contractor.
This arrangement may work very well but you should consider the legality
of such a solution before it is embarked upon. The main contractor has an
obligation to the proprietor for indemnity from all claims. This, of course,
includes all subcontracting personnel. If you extend subcontracting beyond
the first line of subcontracts, you should seek legal interpretation of the
contract and any law affecting such an arrangement.
Demolition contract
This is a contract to be used when demolition or removal of structures is
required. It is vital that prior to letting the demolition contract, the builder
checks and receives copies of current workers’ compensation policies and
public liabilities insurances. These insurances are a requirement under
standard demolition contracts.
Supply agreement
This is an agreement or contract between a builder/contractor and supplier,
where supplier sells and usually delivers materials and/or goods mentioned
in the contract.
Standard building contracts
These contracts are designed for use in their existing and complete form and
changes to them are discouraged unless warranted by particular
circumstances. It should also be noted that each industry association can
update and change the names and conditions of the contracts listed below. It
is vital you keep yourself updated with the most current form of contract.

Home building contract (Office of Fair Trading) — for works over
$25 000

Renovation contract (Office of Fair Trading) — for work between
$12 000 and $25 000

Minor works contract (Office of Fair Trading) — for works $12 000
and under

Medium works contract — no architect/superintendent supervising
(HIA) – For works over $25 000 with no architect/superintendent
supervising
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
20

Medium works contract — architect/superintendent supervising
(HIA) – For works over $25 000 with an architect/superintendent
supervising

Small works contract (HIA) — Used for works up to $30 000

Alterations and additions contract — used for all types of residential
alterations, additions, renovations and restorations

Cost plus building contract (HIA) — a contract between two parties
that is not lump sum fixed price contract. Costs are totalled and a
percentage or fixed sum added for administration, supervision and
profit

BC4 (MBA) — Lump sum contract for new houses or major
renovations with no architect supervising

PEMWC (MBA) — A Plain English Minor Works contract for small
building works less than $12 000

SFRB (MBA) — Lump Sum Short form residential building contract
for projects between $12 000 and $60 000.

BW1 (MBA) — Architect-administered contract for basic works up
to $50 000

SW1 (MBA) — Architect-administered contract for medium-sized
projects between 50 000 and $3 000 000.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
21
Conditions of contract
By law, in residential building work, the written contract must contain:

the date and signature of both parties

name and address of the property which is being built or renovated

the builder’s name, and their licence number

a sufficient description of the work to be carried out

plans and specifications attached

relevant warranties as required by the Home Building Act 1989

the contract price.
General conditions
The general conditions of the contract are separated into clauses. Each
clause is standard to that form of contract. We will discuss some important
clauses which are included in residential building contracts.

Contract documents — the specifications, plans and any other
documents are listed here. It is also required that the home warranty
insurance certificate’s date and the insurer is listed here. All these
documents are required to be attached as part of the contract.

Deposit — the amount of the deposit that is required to be paid by
the client is noted here. The deposit must not be requested until a
home warranty insurance certificate has been given to the client.
Under the law, of the contract price is less than $20 000, a maximum
deposit of 10% is allowable. If the contract price exceeds $20 000,
the maximum is 5%.

Time for completion — the builder is bound to complete the work by
the stated date or within the stated time or the date as extended in
accordance with the provisions of the contract (Extension of time
clause). If not completed on time, the builder will be liable for
damages.

Extension of time — delays can occur during the course of the work.
The builder is entitled to apply for reasonable extension of time for
completion if the cause is beyond the control of the builder. There is
usually a time period within which an extension of time claim can be
submitted to the client from the time of the occurrence of the event
that caused delay.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
22

Variations — if, after work has commenced, the client decides to
delete, alter or add to the work done or proposed, a variation to the
contract may be required. The builder must provide the client with a
written notice of the work and price, for approval prior to
commencing work on the variation. If the variation is needed
because there is likely damage to people or property, there may be
no time to put the variation in writing. In this case, it can be done
after the work has been done. If the variation will cause delay, an
extension of time claim must be submitted. The notice must be
signed and dated by both parties to constitute acceptance.
As a result of recent Inquiries into the building industry, a number of recent
changes have been made to residential building contracts to assist both
builders and clients to ensure that areas for dispute or misunderstanding is
reduced. Contracts are required to contain:

A checklist of questions which a client will be required to read with
the aim of ensuring that they understand a number of issues.

