The importance of a sound construction contract is often overlooked when the need to ‘win the project’ or ‘get on with the job at a minimal cost’ are factors at play. When a construction dispute (inevitably) arises, it can cost your company hundreds of thousands, if not millions of dollars to resolve issues which could have been prevented by an expertly drafted contract.

In this article, we consider five important clauses to turn your mind to when negotiating your next construction contract. 

Provisions of the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020(Qld) (the Act) will take effect on 1 October 2020, introducing significant payment security reforms.

In particular, the Act introduces a new remedy for head contractors that have not been paid an adjudication debt by a principal/client following the filing of an adjudication certificate. This remedy allows a head contractor to request a charge over the property on which construction work was carried out where:

• the construction work or related goods and services relate to the adjudicated amount; and
• the principal/client, or a related entity, is the registered owner of the property.

Importantly, this charge is lodged with the registrar of titles and is to exist for 24 months after registration unless discharged, set aside, or the adjudicated amount is paid.

Additionally, a head contractor is able to enforce the charge by application to the Court for orders that the property is sold, which will authorise the sale of the property free of all encumbrances and will have effect regardless of any encumbrances. The Act defines ‘encumbrance’ to mean:

• a mortgage, lien or charge over the property;
• a caveat claiming interest over the property by way of security; or
• a writ affecting the property.

This mechanism means that a head contractor is able to apply to have the property sold, even if there are prior encumbrances.

On settlement of sale of property ordered by the Court, sale proceeds would be applied in the following order:

• first – payment of sale costs and the head contractor’s costs in seeking the sale;
• second – payment of amounts to satisfy any registered encumbrances, including the charge registered by the head contractor, in the priority order under the Land Title Act 1994 (Qld); and
• third – payment of any balance to the registered over of the relevant property or to another at the discretion of the owner.

This is a very powerful tool available to head contractors because it provides them with practical, relatively straightforward and economical leverage to force compliance by principals/clients or risk serious ramifications that typically otherwise only eventuates in very limited circumstances.

To avoid any charges being registered and enforced, principals/clients should ensure that any adjudication amounts are paid as a matter of priority. Under the Act, payment must be made 5 business days after the adjudicator’s decision, or a later date if decided by the adjudicator, so it is important that principals act quickly to prevent the registration and enforcement of potential charges.

Need further clarification? Enterprise Legal are Toowoomba's construction law experts - make a time to see us today:

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If the Coronavirus is Causing Disruption to your Construction Project Supply-Chain, are you Legally Protected?

Coronavirus or 'COVID-19' continues to spread across the globe, with the World Health Organisation (WHO) referring to the epidemic as a “public health emergency”.

With Australia’s reliance on China for providing goods and materials for the construction sector higher than ever before, many of Enterprise Legal’s construction clients have started raising concerns about how the outbreak could affect their projects, big and small – and when it inevitably does, what will their rights and potential liabilities be? 

Risks to Developers and Other Principals

Most Developers/Principals of construction projects care about three main things when it comes to their project delivery, that is - will the project be:

• on time;
• delivered within budget; and
• of a quality standard and within scope upon practical completion.

The recent shortage of materials from China as a result of factory closure and import limitations could see Developers and Principals alike exposed on all three of the above criteria.

Some key factors for Developers/Principals who have current projects or projects that are at the ‘sign-up’ phase to consider include:

• what materials and/or goods are at risk of not being supplied on time;
• delay damages – is the delay a compensable cause under the Contract which could see the Developer/Principal having to pay delay damages to the Contractor;
• extensions of time – does the Principal have an obligation to grant an extension of time under the Contract for the delays, in which case the project completion date could be significantly pushed out:
  • without giving the Principal the right to enforce liquidated damages; and
  • exposing the Principal to potential claims from future tenants, purchasers or alike;
• does the Developer/Principal have ‘good faith’ obligations under the Contract and how would those obligations apply in the current circumstances; and
• what practical steps can (and must) the Developer/Principal take to mitigate its own losses in respect of the project. 

Risks to Contractors

Conversely, the risk to Contractors are in the reverse. For example:

• could the Contractor be exposed to delaying the project without any entitlement to extensions of time, consequently exposing the Contractor to liquidated damages payable to the Principal/Developer;
• does the Contract’s ‘force majeure’ clause adequately protect the Contractor where the extension of time clause otherwise may not;
• what obligations do the Contractor have to its subcontractors, and what liabilities could it be exposed to in that regard; and
• what steps does the Contractor have to take from the outset to best protect itself from unnecessary exposure. 

