Building Industry Frequently Asked Questions – HIA

Q1. Can I withhold a progress payment from the Builder?

First, you need to establish if the contract permits you to withhold, off-set or cross-claim. Many building contracts only permit the owner to consider
this type of action at practical completion.

You should always seek your own legal advice before deciding not to pay a progress claim as potentially you may repudiate the contract. This could lead
to substantial and unnecessary additional costs to you.

In most cases, the parties negotiate a payment for the work completed and only withhold payment for uncompleted work. Usually, by the time payment is required
the build has progressed well into the next building stage and the owner is not disadvantaged because the value of building work completed exceeds
the payments made.

Always put your concerns in writing to the builder and seek a written reply. Remember building contracts are legal documents and if you do not understand
them it is time to call your own solicitor.

Q2. What is the meaning of Practical Completion?

Practical Completion is the stage when the works have been completed in accordance with the contract. Most contracts define the meaning of practical completion
and in some states, there is a statutory meaning which building contracts must comply with.

Generally, practical completion means the works are completed to all relevant statutory requirements (apart from minor defects or minor omissions) and
is reasonably suitable for habitation. Some examples of minor defects or omissions may include paint chips or missing cupboard door handles.

It is important to realise that practical completion and hand-over do not necessarily occur at some time. The builder will call practical completion and
set down handover to be sometime later so the owner has an opportunity to inspect the works and record defects.

Q3. What action can I take if the Builder goes over time (ie has not reached Practical Completion by the end of the Building Period)?

It depends on the contract. Some contracts define liquidated damages for late completion and some contracts do not. The agreed completion date may extend
if the builder claims allowable extensions of time in accordance with the contract. Wet weather, materials hold-ups, variations to the work and disputes
are some genuine reasons for extending the building time.

Some contracts give the owner a right to require the builder to give his/her best estimate of completion. Where the parties agree the building is over
the building period, then the owner may be entitled to liquidated damages if defined in the contract. Owners should contact their solicitor where damages
have not been agreed.

Q4. What action can I take if the Builder does not commence Building Works when supposed to?

The start date for most home building contracts is reliant upon a number of preconditions being met (plans, council approval etc). Once these preconditions
have been met, the builder must start by the time specified in the contract, or in some cases a time agreed to by the parties.

If the builder does not start the works then there is a potential breach of the contract and you should refer to the options available to you for potential
breach of contract.

You should always write to your builder first and seek a written response. In all cases, you should seek independent legal advice before taking action
so as not to repudiate the contract.

Q5. Can the Builder increase the Contract Price?

Most contracts have provisions for variation, prime costs and provisional sum items. When a situation arises which is not the builder’s fault then the
builder does have a right in most cases to increase the price of the home. However, state laws limit the circumstances and the amount by which a builder
may increase the price.

Further, in all cases, the builder must follow the variation procedure set out in the contract.

Finally, provisional sums and prime costs may increase the price of the contract (without variation) where the owner selects products and services which
cost more than the allowances provided for in the contract.

Q6. What is Warranty Insurance and what does it cover?

Warranty insurance in some states is called Statutory Insurance or Home Indemnity Insurance. The insurance coverage varies widely, depending on where you
live. In most states, except Queensland, it is considered as “last-resort insurance” and only covers situations where the builder abandons the work
for reasons of death, bankruptcy or injury. In other states, like Queensland, the insurance covers the owner against major defects to the work for
a period of six years and six months.

Warranty insurance should not be confused with Contract Works and Public Liability Insurance, which is sometimes called Builders All Risk insurance. This
insurance covers fire, damage, theft and injury during the construction period while the builder is in possession of the building site.

Q7. What is the dispute resolution clause for and how do I make use of this?

Most home building contracts contain a dispute settling procedure. In some states, parties have no option and are referred to a government sponsored Tribunal
(people’s court). Where dispute settling clauses are permitted, the parties are given a number of options to choose from to settle their dispute.

Q8. When can the builder make a variation to the contract?

Most contracts allow the owner and builder to make requested variations. The contract sets out a process for each party to request a variation. Where a
party may not agree and disputes a variation then the parties are referred to the dispute procedure under the contract.

