Sunday, 17 March 2013

Building a New Home in Adelaide - Contracts and Insurance

Once you have found a builder for your new home in Adelaide, there is important information that you need to know regarding your contract with your builder, in terms of insurance, the contract itself, and variations to that contract.  This is the second of three Tradies SA articles that provide new homeowners in South Australia with helpful advice regarding what you can expect from this stage of the process of constructing a new home.

You have decided upon a builder for your new home, and are now at the stage of signing a contract and preparing for the job to begin.  It is important to know what your rights and obligations are, and what you can reasonably expect to find in a contract with any new home builder in South Australia.


When your home is being built, it is usually the builder’s responsibility to take out insurance (although this may depend on the terms of the contract).  However, any items on the site that belong to you are your responsibility.  You should ensure that you take out Public Liability Insurance, to protect yourself should anything untoward happen on the site that could be deemed as being caused by negligence on your part.

Building Indemnity Insurance
If you are having building work undertaken in South Australia that requires Council consent and costs more than $12,000, the work must be covered by Building Indemnity Insurance.  It is the builder’s responsibility to ensure that such insurance is in place before work begins.  Local councils will not grant development consent until they are satisfied that Building Indemnity Insurance has been taken out.

South Australia has in place legislation that provides you with statutory warranty benefits to ensure that the work is undertaken in a proper manner, and as per the plans and specifications.  This also applies to the quality of the materials used during the building process.

Your builder is required to give you a copy of the certificate of insurance, and you should retain this should you at any stage need to claim for a breach of the warranty provisions.

Council Approval
Your local council will need to have granted development approval before work can begin on building your new home.  This approval may require up to six consents, depending on the nature of the development proposal.  

You should not give consent for any building work to begin until you have received your council’s development approval.

Building Schedule
A building schedule is an itemised account of all the items that you have selected to be included in your new home.  A provisional sum schedule states the monetary sums allocated to the fixtures and fittings.

Form 1
In South Australia, your builder must provide you with a Form 1 – Your Building Contract: Your Rights and Obligations, which is the document that includes the details of your contract, and gives you information about your cooling-off rights, warranty rights, building indemnity insurance, deposits and payments.  This will often be printed on the back of a standard building contract and you should read it carefully and retain it for future reference.


Contract Documents
A written contract must be issued for all building work in South Australia worth more than $12,000.  This should be a domestic building work contract for constructing a house.  It must be in writing and be signed by both parties before any building work can begin.  

The contract document may vary in some details, but it should include:
  • the contractual terms in full
  • the drawings and specifications
  • the builder’s name and licence number
Contract terms
It is important to have an understanding of some of the important terms you will find in a domestic building contract, such as:

Fixed price lump sum
A Fixed Price Lump Sum contract is the most commonly used house building contract.  In such a contract, the overall price is fixed with the proviso that some items (which should be clearly listed) may go up or down in price depending on their actual cost at the time of purchasing.

Cost-plus clause
A cost-plus contract means that the builder will charge for the actual cost of the work plus an agreed margin or percentage.  15% is the maximum cost-plus that can be charged in South Australia.

Prime-cost items
Your contract may state that particular items, such as kitchen appliances or bathroom fixtures and fittings are included, up to a nominated value.  The goods that you finally select may, however, exceed that value, in which case you may be required to pay any additional costs as well as a surcharge.

Provisional sums
If elements of the building work are contracted out, it may not be possible for your builder to provide a precise final figure as to the fees a sub-contractor will charge.  In this situation, provisional sums are fair and reasonable estimates by your builder of what those charges will ultimately be.

Signing a contract
Make sure you have all of the relevant documents gathered together before you consider signing a contract.  The contract should include all the points that you have discussed with the builder, as you should not consider promises or verbal agreements as binding.  If there is anything that you don’t understand, or is not what you believe was agreed upon, you should resolve this with your builder before signing.  If you are unable to come to agreement, you should seek the advice of the Office of Consumer and Business Affairs.
Your contract becomes a legally binding document once it has been signed.  You and your builder should initial each page, as well as any alterations or additions.  As soon as possible, your builder should give you a copy of the contract.  Do not give permission for building work to begin until you have received your copy.
It is usual for a builder only to receive genuine progress payments for work that has been done.  However, a builder may request payments in advance for expenses to be paid to a third party.  This might include costs associated with receiving planning approval, paying for building indemnity insurance, or for a surveyor or engineer’s report.  

Aside from these fees, there is a limit in South Australia as to how much a builder can request as a deposit.  5% of the contract price is the maximum that can be charged for the building of a new home.  You should seek advice if a builder requests a deposit of more than 5%.

Cooling-off rights (Building Contract)
Once you have signed a contract, you are entitled to a cooling-off period of 5 clear business days, during which time you can cancel the contract.  Form 1 – Your Building Contract: Your Rights and Obligations explains this and how to go about serving a cooling-off notice.

Progress payments
The terms regarding making progress payments will be outlined in your contract.  Usually, progress payments are made as various stages of the construction work are completed, and are expressed as a percentage of the total price.

You builder should make any requests for progress payments in writing, and you should not make any payments until such a request has been received.  Usually, your lending institution will make arrangements for progress payments to be made.

Contract variations

Whether you or your builder are able to vary the contract will depend upon its terms.  You should bear in mind that variations may alter the cost and the time taken to complete the building work.  Nevertheless, variations are sometimes necessary and unavoidable.

Both you and your builder should sign off on any variations (unless your contract allows your builder to make some types of variation without your approval), and they should be attached to your original contract before you give the builder permission to make them.

If you have no written agreement about any variations, it can be difficult to resolve any disputes that may arise.  Therefore, always insist that variations are put in writing and added to your contract before they are undertaken.

Owner’s variation
It is fairly usual for a homeowner to want to make some variations once construction is underway, but it always important to understand the effect that these will have on the overall cost.  You will need to ensure that you have sufficient funds to cover any increase or that your loan can be extended accordingly.  Also bear in mind how any variations may affect the completion date. 

Builder’s variation
The terms of your contract will determine if you builder is able to request or make variations.  Therefore, it is important that you have a full understanding of this aspect of your contract before you begin.

Start and finish dates
Wherever possible, you should have an actual start and finish date included in your contract.  If it’s not possible to declare an exact start date (because not all permits have been granted, for instance), then the contract should state how the start date will eventually be settled upon.

If a precise starting date cannot be included in the contract, what should be included instead is the number of days that will be required to complete the work (which should take account of possible delays due to weather, holiday periods, etc., and any other reasonable and foreseeable cause of delay).

If you are about to sign a contract to build a new home anywhere in Adelaide or South Australia:
  • ensure that Building Indemnity Insurance has been taken out
  • ensure that Council approval has been given
  • ensure that your receive a written copy of the contract and a Form 1
  • understand all of the terms in the contract
  • understand your cooling-off rights
  • ensure that all variations are agreed and in writing
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