Contract Conditions – Page 2

Builder’s Christmas Shutdown

Every Year I hear complaints of “Everything has stopped on my House Build for a month”

What can make it worse is when the builder ‘Tries’ to claim an ‘Extension of Time’ for the Build.

What Does The Contract Say?

Well I have looked through the HIA Contract for my last build and here are the relevant parts.

Schedule 1*

Schedule 1 is the place that the builder states the time for completion of the build.

It specifically provides the builder with the opportunity to show how many days are included for; Weekends, public holidays, rostered days off, and other foreseeable delays. (Christmas, and Easter, shutdowns come round every year! . . . .You can’t tell me they are not foreseeable!)

Builders Right to Extensions of Time (Clause 34*)

Acceptable reasons for ‘Extensions of Time’are:

The owner requests a variation.
Suspension due to the Owner Breaching the Contract.
Inclement Weather. (Bad weather during a foreseeable closure doen’t count! . . . unless it is at the end of the period and leaves the site too wet for a quick start.)
Disputes with neighbours that are not the builders fault.
Civil Commotion or industrial action (Annual shutdowns are not industrial action!)
Anything not done by the owner or their agents.
Approval delays that are not the builders fault. (It is foreseeable that there may be a delay in getting approval over the Christmas and Easter periods!)
Anything the builder can’t control (By making appropriate allowance in Schedule 1 the Builder controls the situation!)

What You Can Do

Before Signing The Contract

Ask the Builder to provide in writing the details of the allowance for foreseeable delays to Schedule 1*

If The Builder Claims For A Christmas, Or Easter, Shutdown Extension.

Write back stating “Building Industry Shutdowns during the main Holiday Periods are entirely foreseeable events that should have been allowed for in the Build Period”.

* In your contract documents the numbers may be different but you should find similar sections.

See Contract Conditions for more posts

Specification

Control of costs is really important if you don’t want to run over budget on your new home.

One of the key areas in controlling costs is understanding the specification of the house.

One of the traps that many people fall into is paying a deposit based on an initial specification, They are then hit with major costs down the track to upgrade to the standard they want.

There are really 3 stages to the Specification of a New House.

Basic Stage

This covers the building of the main structure of the house and includes:

Floor Plans
External Elevations (what the house will look like)
Foundations
Construction (eg Brick Veneer , Double Brick. timber clad, etc)
Windows
Basic Insulation

Detailed Design Stage

This is when the things like fittings are detailed such as:

Kitchen cupboards and counters
Cooktops and Ovens
Bathroom Fittings
Tiles
Electrical Fit out

Watch out for the builder including Prime Cost Allowances

There are extensive checklists in the Guide to Selection that will help you through this stage.

Finishing

These are the finihing touches which may be included by the builder, but are usually done by the homeowner after the move. These typically include:

Driveways
Paths
Gardens
Pergolas
Pools
Outdoor Kitchens

If these are the things that you want included in your new house you need to be aware of the likely cost and make sure that you have enough left in your budget.

See Budget for similar posts

New House Guarantees and Warranties

I’m always a bit suspicious of guarantees and warranties!

In my opinion most Guarantees are really just a piece of paper that explains how the Guarantor will fulfill their legal liabilities. (In some cases they explain a process which is less than fulfilling their liabilities)

Bearing in mind I’m not a lawyer this is how I see the situation with regard to new house ‘Guarantees’ and ‘Warranties’

Standard of Build

Under the ‘Standard Domestic Building Contracts’ the builder is required to build a house that is ‘suitable for purpose’.

That is it complies with the building codes and regulations and will not suffer structural damage or have any other major defect.

If you suffer a problem you can go back to the builder under the contract. In effect you have an Implied Guarantee.

If the defect was as a result of his construction or the materials they supplied, the builder is liable to remedy as long as the time since the contract was completed is ‘Reasonable’.

What is Reasonable?

Well it will depend on the State laws but in Victoria Section 134 of the Building Act 1993 places a limit of 10 years on the builders liability.

Previously builders were being chased for problems arising 20 or 30 years later, which was considered unreasonable. (If you want to see how unreasonable some homeowners can be see this link: Unreasonable Behaviour)

Builders Warranty Insurance

One source of confusion is that the Builder Warranty Insurance for new houses only lasts for the following periods post completion (or contract termination):

6 years for structural defects
2 years for non-structural defects.

This warranty insurance can only be claimed by the home owners, if the builders can’t meet their liabilities through death, disappearance, or been declared insolvent. . . . If the builder is still trading its up to the builder to provide the remedy Not the Insurer.

Cost Plus Contracts – Avoid

What Is A Cost Plus Contract

Basically it is a contract where you agree to pay all the builders ‘Direct Costs’ plus a ‘Fee for Administration and Profit’.

Rather than a quotation the builder provides an estimate with the actual cost being determined at the completion.