Some states require the parties to sign a variation before proceeding. However, this is not always possible during a critical building process and the
contract allows for this situation.

Remember that provisional sums and prime costs are not usually defined as variations and the contract sum is adjusted without a variation being required.
The contract will usually set out the requirement for payment of variations. Some state laws permit a variation claim to be made as soon as the work
is started, however, it is not unusual to be invoiced either at the next progress payment stage or at the end of the contract.

Q9. When can I request a variation to the contract?

A variation can be requested at any time during the contract and parties should refer to the variations clause in the contract. Generally, when you request
a variation, the builder has the option to agree or refuse to carry out the variation.

Q10. What are Prime Cost Items?

A Prime Cost (PC’s) is an agreed, reasonable estimate for materials (fixtures and fittings) which you may not have selected at the time of entering into
the contract. Usually, PC’s are one-off items, however, they can relate to a large number of items when the labour cost remains constant. Examples
may include kitchen and bathroom items.

Q11. What are Provisional Sum items?

A Provisional Sum (PS’s) is a reasonable estimate for material and labour of a particular part of the home which the builder cannot give a definite price
for. The reason being the owner had not decided what the want at the time of entering into the contract. Examples are pool and landscaping.

Q12. Does the builder need to provide evidence for increases in Prime Cost and Provisional Sum items?

The builder is required to quantify the extra claim if requested by the owner. That is, to give evidence of the cost of a prime cost item or a provisional
sum item when claiming payment for that item.

Q13. How much deposit can the builder charge for home building work?

If a deposit is payable, make sure it is within the legal limit. Check the table below for the maximum amount you should be paying according to your state.

  • QLD:
10% if the contract price is less than $20 000; 5% if the contract price is $20 000 or more.
  • VIC:
10% if the contract price is less than $20 000; 5% if the price is $20 000 or more.
  • NSW/ACT:
10% if the contract price is $20 000 or less; 5% if the contract price is more than $20 000.
  • TAS:
10% if the contract price is less than $20 000; 3% if the contract is $20 000 or more.
  • SA:
Apart from certain fees the renovator has to pay in advance to a third party, the law prohibits the taking of any deposits in excess of $1000.
  • WA:
Deposit is not to exceed 6.5% of the contract price.
  • NT:
No limit.

Q14. If I enter into a preliminary agreement do I have to sign a contract with the builder?

No, you don’t have to sign a building contract. A preliminary agreement is a separate contract signed by you and the builder to carry out preliminary work.
The type of work is usually defined on the agreement and can include things like soil tests, plan preparation, engineering, foundation design and site

Although you may have a contract for the builder to carry out preliminary work you may not have a right to use the plans with another builder for reasons
of copyright. If you decide to build with another builder then may be required to purchase that copyright to proceed.

Some preliminary agreements give the owner a discount if they proceed with that builder.

Q15. Can the builder claim interest on late payments?

Yes, most contracts give the builder a right to charge interest on late payment the same as any other commercial transaction. The contract will refer to
the clause that relates to default interest. Generally, you must pay the builder default interest on any amount that is unpaid if it is over the contracted
payment date.

Q16. What happens if I notice defects after practical completion has occurred?

The defect liability period under the contract is different from the statutory Warranty defect period.

The contract will set out the builder’s defect liability period which can range from three to six months from practical completion.

Some states require that the builder rectifies major defects for a period of six to 10 years and have a warranty or statutory defect insurance to protect
consumers. Where warranty insurance does not cover the major defects, then owners may need to pursue their statutory rights in the designated building
Tribunal or Court.

Some contracts define these warranties periods within the contract. It is important to remember that normal wear and tear, defects in things that are covered
by their own manufacturers’ warranties such as stoves, and items requiring normal maintenance from time to time, are not defects which the builder
is responsible for coming back and fixing.

Q17. Is your builder a member of the HIA?

An HIA member check can be made by calling the HIA consumer hotline on 1902 973 555. HIA can advise the member’s status and if their membership is current.
*Calls are charged at $2.75 per minute. HIA can not provide information as to the member’s building history. This information can only be provided
by the relevant government department such as Consumer Affairs or a building authority.

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