Every year hundreds of thousands of contracts are entered into for building work in Qld and throughout Australia.

Selecting the right building contract for your project can be difficult as there are many contracts to choose from. But which building contract is best suited for your development?

In this blog, Director and Development Manager, Dan Everett from EVERETT Property Development Management runs through:

1. Commonly used building contracts in the property industry
2. Building contracts EVERETT is using for townhouse, apartment, commercial and subdivision developments.

Being a registered architect Dan Everett has delivered developments with architect administered building contracts as well as superintendent administered contracts. Dan shares his insights in this blog.

Types of Building Contracts

The type of building contract EVERETT use on projects vary considering to the value of work and project type (renovation, subdivision, multi-level units, retail etc.) as well as other key development risk factors.

Australian Standards

The Australian Standards (AS) suite of building contracts (along with various forms for associated works and services) is prepared by the Standards Australia Committee. Many of these Australian Standard contracts were drafted 10 – 20 years ago, so there is a level of amendment that is required for these contracts to keep up to date with the regulations of today.

Common Australian Standard contracts you will see in industry are:

• AS4000-1997 General Conditions of Contract – utilised for traditional style builds
• AS4902-2000 Conditions of Contract for Design and Construct – utilised for design and construct builds (D&C)

Why use Australian Standards Contracts?

Generally, this suite of contract is the most tried and tested contract in the Courts today. The construction industry is familiar with the Australian Standard contract suite and a well drafted Australian Standard contract may save you the heart ache in the long run (for both the Principal and the Contractor).

The principal is required to have a Superintendent involved on AS4000, AS2124, AS4902, AS4300 contracts for administering the contract.

Should you require a Superintendent – EVERETT Property Development Management can assist with the drafting of your building contract with your chosen construction lawyer and assist with tendering to builders and administering the contract throughout the construction phase.

 ABIC

The Australian Building Industry Contracts (ABIC) are jointly published by the Australian Institute of Architects and Master Builders Australia. ABIC contracts are intended for use in building projects where an architect administers the contract.

Common ABIC contracts you will see in industry are:

• ABIC MW Major Works – utilised for non-housing or non-domestic projects
• ABIC MW H Major Works – utilised for housing projects
• ABIC SW Simple Works – utilised for non-housing projects
• ABIC SW H Simple Works-Housing – utilised for housing and domestic projects

 Why use ABIC Contracts?

ABIC contracts are generally used for luxury home builds. Home builders in the industry are familiar with utilising the ABIC and Master Builder style contracts.

If you are undergoing a $1 million dollar construction build, Architects will generally utilise an ABIC style contract as they administer these contracts.

Master Builders

Master Builders Australia Ltd and its (State-based) member associations produce standard contracts for various purposes. Master Builders recommends the use of certain Australian Standards and the ABIC suite but also has its own contracts.

Common standard form contracts you will see in industry are:

• DECON 2013 Lump Sum Contract – utilised for design and construct projects. These types of contacts when used are heavily amended and generally accompanied by special conditions.
• Commercial Building Contract – lump sum contract to be used for the construction of commercial building work with or without a Principal’s agent.

 Why use Master Builders Contracts?

Master Builders Contracts are generally used for domestic renovations. These contracts are between the Contractor and the Residential Owner.

Other standard forms

There are numerous standard forms produced apart from those discussed above. Many public authorities and local government bodies have their own standard forms.

CASE STUDIES

Mixed-use Development (Residential & Commercial)

A developer had been delivering apartment and townhouse projects for 10+ years with its in-house construction team. So, variations and disputes where essentially non-existent between the principal and contractor and the building contract stayed in the draw.

The developers next project consisted of a mixed-use 36 apartment development with multiple ground floor retail tenancies in the vicinity of $10mil construction value.  This development was the first project the developer was to deliver using a third party contractor.  So, the world of contracts came into play and became a reality for this developer.

The developer contracted with the builder under a Master Builders D&C contract.

The builder was nominated as the superintendent on the project and the principals project requirements (PPR) was poorly drafted.

The builder being the superintendent was administering approval for their own variations and this drew the developers attention.

The developer had multiple issues and had to nominate a third party superintendent and quantity surveyor as well as process through claims and disputes.

Given the developers situation, project value and type of development (mixed-use), EVERETT would have utilised an amended Australian Standard AS4902 contract and tailored a PPR specifically for the project.   EVERETT would also be nominated as the Superintendent under the contract and process any variations proposed by the developer or builder.

Contact EVERETT Property Development Management for Superintendent and Project Management services.

Land Subdivision

Common contracts that are used when undergoing a larger land subdivision:

• AS2124-1992 General Conditions of Contract – utilised widely for a construct only project.
• AS4000-1997 General Conditions of Contract – the AS4000 supersedes the AS2124. Many principals will not agree to sign an AS4000 or AS2124 in its unamended form. Instead they will often incorporate amendments or special conditions.

Some things to consider when drafting a contract is to ensure your contractor has the right insurance. For example, if your contractor is constructing a retaining wall under a Design & Construct contract, they need to provide Form 15 and Form 16s. That civil contractor should also have professional indemnity insurance. Based on experience, there are over 50% of civil contractors that don’t have this.

If you’re concerned about what your contractor is saying – don’t just seek advice from your consultants, seek advice from your construction lawyer.

Other Key Factors    

Factors to take into consideration when choosing the right construction contract are:

• Risk Transfer
  • Is the developer or builder the appropriate party to carry the risk?
• Finance (equity / debt)
  • Does your financier require a specific form of contract?
  • Does your financier require a Development Manager to tender the project to obtain multiple building quotes?
  • Does your financier require a third party Superintendent?
• Builders Expertise
  • Does your builder have the expertise / resources to deliver your project?
• Consultants Expertise
  • Depending on whether your project is contracted under a traditional or Design and Construct contract – you want to be working with a team who understands the different delivery forms. For example, if the project was a traditional delivery project, you would want to work closely with consultants who have a strong background in delivering traditionally and who can prepare suitable tender and construction documentation without the expertise or guidance from builders to bolster their experience.
• Market Expectation
  • Depending on the type/value of your project

e.g. if you’re doing a $30,000 – $50,000 subdivision and provide the contractor with an amended Australian Standard D&C contract – you may actually scare off your contractor. If you were undertaking a 20 townhouse development, the builder will be expecting an Australian Standard form of contract.

• Project Size / Value
  • Depending on the project size and value of the project, will depend on the contract type.

For example – if you were undertaking a $35,000 – $50,000 land subdivision, it would not be feasible to draft an AS contract.

 Key Takeaways

When choosing the right contract for you, ensure you consider whether any amendments may be needed as many of the contracts are over 10 years old. For example, you may wish to alter the GST, Risk Profile, Proportionate Liability, Personal Property Security, Work Health and Safety etc.

Familiarise yourself with the details of the contracts so that you understand your rights, obligations, entitlements, liabilities etc.

 

For assistance with drafting contracts, obtaining building quotes, or superintending for your next project, get in touch with Dan Everett of EVERETT Property Development Management

mail@daneverett.com.au