A clause that requires the builder to carry out the work in accordance
with the requirements of the Building Code of Australia.

A clause that requires the builder to provide a consumer with a
brochure explaining procedures for the resolution of contract and
insurance disputes.
The changes have also introduced a five-day (five clear business days)
cooling off period for contracts over $12 000.
Activity 1
Now is a good time to get hold of some different standard forms of contract. These are
available through the industry associations discussed above. Review the different clauses
in them.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
23
Contract documents
You will be aware by now that a valid building industry head contract is
between a builder and a proprietor (property-owner or lessee). It requires
certain conditions to be met and formally agreed upon. Tender documents
now become the contract documents (i.e. part of the agreement between the
contracting parties).
The printed contract form rarely contains enough information to ensure that
the agreement between parties is fully documented. Other information in
written or diagram form is usually added to make up the complete contract.
The size and complexity of the proposed building works will determine the
amount of documentation added to the contract, and contract documents will
be unique to each contract. They could be made up from the following list.
Conditions of agreement
This is the actual printed standard document with all the conditions and
clause. Both parties sign it and initial all pages and amendments. Special
conditions and any schedules are filled in. In the building industry there are
also commonly referred to as ‘contracts’, ‘general conditions’ and
‘conditions of agreement’.
Tender letter
The tender letter that you submit to the client at the time of tender should be
attached to the contract conditions and referenced therein. The tender letter
gives the conditions and exclusions that your price is based on. We will
discuss tender letters in more detail in Unit 7.
Drawings
Drawings would be the original tender drawings (which should be working
drawings) with or without amendments. They provide a graphical
representation of the extent of the works. They will be a complete set and
will all be numbered and the numbers listed as part of the contract.
The drawings could include:

Architectural drawings approved by the local council
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
24

Architectural details

Engineer’s drawings

Mechanical services drawings

Services drawings of:

drainage

plumbing

fire service

electrical

Landscape drawings.

Civil drawings.
Specification
The specification is a written description of the work detailed in the
drawings and to be read in conjunction with the drawings, with reference to
other drawings and specifications for specialist work (such as the
installation of lifts, fire services etc).
The objectives of a specification are to:

supplement the information given in the working drawings

Details quality of workmanship required through multiple
referencing to applicable Australian Standards for various trades and
inclusions.