These type of contract are only supposed to be used when it is difficult for a builder to accurately price a job, or the client wants to keep making changes during the construction.

Most building professionals find managing ‘Cost Plus Contracts’ extremely difficult. They are not for the amateur!

The Problems

If the builder hasn’t the expertise to provide an accurate quotation will he have the expertise to manage the contract in a timely and economical manner?

There is no pressure on the builder to work in an efficient way, or select cost effective materials. The more money they spend the bigger their fee.

Who is going to evaluate and, check the builders costs?

Without constant monitoring you will be paying for all the Builders mistakes!

You might have a budget but with the contract requiring you to pay whatever it costs, plus the fee, its easy to blow the budget . . . By a long way.

If a Builder Suggests A Cost Plus Contract

Unless you can:

Really trust the builder, and
Pay for a full time project manager,and
Afford major cost overruns.

STOP and re-think your strategy.

This could be to either seek out builders who are able to give you a quotation, or get your designer to break the work down into more basic packages that can be individually quoted.

See Contracts for more posts

Beware of Escalation Clauses

What Are Escalation Clauses

These are a way of allowing for inflation. Basically it provides a way for the builder to increase his costs in line with inflation.

The Clause will quote an inflation index which can be used to adjust the stage payments.

When Are They Used

I have only used escalation clauses in civil engineering contracts, when one or more of the following apply:

The contracts expected to take more than a year to complete.
The work will be carried out in a period of very high inflation.
If there will be a lot of imported materials and fittings that would be affected by a loss in value of the dollar.

Why I Don’t Like Them.

Taking the time pressure of the builder means there is less pressure on the builder to complete the works in a timely manner.
Escalation clauses are a way of transferring risk from the builder to you. . . . . . . If the builder want to have this clause is he going to offer a price discount for reducing his risk?
With imported materials there are alternative methods of reducing the risk of currency fluctuation, such as buying materials in advance.
Sometimes the inflation index may not relate accuratly to the actual costs paid out by the builder allowing them to make extra profit.

See Contract Payments for more posts

Using Your Own Building Inspector

I frequently hear of people being told by their Builder “You can’t use your own Building Inspector!”

If your builder says that, he is trying to Con You! ……or Breaking The Law!

Here is an explanation based on my last House Contract (HIA Standard Contract) . . . . . .

Possession

The builder does have ‘Control’ of the site see; Contracts – Site Possession.

But one of the contract clauses states . . . . . . “The OWNER or an authorised officer of the LENDING BODY is entitled after giving the BUILDER reasonable prior notice, to go on the LAND to inspect the BUILDING WORKS at reasonable times provided that such inspection does not delay or interfere with the progress of the BUILDING WORKS.”

Owner

A key element in the above clause is the word OWNER so lets look at how the contract defines OWNER . . . .

‘OWNER‘ means the person, partnership, or company named in the Particulars of the Contract and whenever appearing in this Contract includes their AGENTS, executors and administrators.

This means you can appoint anyone you want to act as your AGENT in the matter of inspecting the works.

Action

Don’t ask, write a formal letter to your Builder informing them that you have appointed a Building Inspector as your Agent.

If you find the builder has put in a clause in the contract saying you can’t use your own building inspector this is illegal. You can have that clause struck out. (see this link: Unfair Contract Terms)

To find out about inspecting a new house see

Practical Completion Inspection

Australian Standards

A lot of people people misunderstand how Australian Standards apply to Contracts so here is a quick guide.

Standards Australia

All Australian Standards (AS) are published by Standards Australia. which is a non-government organisation.

It’s role is to meet Australia’s need for relevant standards for quality in goods and services that are also consistent with international standards.

Individual Standards

Each standard is a document specifying how a product, service or system can be practically obtained safely, reliably and consistently.

Role of Standards in Law

Australian Standards are not ‘Legal Documents’ and there is no automatic requirement to carry out any work or service to an Australian Standard unless:

A Government Law, or Regulation, (Such as the Building Code of Australia BCA) requires that an Australian Standard applies; or
The Specification for the project states that an Australian Standard will apply.

Even where an Australian Standard is mentioned you will quite frequently see words like: “or alternative that is deemed to satisfy the intent.”

Summary

Just because you are building in Australia don’t assume that Australian Standards will protect you as they may not even apply to the contracted work.

To understand the role of the Specification see: Contract Documents

Contract Meeting Advice

It can seem like an age since you paid the initial deposit for your new house.

You have spent ages going through everything at Selection.

Surely you can just sign the contract and get started?………….That’s what the builder wants,………… but in my opinion you shouldn’t rush this step.

Time To Examine Contract

Most people aren’t familiar with looking at Contracts so they need time to take it all in in, or perhaps check with someone more experienced.

Let the builder know you want the documents a few days before the signing day, so you can have some time to examine them.

