The Builder’s Obligations: some common contract queries

When you enter into a building contract with a homeowner the contract documents provide a record of the agreement you have made by setting out the rights and obligations of each of the parties.

It is important for both you and the homeowner to understand your obligations. Broadly speaking, a builder's obligations under a home building contract are to deliver the works in accordance with the contract documents, for the agreed price and with in the time frame. Builders also have statutory obligations to home owners and these are reflected in the HIA suite of contracts.

HIA often receives queries from builders wishing to clarify their rights and obligations. Several topics that are raised frequently are discussed below, with reference to the HIA HBCA Lump Sum Building Contract (the contract).

Before you sign

Before entering into the contract you should ensure that you have capacity to undertake the work, including:

• the ability to obtain home indemnity insurance (HII) for the works; and
• You have allowed sufficient time to commence and complete the works.

You are required to give the owner:

• a copy of the Notice to the Home Owner prior to signing.
• a copy of the signed contract, including all of the contract documents, such as drawings and specifications. 

When does the contract become binding?

There is no statutory cooling off period for building contracts in WA.  Once the contract is signed it becomes binding on the parties. The contract is binding regardless of whether you have accepted a deposit or whether finance has been approved.

In the event that the owner is unable to obtain finance within the agreed timeframe or otherwise provide you with proof of its capacity to pay for the work, you have the option to terminate the contract.

When is the HII certificate provided?

There is no set timeframe for providing the HII certificate, However you must provide the owner with a copy of the HII certificate prior to commencing any works under the contract or requesting any payments, including payment of the deposit.  This could happen shortly after contract signing or much later, depending on the progress of the works at contract signing and the time frames agreed by the parties.

Provisional Sums and Prime Cost Items

The law in WA states that provisional sums and prime cost items in residential building contracts must not be understated. This means you must strike a careful balance between allowing sufficient funds to carry out the work and submitting a competitive price. 

HIA also has further information sheet on provisional sums and prime cost items that may assist.

Time for completion

Where an unforeseeable  delay has arisen it is important that you request an extension of time. A non-exhaustive list of delay events is included in the contract.

If you do not request an extension of time, or the claim is not made in accordance with the contract, and you do not complete the work on time, the owner make may a claim against you for 'damages’. Damages can include additional costs incurred by the owner due to late completion, such as additional rent and storage fees.

You can purchase an extension of time form from Contracts Online.

Termination

There are certain circumstances under which you can terminate the agreement and these are listed in the contract. The contract may also be terminated if both parties agree.

Termination must be carried out carefully and is usually used as a last resort. When terminating it is important that you have a valid reason and that the correct processes are followed to ensure your attempts to terminate don’t result in wrongful termination (breach of the contract).

Termination is a serious step and we recommend you seek legal advice prior to taking any action.

If you require assistance with contract interpretation or are unsure of the next steps to take, the HIA Workplace Services team can help.