inform the quantity surveyor or builder

advise initial prospective tenderers of conditions

form one of the contract documents

convey the intentions of the proprietor to the builder

inform public authorities on details not shown on the drawings

Guide draftspersons in the preparation of details.
Bill of quantities
A quantity surveyor usually prepares bills of quantities. It is a predetermined take-off of quantities against which a competitive tender may be
awarded. Although it provides a common basis for tenderers to price, there
is greater risk on the client providing the bills of quantities to ensure they
are complete and comprehensively cover everything involved in the project.
Therefore there has been less reliance on their use as tender and contract
documents.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
25
It may or may not be included in the contract documents. Its inclusion will
depend upon the printed conditions of agreement contract form. Generally,
in residential building works (unless large scale) they are not included in the
contract.
Evidence of insurance
A Contractor must effect and maintain insurances as stipulated in the
conditions of contract (e.g. workers’ compensation, public risk, etc). Copies
of these are required to be given to the client prior to commencement of
work and at any time as requested by the client.
The certificate of Home Warranty Insurance should also be attached to the
contract. This serves as a form of protection for the consumer or client.
Builders and tradespeople must take out home warranty insurance to cover
defective or incomplete work on residential projects costing more than
$20, 000.
Evidence of liquidity/bank guarantee
The contractor may be required to obtain a guarantee of finance from a
reputable bank or lending body up to a nominated amount or for a
nominated proportion of the contract. The endorsed bank undertaking would
form part of the contract documents.
Conditions of development consent or
other authority approvals
As a general rule, all necessary building and other approvals should be
obtained prior to signing of the contract, and attached to the contract
agreement/conditions. As the builder, it is your responsibility to comply
with the conditions of consent. You should have received a copy of these
conditions at the time of tender and allowed for them in your price. If they
were not received, your tender letter should provide a condition that your
price has not allowed for ‘non-standard’ or site specific Authority Approval
Conditions.
Summary
The extent of the inclusion of these documents in the contract would depend
on the size and complexity of the project to be undertaken and the policy of
the principles organising the documents (e.g. government departments,
private developers, residential owners). Each will have varying needs in
this regard.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
26
Activity 3
1
List and describe four likely documents to be used in the formation of contract
documents.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
27
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
28
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
29
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
30
Contents
Introduction
32
Contracts
35
Tender forms and letters
35
Extensions of time
41
Progress claims and payments
43
Final accounts
49
Cost items
49
Presenting the final account
51
Retention and defects liability period
53
Summary
56
Answers to Activity 1
Error! Bookmark not defined.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
31
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
32
Introduction
As a building contractor you will need to master contract administration.
Not only do you need a good understanding of contracts and the conditions
that control the operation of the project, you need to have or develop good
interpersonal skills when interacting with clients, architects, subcontractors,
suppliers etc.
In Unit 6 we discussed the different forms of contract and how to execute a
one between yourself and another party. In this unit we will discuss how to
fulfil your contractual obligations by way of procedures and standard forms.
This is contract administration.
The contract between the client and building contractor is used as the ‘book
of rules’ in administering the work and working towards completing the
contract by performance. By ‘performance’ we mean fulfilling your
obligations under the contract conditions and meeting or exceeding the
expectations of the client or architect in respect of time, cost, quality and
customer service.
Communication is a fundamental element of good administration. Too often
this aspect is ignored and can lead to costly disputes that can take years to
resolve and may even cost you your business. The preparation of forms can
simplify the process. Examples of the more common forms used in
residential construction are included in this unit. These forms include:

tender letter

variations

extensions of time

site instructions

progress payments

final account.
Disputes with clients are often due to a need for better administration of the
overall contract as well as onsite activities. Small matters have a tendency to
escalate in importance if left unresolved. Good communication and
interpersonal skills will develop the trust shown by the client in awarding
you construction of the project in the first place.
The job is made easier if you have good organisational skills and procedures
in place to properly document the project. Your project file should
accurately record the history of the job and should make your task of
finalising the project much easier.
Contract administration is not about one thing. It’s about:
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
33

communication

organisation

procedures

supervision

quality

customer service

documentation.
It is about establishing and maintaining your organisation’s image and
reputation as a professional building company. By establishing effective
procedures in your organisation, you project a professional image and
promote efficiency in terms of your internal operation and the smooth
running of your projects.
The following flowchart illustrates the main steps in the process of being
invited to tender on a project, up until the completion of the defects liability
period.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
34
Figure 1 Administration flowchart
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
35
Contracts
There are many types of ‘pro forma’ contracts available for residential
construction. The current contract prepared by the Office of Fair Trading for
work greater than $25,000 in value incorporates the current legislation
requiring a ‘cooling off’ period, a checklist of questions which a client will
be required to read and the requirement for a brochure to be given to the
client by a builder outlining dispute resolution.
This contract is deemed fair and reasonable and is readily available through
retail outlets such as Australia Post shops. Remember, it is important that
you use current forms of contracts to ensure you meet the requirements of
the Home Building Act 1989 and any amendments.
There are comparable contracts prepared by industry associations such as
the HIA and MBA. You should make yourself aware of the minor
differences between the forms and, when it is in your power to do so, adopt
the most favourable one.
Remember, you need to be an ‘expert’ on the contents of the contract you
are using and you must know the contract form and conditions to be used
before the tendering on the project. If the contract form is unavailable at the
time of tender, it is vital that you condition your tender to advise the client
of the contract it is based on.
Once you have signed a contract you are bound by the terms of the
agreement and ignorance is not a defence should you find the conditions
onerous or if your price does not adequately cover the contract conditions.
For example, if the contract conditions which you tendered on do not allow
for extensions of time, allowance for this must be made in your tender,
usually as a cost implication to cover any risk that may present itself in the
absence of extensions of time.
If you are not sure of the intent of a clause in a contract you should consult a
legal expert for clarification and advice.
Remember, if you do not understand a contract, do not sign.
Tender forms and letters
Often clients/architects require that tenders be submitted on a standard form
provided in the tender documents, usually known as the Tender form. This
form provides for the basic details of your offer but does not allow for
supplementary ‘conditions’ that you may wish to include. These conditions
may arise when:

the tender documentation lacks detail

there are issues not provided for in the documentation (For example,
excavation in rock.)

there are items or work (known as ‘provisional sums’) for which you
cannot provide a definite price
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
36

prime cost (PC) items for items or work that need to be chosen or
confirmed after the signing of the contract, are involved.

you do not accept some terms of the contract.
In addition to submitting the standard tender form provided, many builders
also prepare a ‘tender letter’ that outlines these conditions. A sample, with
some common conditions included, is provided in this unit. The conditions
can be quite varied and while some are considered ‘standard’, others will be
relevant to a particular project. Examples of conditions are:

no allowance for excavation in rock

no allowance for work on any unknown underground service

all fees by proprietor

all approvals by proprietor

PC items

provisional sums

advice on margins where not stated in the contract form.
It is not uncommon for builders to use both of these documents when
submitting a tender. It is usually a condition of tendering that a completed
tender form be submitted. By not completing and submitting a tender form,
a builder could jeopardise the chances of his tender being accepted. So it is
important that the builder submits both a tender form and tender letter. The
tender letter allows for the inclusion of the necessary conditions the builder
has allowed for in the price. If a tender form is not required as part of the
tender conditions, a tender letter should still be submitted with your offer.
If successful, the builder should insist that the tender letter be attached to the
contract and become part of the contract documents.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
37
Figure 2 Tender form
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
38
Figure 3 Tender letter
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
39
Variations
Projects are commonly subject to variations during the course of the project.
Whether initiated by the client/architect, or by you, the building contractor,
all variations need to be recorded.
Variations are often referred to as ‘extras’ but this is a misnomer and comes
about because most variations are for extra work that adds a cost to the
contract sum. Variations can be an addition, deduction or a ‘no cost’
variation to the contract. For example, a product as specified is unavailable
at the time of procurement and replaced by a product of comparable quality
and at the same price. A variation needs to be recorded and approved before
ordering the product since the specification has been altered even though
there is no variation to the contract sum.
If this change is not recorded and approved, a client may use it as an issue
should a dispute arise further into the contract.
Most building contracts give the client the right to vary the contract at any
time. Some builders use variations as an opportunity to increase their profit
margin by pricing the variation work higher than it is worth. Doing this
could lead to a dispute between client and builder. As long as you cost all
variations accurately (and this can be easily substantiated) you can justify
their value to the client/architect if the need arises. It may also pay to
consider the implication of the variation in terms of extra time needed and
whether you need to communicate this to have an extension of time
approved. All variations need to be approved in writing before any work
associated with that variation can begin.
Some variations may bring in safety issues for which written approval must
be sought and received. In these circumstances the builder may have to
proceed with the work and be prepared to argue the case with the client at a
later date. Safety is generally a matter for the builder and compliance with
the OH&S Act 2000 and OH&S Regulations 2001 are part of the contract
documents or would be considered your responsibility.
On the following page is a pro forma for variations to a contract. The form
allows the builder to clearly describe the extent of the variation,
communicate the cost and, where necessary, change the contract sum.
The variation form and the variations should be numbered for future
reference, particularly when finalising the contract.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
40
Figure 4 Contract variation
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
41
Extensions of time
The time taken to complete a project is all too often the cause of dispute.
This can be the result of many factors including:

the original underestimated time

unexpected delays

bad weather

lack of diligence by the builder

poor performance by sub-contractors

Variations.
In order not be penalised at the completion of the job should it take longer
than the original estimate, the builder has to claim an extension of time. The
contract generally outlines the circumstances that allow for such a claim.
Some builders will claim at every opportunity. Be aware that ridiculous
claims can be challenged and you may be required to justify it. If you cannot
justify a claim, you may damage the integrity of your organisation. A claim
should be backed up by evidence and documentation (such as a site diary).
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
42
Figure 5 Extension of time claim
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
43
Progress claims and payments
With the progress claim the builder aims to claim for the progressively
increasing value of work completed to date. The client then makes a
progress payment against the claim (invoice). Progress payments are made
to the builder during the course of the project either at predetermined stages
(such as lock-up), or at periodic intervals—generally monthly or 30 days. In
the Home Building Contract (work over $25, 000) published by the Office
of Fair Trading, progress payments are made at the completion of certain
stages.
Progress claims are prepared on the basis of work completed less any
previous claims or retention. The progress claim should equate to the value
of work done. A claim is usually broken down on a trade basis that relates to
a total cost breakdown submitted at the start of the contract.
Progress payments—including GST—are made to financially support the
builder who could not be expected to complete the project using his or her
own money. Progress payments also prove to the builder the client’s ability
to finance the project and their commitment to pay.
Progress claims are prepared as an invoice to the client, not the architect,
even though the architect may be acting as the client’s agent. Sometimes the
client asks that a statutory declaration be attached stating that all monies
owed to your employees have been paid, you have a current workers
compensation policy which covers all your employees and all
superannuation contributions are up to date. The architect, or on larger
projects, a quantity surveyor may certify the claim before the client makes
payment.
Under the NSW Building and Construction Industry Security of Payment
Act, any party that contracts to carry out construction work or supply related
goods or services on construction projects in NSW, has a statutory right to
payment. Under this Act, contractors and subcontractors are entitled to
receive all payments due, including final payments and retention monies.
Apart from those contracts with homeowners who live in, or intend to live
in, the dwelling where the work is being carried out, The Act applies to all
construction contracts at all levels in the chain. It also applies to contracts
between subcontractors, consultants and suppliers to contractors carrying
out works to homeowners. The Act allows the claimant to secure payment
on account inexpensively and speedily without the use of lawyers, court
hearings or witnesses. Note that the progress claim form (invoice) carries a
statement at the bottom of the page stating that ‘This claim is issued
Pursuant to the Building Construction Industry Security of Payment Act
1999’. To ensure that your claims are covered by the Act, this or a statement
of similar wording should be included on all your invoices.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
44
Subcontractors will also submit progress claims to you for payment based
on their claims. If you pay subcontractors before you receive payment for
the work from the client, you may be out of pocket if a dispute arises from
the claim and you may have to use your own working capital to support the
project until these funds are available to you.
In NSW, current legislation (Workers Compensation Act 1987, Payroll Tax
1971 and Industrial Relations Act 1996) requires that each progress claim be
attached to a declaration signed by the subcontractor declaring that they
have, and maintain a valid workers’ compensation policy, have paid all payroll tax due and have paid all monies payable to employees for work done
under the contract.
The timing of progress claims and payments are important for your cash
flow. Ensuring that your subcontractors make claim for work before you
submit your own to the client—but that their terms of payment are longer—
allows you to receive payment from the client before paying subcontractors.
On the following page an example of a progress claim (invoice) and cost
break up (progress report) is included.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
45
Figure 6 Progress claim
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
46
Figure 7 Progress report
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
47
Site instructions
When the builder queries a design detail, the client often instructs he or she
to do something that is not clear in the documentation. If this is the case
and the client does not provide written confirmation, you as the builder
should confirm the instruction in writing by use of a site instruction. If the
instruction impacts on your subcontractors, you should also provide them
with a site instruction.
A site instruction is merely written confirmation of an instruction given to
you by the client that is not clear in, or contradicts, the contract documents.
For example, although the colour of fencing specified on the drawings and
in the specifications is black, the client has changed their mind and wants
the fence to be green. They have advised you verbally but as it is
