What a Building Contract Should Include in NSW

A building contract is a bundle of documents: the legal terms, the drawings, the specification, the allowances and the payment schedule. The disputes I get called into almost never come from an exotic clause. They come from something ordinary that was missing, vague or unrealistic on the day of signing. So here is the anatomy of a residential building contract that protects you, part by part, with what NSW law requires and what I look for beyond the legal minimum.

For contracts over $20,000 the Home Building Act 1989 prescribes much of this (section 7 sets the mandatory contents). Between $5,000 and $20,000 a simpler written contract is still compulsory. Everything below assumes the full contract, because that is where the money is.

1. The parties and the licence, exactly

The contract must name both parties, use the builder's name exactly as it appears on their contractor licence, and state the licence number. Verify it on the NSW licence register. Mismatched entities are how people end up suing a $2 company while the builder's real business carries on trading.

2. The drawings and specification, as contract documents

The contract must describe the work and include the plans and specifications. Every item they pin down is priced competitively on tender day. Every item they leave open is priced later, by one builder, with a margin, when you cannot say no. It is also the reason architect documented projects often land closer to their contract price than base priced ones.

3. The price, on the first page, with every way it can change

The law requires the contract price displayed prominently on the first page, and if the price can change, a warning next to it explaining how. Read that warning as carefully as the price. The usual mechanisms are provisional sums, prime cost items, and rise and fall clauses. None are automatically sinister, but each one is a place the fixed price can move, so each one deserves a question before signing rather than after.

4. Realistic allowances (PC and PS schedules)

Prime cost items are products not yet chosen (taps, tiles, appliances). Provisional sums are work not yet priceable (excavation is the classic). Both appear as allowances, and if the allowance is low, you pay the shortfall plus the builder's margin on it. Compare allowances across quotes line by line, and shrink them by choosing real products before signing. The full mechanics, including the worked numbers, are in provisional sums and prime cost items explained.

5. The builder's margin, written in as a number

The builder's margin is the percentage added to cover overheads, supervision and profit. Section 4 is where most owners first meet it, as the amount added on top of an allowance overrun, but it reaches further than that. It is the multiplier on every variation for the life of the job, which is why it belongs in the contract schedule as a stated figure.

Leave it blank in an HIA contract and the default is 20 per cent. Published industry figures put residential margins at roughly 15 to 25 per cent, with volume builders at the lower end, custom and renovation work at the higher end, and Sydney builders above regional ones.

Three things to settle before signing:

• What the percentage is applied to. Margin and markup are different calculations and builders use the words interchangeably. Twenty per cent added to cost is a 20 per cent markup, which works out to a 16.7 per cent margin on the final price. A genuine 20 per cent margin needs a 25 per cent markup. Ask which base your contract uses, because on a $100,000 variation the two readings are $5,000 apart.
• What it applies to. Variations, provisional sum adjustments and prime cost adjustments normally carry the margin. On an allowance overrun it should apply to the excess only, not to the whole item, and the maths is worked through in provisional sums and prime cost items explained.
• Whether the rate is consistent. One rate across variations and allowances is easier to check than a schedule with several. If the contract carries more than one, note which applies where.

The margin is one of the few figures you can compare directly across tenders, and a lower one is a real saving to you on every variation and every allowance overrun that follows.

6. Excavation priced as rates, not just a lump sum

Excavation is the provisional sum most likely to move on a Central Coast block, because Hawkesbury sandstone runs close to the surface across much of the Coast and rock costs several times what soil costs to shift.

Published cost guides put straightforward soil excavation at roughly $50 to $120 per cubic metre and rock at $50 to $200 and beyond, with a rock hammer at about $180 to $320 an hour against $110 to $160 an hour for a 3 to 5 tonne excavator moving soil. Cartage runs by the load, commonly $300 to $600. Those are orders of magnitude for sanity checking a quote, not prices for your block.

What protects you is a schedule of rates, not a bigger lump sum: an assumed volume, a stated rate per cubic metre for soil, and a separate stated rate for rock. When the excavator finds more than the contract assumed, the adjustment is then arithmetic against a rate you agreed to, rather than a price set after the machine is already on site.