What Should You Do?

Enterprise Legal’s advice is ‘be alert, but not alarmed’. Make sure that you arm yourself with the knowledge that you’re legally protected and the best way to do this is to see an expert construction lawyer to get guidance and advice on what the best way forward is for your specific project, so as to mitigate any liability or other exposure under the Contract or otherwise.

Most importantly, by arming yourself with the relevant information and taking practical steps without delay, you will maximise the chance of successfully delivering the project, which is a win-win for both Developer/Principal and Contractors alike.

If you are currently a party to a construction project or planning to sign an agreement in the near future, contact Enterprise Legal’s Construction Law Team for advice today! Ask to speak to our firm director and dedicated building and construction specialist, Sharné Lategan.

Always remember, prevention is better than cure – and being proactive is the best next step you can take!

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If you’re looking to enter into a domestic building contract for the construction of a new home or renovations to your existing home, there are many things you’ll need to think about, from the flooring to your paint choices. In addition to all of your aesthetic choices, there are plenty of things you specifically need to consider when it comes to your contract itself, as this will be the backbone of the entire construction project.

1. Initial Period

After you enter into a building contract, you will generally have a period of time where you are required to provide the builder with materials including proof of ownership, proof of loan approval and relevant building approvals.

If you need to obtain finance approval prior to being able to commit to the project, make sure the contract documents accurately reflect this to avoid a scenario where you are contractually bound to proceed with the contract, regardless of finance approval. Also make sure you clarify up-front who is responsible to obtain building approval, as often builders advise they will ‘assist’ but the ultimate responsible may lay with the home owner, which is not ideal.

2. Progress Payments

Progress payments are payments made to the builder at certain stages of the construction process, which should be clearly set out and identified in your contract. It is important to ensure you are aware of what is payable and at what time and that your contract does not impose any restrictions on progress payments. It is arguably more important that you make sure the work you are paying for has been carried out, in the manner required by the contract.

3. Pricing

Your building contract may be a ‘fixed-price’ or ‘cost-plus’ building contract. A fixed price contract is one where the total price is fixed, barring any variations, delays, or extenuating circumstances. The other form of building contract is ‘cost-plus’ where you may be given an estimated final price but the contractor will obtain the materials and services through the building process and pass the costs onto you, as well as charge their own time by the hour. This can become costly quite quickly, so it is always our recommendation that a fixed price contract be entered into, to minimise the risks of ‘blow outs’ to home owners.

4. Variations

When negotiating the construction contract, it is very important that the contract contains a clause that variations only be allowed where it is agreed to in writing by both parties, prior to the work the subject of the variation being carried out.

What can often happen is a simple site conversation where the home owner innocently changes a product or selection, thinking it will be the same cost, can end up resulting in a very costly exercise for the home owner. Where builders know that variations have to be subject to writing, they will make decisions more carefully and explain them to home owners’ in more depth, as ultimately the risks in those circumstances lies with the  builders.  

5. Defects Liability Period

The defects liability period is the period of time where the builder is required to return to repair any defects. This will usually start at the date of practical completion. It is important to check your contract to determine the length of any defect liability period before you enter into your contract to ensure that it is likely to be sufficient, builders will often try for a six month liability period where as twelve months is industry standard.

6. Prime Cost and Provisional Sum Items 

Prime cost items are fixtures and fittings that may be listed in the contract but not specifically identified and costed – usually because the exact type was not decided on at the time of signing – so the price is only an estimate. Ideally, you should avoid prime cost items as much as possible by deciding on as much as possible as early as you can. Provisional sum items are those that are listed in the contract for possible additional work where a builder is only able to make an estimate of the cost at the time. Items such as these should be avoided where possible as it can increase your overall costs.

Sometimes, however both prime cost and provisional sum items are unavoidable, and in these instances we recommend home owners negotiate a certain ‘capped amount’ with the builder, to ensure builder accountability in product estimation and selection.

