The Building Work Contractors Act 1995 (SA) requires that a building work contract has certain elements.
Building Indemnity Insurance
Section 34 of the Building Work Contractors Act 1995 (SA) requires builders carrying out domestic building work (where the contract price is over $12,000) to hold a policy of insurance in relation to that building work. A copy of the certificate of insurance must be supplied to the building owner and to the relevant Council at the time of applying for planning approval. Building work cannot commence without the insurance being in place.
Building indemnity insurance covers a building owner for defective building work up to an amount of $150,000 in cases where the builder dies, disappears (or is otherwise unable to complete the work) or becomes insolvent.
Other Requirements of a Building Work Contract
The formal requirements for a domestic building work contract where the value of the work is over $12,000 are set out in section 28 of the Building Work Contractors Act 1995 (SA) and include the following:
1. Be in writing and be legible
2. Set out all the terms of the contract
3. Details about the builder, such as the licence number
4. Signed by both the building owner and the builder.
A signed copy of the contract along with the prescribed notice under section 28(f) of the Building Work Contractors Act 1995 (SA) (which includes important information about the contract) must be given to the building owner as soon as possible following signing. This is called a Form 1 – Your Building Contract: Your Rights and Obligations.
A building contract will include certain terms which describe how the contract price is calculated. These terms include:
- Fixed price lump sum – the most common type. The cost of the work is fixed, although the cost of some elements may vary depending on the actual cost. Variations sought by the owner must be agreed in writing
- Rise and fall clause – the cost is not fixed and will rise and fall according to the actual cost to the builder. It is lawful to include a rise and fall clause if there is a completion date, although unless the contract provides for an extension of the completion date in certain circumstances [ss 29 (3) and (4)]
- Cost-plus – the builder will add a margin to the actual cost of the building. In South Australia the margin is limited to 15%.
The contract should include a start and finish date, or at least an estimate of the number of days that it will take to complete the work.
If the value of the work is less than $12,000, it is still a good idea to have a written contract so that both the building owner and the builder are aware of their rights and obligations.
If a contract contains terms that are harsh or unconscionable, a party to the contract may apply to the Magistrates Court for appropriate relief [s 38].
A building owner has 5 clear business days after the making of the contract in which to terminate the contract. The Act requires a building owner to provide a builder with written notice of the intention not to be bound by the contract, and the contract is considered to be terminated at the time the notice is posted or served [s 36].
If a building owner wants to terminate the contract, before the end of the 5 day period, they must:
- Deliver the written notice to the builder by hand; or
- Post the written notice to the builders address by certified mail.
The building owner may also terminate the contract prior to completion if the builder has not complied with the relevant provisions of the Act [see s 36 (5)(b)]. In this case, legal advice should be sought prior to cooling off, because there may be ramifications in relation to any unpaid work or legal costs incurred.
Progress payments are interim payments for the building work, made over the life of the contract, and are usually expressed as a percentage of the total contract price.
A builder must not demand or request payment unless it is a genuine progress payment in respect of work already performed under the contract [s 30].
The building owner is not obliged to make the payment in the absence of a written request by the builder for the progress payment [s 30 (3)].
Certain advance payments are authorised under the Building Work Contractors Regulations 2011 (SA):
1. A deposit of $1,000 if the value of the work is under $20,000
2. A deposit of 5% of the value of the work if it is over $20,000
3. Certain preliminary work including:
a. The premium for building indemnity insurance; or
b. Third party costs for professional services such as engineering, drawing or surveying.
A building owner should read the contract carefully to find out how the contract might be varied. Building a home can take some time, and unforeseen circumstances can affect many aspects of the contract including price and completion date.
Usually the contract can only be varied if both parties agree in writing, although minor changes may occur without the owners consent. Remember that variations may result in increased costs, and a building owner should ensure that there are sufficient funds to cover changes. Attach copies of the variations to the contract for future reference.
Section 32 of the Building Work Contractors Act 1995 (SA) implies certain statutory warranties into every building work contract. These include:
- The building work will be carried out in accordance with accepted trade standards and according to the agreed plans and specifications;
- The materials will be ‘good and proper’;
- The building work will be carried in accordance with statutory requirements;
- The work will be carried out with reasonable diligence;
- That the house will be fit for human habitation;
- The building will be suitable for the purpose, as long as the purpose was made known to the builder.
There is a strict time limit of 5 years on the commencement of court proceedings for a breach of the statutory warranty. Section 73 of Development Act 1993 (SA) provides that no action may be brought for defective building work after 10 years from the completion of the work.
The statutory warranties are passed on to subsequent owners of the property [see Building Work Contractors Act 1995 (SA) s 32 (6)].
It is important to talk to the builder as soon as you notice any problem. Many issues can be resolved quickly before they escalate if you are prepared to talk to the builder.
If a building owner is unable to resolve the matter by negotiation with the builder, they should seek legal advice. A building owner can also contact Consumer and Business Services for assistance, which may assist in negotiations with the builder, or if necessary convene a conciliation conference under section 8A of the Fair Trading Act 1987 (SA).
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.