Three things to pin down:

• How rock is defined. This is where excavation disputes actually start. A workable definition names a machine and a method, along the lines of material that cannot be ripped by an excavator of a stated size, so classification becomes a test both parties can apply on the day.
• What happens to the spoil. Clean virgin excavated natural material is comparatively cheap to place and can be exempt from the waste levy. Spoil mixed with old fill, building rubble or asbestos becomes landfill, charged by the tonne at general waste rates that run into the hundreds. Ask which of the two the allowance assumed, particularly on a site that has been built on before.
• Who carries the volume risk. An assumed volume with agreed rates splits it sensibly between you and the builder. An open ended allowance adjusted at cost plus margin leaves all of it with you.

Get a geotechnical report before you sign, around $2,000 on a typical block, with boreholes positioned where the house will actually sit rather than wherever the rig could park. Rock found in that report is priced into the contract while you can still compare builders. Rock found after signing is a variation, with the margin on top. Geotechnical firms I have found reliable are on my consultant list.

7. A progress payment schedule tied to completed work

Section 8A of the Act allows two shapes of progress payment: a set amount on completion of a stage described "in clear and plain language", or actual costs incurred with invoices. What you want is boring and specific: deposit (capped at 10%), then stages like slab, frame, lockup, fixing, completion, each payable when that work genuinely exists. What you do not want is payments tied to calendar dates, or a schedule weighted toward the early stages. Keep the final payment meaningful, because the last cheque is your only real leverage on the defect list.

For a worked example, a client has let me publish every payment on her build, with the stage each one was tied to and the date it was due.

8. The statutory warranties, and what they are worth

Contracts over $20,000 must set out the statutory warranties from section 18B: due care and skill, conformity with plans, good and suitable new materials, legal compliance, reasonable time, and a dwelling fit for occupation. They apply even if the contract stays silent, run for 6 years on major defects and 2 years on the rest, and cannot be contracted away. The practical detail, including the 6 month notice duty that catches owners out, is in my pre-signing questions guide.

9. Insurance, attached, before any money moves

The contract must show the cost of Home Building Compensation cover, and the builder must hand you the actual certificate for your job before taking a cent, deposit included. Staple it to the contract. While you are at it, sight their public liability and workers compensation certificates too.

10. The cooling off statement

Contracts over $20,000 must contain a conspicuous statement of your cooling off rights: 5 clear business days from receiving your signed copy. If the statement is missing, the law gives you an extended right to rescind once you find out. Do not agree to waive the period, and be wary of a builder who asks you to.

11. A variations clause with signatures in it

Variations must be written, priced (cost and time), and signed by both parties before the varied work proceeds. On site, the temptation to nod along to a quick change is enormous, and every one of those nods becomes a disputed invoice at the end.

12. Liquidated damages and a real construction period

The contract should state the construction period, a fair allowance for wet weather (on the Central Coast, generous), and liquidated damages that reflect what a late handover actually costs you per week. A builder who will agree to a real number believes their own programme. Ten dollar a week damages are a red flag.

13. The compulsory paperwork riders

Contracts over $20,000 must include the official 17 item owner checklist and information about the Security of Payment Act, and you must be given the Consumer Building Guide before signing anything over $5,000. You must also receive your signed copy of the contract within 5 business days. The official checklist is genuinely good; if you can answer yes to all 17 items, you are ahead of most people who build.

14. Use a recognised form, then still read it

HIA, Master Builders, ABIC and the free Fair Trading contract are all battle tested starting points. What matters is the schedule entries and special conditions typed into them, because that is where a standard contract stops being standard. If any clause lets the builder change the price at their discretion, guts the damages, or makes payments due on dates, negotiate it out before signing.

A contract like the one described above will not stop things going wrong, but it decides who carries the cost when they do, and it settles most arguments before they start. If you would like a second set of eyes across a contract and its drawings before you sign, that is part of what I do in a free site assessment, and the rest of the journey is mapped in before you build on the Central Coast.