7. Site Investigations

Before construction begins, it is important that your builder undertakes appropriate site investigations to determine the soil type, rocks that may need to be removed, and other things that could lead to unexpected price variations later on. Your contract should include warranties relating to any necessary site investigations, and it is very important that all these latent condition issues are covered off before hand, so as to avoid contract price blow out.

8. Date for Practical Completion

The date for practical completion is the date that the construction is scheduled to be completed, barring any unexpected delays. This date should not be left blank on your contract and it should be a realistic estimation of when the project is required to be completed.

9. Liquidated Damages

Something to consider when entering a contract is whether you want to include a liquidated damages clause. Liquidated damages are a set amount per day that the builder will pay you for every day past the date for practical completion that the work is not finished.

We always recommend that a liquidated damages amount be specified in the contract, because it will motivate the builder to complete the project on time. If there are no liquidated damages amount in the contract, the main remedies available to home owners for late delivery is a breach of contract claim, and most builders know this is a lengthy and expensive process so home owners are unlikely to go down this route.

10. The Builder Themselves

While it might seem obvious, it is important to ensure that your builder has the appropriate licences for the work they are contracted to do. You should also check whether their work is of a quality you are expecting and whether they have received formal orders from QBCC to rectify defective work. If there are a large number of these orders, you may want to steer clear of the relevant builder and engage a different builder instead. Always ask for references as well, and make sure you contact the references or do standard google review searches, to ensure previous good experiences with that specific builder.

To ensure you fully understand your contract and that there aren’t any hidden surprises, the team at Enterprise Legal can help. 

Make sure you contact us before you enter into the relevant construction contract, and we will gladly assist in the review and negotiation of same:

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Since March 2018, Project Trust Accounts have been a requirement in certain building, construction and services projects involving government departments and hospital and health services in Queensland. From 1 January 2022, the Project Trust Accounts regime is being rolled out to the private sector and a broader range of government entities.

What is a Project Trust Account

The Project Trust Accounts regime requires a head contractor to establish one Project Trust Account (PTA) for each ‘eligible contract’ for ‘project trust work’, along with a Trust Account for any retention monies held across all of the head contractor’s eligible contracts. 

Who Will Need a Project Trust Account

From 1 January 2022, Project Trust Accounts are applicable to:

• all Queensland Government contracts (including HHSs) valued at $1 million or more; and
• private sector, local government, Queensland statutory authorities and government-owned corporations, for contracts valued at $10 million or more; and
• state authorities can continue to opt-in early and require a project trust account for contracts valued between $1 million and $10 million.

The regime applies to contracts where over 50% of the contract price is for 'project trust work'. This includes the erection or construction, renovation, alteration, extension, improvement or repair of 'buildings', and related site work. Buildings are defined broadly to include any fixed structure that is wholly or partly enclosed by walls or a roof. There are a range of exclusions for particular sectors and types of work or contract, such as pure maintenance contracts.

How Will This Impact Me

These trust accounts will need to be opened with an approved financial institution, and there are extensive requirements for head contractors who have to act as trustees and establish and manage these trust accounts. They also have to hold any retention monies in a retention trust account. 

Principals who are awarding contracts over $10 million also have obligations under the Act, including to ensure that a trust account is established if they know that one ought to be, and to make payments only into that account. 

Contract terms will generally require some updating to deal with the regime, particularly given the hefty penalties for non-compliance, some examples of penalties include:

• failure to open a project trust account at a financial institution in accordance with the legislative requirements (including timeframes, type of account, ensuring only 1 account etc.) – $68,925.00;
• failure to set up a retention trust at a financial institution prior to withholding the retention amount from payment – $68,925.00;
• failure to ensure the trust accounts are held at an approved financial institution – $27,570.00;
• failure to ensure the trust accounts are held under a name that includes the trustee’s name and the word “trust” – $27,570.00;
• failure to ensure the deposits to and withdrawals from the trust accounts are made only using methods which create an electronic record – $68,925.00.
• failure to provide notice to certain parties (with the required information) within 5 business days of opening, changing the name, closing or transferring the trust account – $27,570.00;
• failing to keep trust records in accordance with the requirements (including currency, language, provision of certain information, timeframes, etc) – $41,355.00 or 1 year’s imprisonment.