considered a small change that has no monetary impact (not a variation)
the documents have not been changed. In this case, you need to confirm
the request in writing and ask the client to sign it. Keep a copy and
distribute one to the client and to any subcontractors impacted upon by the
instruction.
When you receive an instruction from the client or the client’s
representative that is not considered a variation, and not confirmed in
writing, you leave yourself open to dispute. It is vital that any instruction
given to you by a client is confirmed in writing and signed by them.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
48
Figure 8:Site instruction
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
49
Final accounts
The final account is the last bill that the building contractor submits for
works as contracted. It is prepared and submitted at the stage of practical
completion. Commencing with the original contract sum and ending with
the balance payable on the contract (excluding any retention held over the
defects liability period), it outlines the financial history of the project.
So when do we reach practical completion? Practical completion is when
the builder has completed all the work in accordance with the contract
documents and any variations. Any apparent defects should have been
rectified and all rubbish and surplus material removed from the site.
Preparation for the final account must be done progressively throughout the
project. Preparation cannot be delayed until the last week of onsite activity.
Except for the payment of retention at the end of the defects liability period,
this is the last opportunity to make a claim on the client. Therefore, as a
builder, you need to make sure you include all claims due to you as well as
any credits due to the client. The onus is on the builder to provide an
accurate final account, free of any errors or omissions.
Cost items
The final account will detail all the monetary aspects or cost items of the
contract and would normally include, but not be limited to the following:
Contract sum
This is the original contract figure that would have appeared on the signed
contract conditions of agreement.
Variations
The total cost of the variations would be included in the final account. No
details of the variations would be included here. This should have been
submitted and approved prior to the work on the variations commencing.
Deposit
Deposit paid by the client should appear on the final account.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
50
Prime cost items reconciliation
The prime cost items for the building work would be adjusted to show the
differences between prime-cost allowances and actual expenditures. An
adjustment is made between the allowance and the actual expenditure and
the difference is stated as a claim or credit.
Provisional sum adjustment
The specification and contract documents may have provisional sum
allowances of a stated dollar value for some sections or items of work that at
the time of tender had an unknown value. On completion, the money has
been spent and the cost of that work is known. An adjustment is made
between the allowance and the actual expenditure and the difference is
stated as a claim or credit.
Progress claims received
A total of the progress claims received should be totalled and included in the
final account.
Retention
All retention monies should be shown. Retention percentages change at the
time of practical completion. Usually, a maximum of 5 per cent of the total
contract is held up until the time of practical completion; then it reverts to
2.5 per cent for the duration of the defects liability period. The adjustment
needs to be shown on the final account.
Claim for extended site establishment
Where variations to the contract are predominately extras and the total
represents a large proportion of the building contractor’s final account, the
builder can claim for payment. Site establishment costs include shed hire
and foreman’s wages. These combined costs are worth claiming if a
building project went over the original scheduled time (with extensions of
time claims being approved).
Balance payable
This is the amount of money the client is required to pay the builder
(excluding the 2.5 per cent retention), within the agreed time period. This
time period should also be stated on the final account.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
51
Presenting the final account
You or another nominated person should personally present the final
account to the client. For you to be paid quickly and in full, it is your
responsibility as the builder to present a final account that is simple in form
and sequence and easy to read and understand. Long paragraphs of
descriptive prose should not be included in final accounts. Each item should
be listed. The presentation of the final account needs to be made without
contention and without opportunity for the client to delay payment by
argument. No item of claim should be in dispute at final account time.
This is also the time to ensure that all handover items such as warranties, asbuilts, tagged keys, and maintenance and operation manuals are completed
and passed on to the client.
On the following page, an example of a final account is shown.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
52
Figure 9 Final account
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
53
Retention and defects liability period
The defects liability period is the time after practical completion (generally
13 weeks in residential construction) when the builder is responsible to
rectify any defects that become apparent. For that period of time, the client
holds retention. Retention is a sum of money which is deducted from
payments to the builder during the course of construction to ensure the:

builder proceeds with the job diligently

builder rectifies any defects during the course of construction

client has some compensation should the builder default on the
contract.
As described previously, the most common arrangement for retention is that
retention is deducted from progress payments at the rate of 10 per cent until
the fund reaches a maximum of 5 per cent of the contract sum. At practical
completion, 2.5 per cent is refunded to the builder, with 2.5 per cent
remaining in the fund until the end of the defects liability period. The
remaining 2.5 per cent is taken as 2.5 per cent of the adjusted contract sum
(that is the original contract sum plus or minus any variations). For example,
for a contract sum of $100, 000, the following would apply.
Progress
payment
Amount
claimed
Retention
Payment received
1
$20,000
$2000
$18,000
2
$20,000
$2000
$18,000
3
$20,000
$1000
$19,000
4
$20,000
NIL
$20,000
5
$20,000
NIL
$20,000 + $2,500 retention released on
practical completion
As 5 per cent of the contract sum is $5000 and 2.5 per cent is released on
practical completion, $2500 is held until the defects liability period has
expired.
Note that the current Residential Building Contract published by the Office
of Fair Trading does not contain a retention clause. This is because the
Home Building Act 1989 requires the builder to provide home warranty
insurance.
Generally, a contract requires the client to open a joint bank account in the
names of the client and builder. All retention monies are deposited into this
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
54
account and the interest accrued is usually shared equally between the client
and the builder upon satisfactory completion of the contract and the
expiration of the defects liability period. Builders are generally not
signatories to the retention bank account.
Once the defects liability period has expired and provided any defects of the
outstanding defects have been satisfactorily rectified, a written request in the
form of a letter or invoice should be submitted to the client to secure the
release of the outstanding retention. On the following page is an example of
a letter that could be used to request balance of retention.
As a builder, you are also required to hold retention on your subcontractors.
An identical retention clause used in the head contract should be included in
your subcontractor agreements.
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
55
Figure 10 Retention release letter
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
56
Summary
The success of contract administration depends on effective communication
between all parties involved. The contractual parties must ensure that the
lines of communication are established and kept open throughout the
contract period. The fundamental aspect to create and maintain a workable
relationship between the client and builder is central to the completion of the
contract to the satisfaction of all parties.
Satisfied clients create opportunities for future work by recommending you,
the builder, to new clients.
While much of what we do as builders in contract administration is tried and
tested, there is still an element of human nature involved and you cannot
rule out a clash of personalities that can make your work environment very
difficult. It is important that you remember this, as hindsight is quite useless
in ensuring the success and continuation of your organisation.
Activity 1
To answer the following questions, you will need a form of standard contract (such as the
Home Building Contract for work greater than $25, 000 published by the Office of Fair
Trading).
1
Who must get a copy of the signed contract and its associated documents? How long is
allowed for this to be done?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
2
The owner of the property must sign the contract to confirm they have received a
special document. What is the document and what does it contain?
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
3
Under the Home Building Act 1989, what does the statutory warranties clause require
the contractor to provide?
Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes
57
_________________________________________________________________________
_________________________________________________________________________
4
Who should pay security deposits to authorities?
_________________________________________________________________________
_________________________________________________________________________
5
When can a contractor cease or suspend works onsite?
_________________________________________________________________________
_________________________________________________________________________
6
Give examples of items considered ‘prime cost’ items.
_________________________________________________________________________
_________________________________________________________________________
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7
What must be included on progress claims to ensure they are paid as per the terms of
the contract?
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_________________________________________________________________________
_________________________________________________________________________
8
What must the client be given on receipt of their final payment?
_________________________________________________________________________
_________________________________________________________________________
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Combined Units of Competency: CPCCBC4009B - Apply Legal Requirements to
Building and Construction Projects, CPCCBC4003A – Select and Prepare
Construction Contract, CPCBC4024A - Resolve Business Disputes