If they can’t provide the contract documents in advance be prepared to take the documents home without signing. You can always schedule another meeting.

Things to Check

Here are things I look out for:

Changes to Standard Conditions of Contract. Having built using both the Master Builders and HIA Conditions of Contract I consider these documents are reasonable to both parties. Make sure you ask the builder if they have modified the conditions, and look through the modifications carefully as they won’t be in your favour!

Stage Payments Not paying until after the work is done is your best protection against builder insolvency. Click on the title of this paragraph for more information.

Contract Period. How long will the build take, and has the builder taken into account bad weather and holidays.

Liquidated Damages Unless the Builder has to pay you a reasonable amount of compensation for delays there is little incentive for them to meet the Contract Period

Responsibility for Access. Most Standard Contract Conditions require the builder be responsible for ensuring the footpath is not damaged. I find some builders are trying to transfer the responsibility to you. I believe this is unacceptable as the the Builder is the only one who has control of the situation.

Contract Estimate (Statement of Costs) This details how the cost of the house is calculated. Make sure that all upgrade items are correctly described and the price is as previously stated or agreed.

Schedule of Inclusions. Are all the Inclusions / ‘Free’ Upgrades, mentioned at the time of paying the initial deposit, mentioned in the documentation.

Specification Check that the specification also correctly describes what you want from the house. Often this will be a fairly standard document which will refer to the Contract Estimate, Schedule of Inclusions and Drawings.

Drawings Check all the drawings to make sure they show what you want including:

- Correct facade.
- Roof Details.
- Room arrangements and sizes.
- Electrical fittings layout.
- Window sizes and types.

It’s much better to make sure everything is covered at this stage than try to deal with it later!

Finally

If the builder says he will reprint the whole document before you sign. . . . you need to check all the amendments you asked for are in the reprinted document. ( A friend of mine didn’t check and got caught out!)

My E book Guide to Selection/Pre-Start includes checklists that you will be able to refer to during Contract Checking.

Using Your Own Tradies

When you look at some of the prices that builders charge for things it makes you wonder if you can get things cheaper by employing your own tradies during the build.

Examples are things like:

Refrigerated air conditioning.
Extra lighting.
High end bathroom fixtures.

Unfortunately its not always that simple. Some builder will allow you to bring in your tradies, many refuse point blank, some will allow it if you pay an Admin/Supervision Fee.

Reasons for Refusal.

Safety and Security The builder is responsible for safety and security of the whole site. Through long contact with their existing sub-contractors they have developed trust. They will have concerns about having someone on their site that they don’t know.
Time delays Because the builders regular contractors depend on the builder for ongoing work he can put pressure on them if things fall behind schedule. The builder is less likely to be able to pressure independent tradies who could take their time and delay things further.
Loss of Profit Builders like any most business make higher proportion of their profit on extras. if this opportunity is lost their overall return on the job will drop.

Admin/Supervision Fee

The Administration/Supervision Fee is to provide additional supervision, and security, and have an allowance for risk.

As a fee of up to $1,000 per trade is not unusual you need to be saving a lot of money before going for separate tradies for part of your new house build.

Also you may not get the price reduction you thought by deducting items from the contract as there is a Difference between contract prices and retail prices.

Check Early

If you think you may want to go down this route you need to check whether you builder is likely to agree before you get too far along the path to signing a contract.

Find out about the issues of Using Friends for Building works

Contract Documents – Vehicle Access

All Weather Access

You will notice in the contract documents a clause relating to ‘All Weather Access’. This normally requires the Landowner to provide all weather access to the site.

In other words a hard access from the nearest road to the site of your house wide enough to take a delivery truck. Typically this will be a shaped gravel track.

On sloped sites the access should be to the construction pad level. which may be either higher or lower than the existing ground level. (May require considerable excavation, or fill)

As well as rural blocks this clause can apply to Battle Axe Blocks.

I would advise against doing this on the cheap if the road becomes deeply rutted or a truck becomes bogged you could be faced with:

The cost for towing trucks off the site.
A claim for additional costs due to delays and repairing the track.
An extension of time on the building contract.

Access Over Footpath

Most suburban blocks will require site vehicles to cross the kerb and footpath within the road reserve.

Damage to the footpath and kerb should be covered under the insurance clauses of the building contract ……………………Usually the words are “ must indemnify the Owner in respect of, and insure against liability for personal injury, death, property loss or damage arising out of the Building Works. If you don’t see these words in your contract, or see an exemption for footpath damage BEWARE.

Although a good builder will normally protect paths by installing a timber mat over the footpath that may not stop all the sub-contractors driving over other other parts of the path, and causing damage.

One useful check is to take photographs of the kerb and footpath before the start of construction. Send copies of these photos to the site supervisor saying these are a record of the condition of the councils assets.

If you see any damage to the footpath before work starts I would also send copies of the photos to the council pointing out the initial defects.