If you need assistance with preparing or implementing systems for this new phase of the rollout, or if you need assistance with whether or not it applies to your business or project, contact the Enterprise Legal team today:

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In early June the Federal Government announced a $680 million HomeBuilder scheme to stimulate the construction sector as Australia begins the economic recovery following COVID-19. This scheme will allow eligible owner-occupiers to access a tax-free grant of $25,000 to build a new home, or substantially renovate their existing home from now until 31 December 2020.

To check whether you are eligible, click here to view the HomeBuilder Frequently Asked Questions PDF.

Things to Consider

If you are interested in taking advantage of the HomeBuilder grant, there are a few things you should consider before you jump in.

Consider Your Timeline

One of the requirements of the grant is that construction begins within three months of signing the contract. Due to this tight time frame, it is important that you are organised and prepared, so you should consider whether you will have the sufficient time to have plans drawn up, obtain council approval and commence building within three months when signing the contract. From our experience, three months is a ‘tight timeframe’ to achieve the latter, so preparation is key!

Consider Your Finances

In addition to the HomeBuilder grant, you should consider whether you may be eligible for other grants, which may include the first home owner grant and the regional home building boost grant. You won’t be able to use the grant in your initial deposit as it is expected that it will take some time for it to be awarded. As such, you will need to ensure you have sufficient financing for any initial costs that you may have.

Choose Your Builder Carefully

It is very important that your builder is registered or licensed, otherwise you will not be eligible for the grant. You also cannot do the building work yourself as an owner-builder, or engage family or close friends. When selecting a builder, you should also review their proposed prices to ensure they’re reasonable and that you aren’t being ‘ripped off’ by builders capitalising on the HomeBuilder grant. Be on the lookout for builders who only commenced operating following the HomeBuilder announcement, as they are more likely to be taking advantage of the scheme than longstanding builders. Lastly, always make sure that you perform a QBCC license search on your builder, as this search will show you:

• the date your builder became licensed;
• the value of projects your builder completed since inception, and each financial year; and
• whether the QBCC has had to take any disciplinary action against the builder, such as notices to rectify, issuing of defect notices etc.

Review Your Construction Contract Carefully

It is very important that you do not simply ‘sign up’ to the contract your builder presents. The financial commitment you are making is likely one of the biggest in your life, and it should be treated with the same caution and respect as any other financial arrangement of that size. There are a number of key clauses that you need to pay very careful attention to, and a number of standard amendments you ought to request.

Make sure you check out our knowledge page in the coming weeks for our ‘Top 10 Domestic Construction Contract Clauses to Consider’ article.

In the meantime, if you would like to take advantage of the HomeBuilder grant and it feels like there is too much to consider, the team at Enterprise Legal can help.

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If you’re building a house, you should be aware that the Queensland Building and Construction Commission (QBCC) may be able to provide assistance for any loss that is sustained in the event of defective or incomplete work through the Home Warranty Insurance Scheme.

The catch, however, is that you need to carefully follow the QBCC process and rules which can be very onerous at times, to ensure that your application is not excluded.

One of these conditions is that the relevant building contract must be properly terminated before a claim is made, otherwise it could result in the QBCC disallowing the claim. In a recent decision of Allen & Taylor v Queensland Building and Construction Commission [2020] QCAT 63 the importance of complying with the legislative pre-conditions were emphasised.

In that particular case, the question was whether the homeowners had properly terminated their residential building contract prior to making a claim under the Scheme, which is a condition precedent to being able to access the home warranty insurance. In this case, the builder entered into a contract with the homeowners in early 2016, but little progress was made at the time of termination. In November 2017, the homeowners served a Notice of Substantial Breach for a number of breaches, including failure to complete the standard of work required and terminated the contract.

The Tribunal decided that the contract was not properly terminated under clause 1.2 of the Scheme. This clause sets out that the QBBCC will only pay for losses sustained when the contract with the contractor has been properly terminated. While the homeowner’s contract gave them the right to terminate in the event of a breach by the contractor, the Tribunal held that there was no breach on the basis that:

• the defects that the homeowners alleged would have been capable of remedy following the completion of the house; and
• the contractor was ready, willing and able to complete the building project.

Given that the Tribunal felt that the builder was able to provide a response to the Notice to Show Cause, it was determined that the defects that the homeowners claimed were not substantial enough to justify their termination of the contract. As a result, it was held that they were not able to make a claim under the Scheme.

If you’re concerned about the progress or quality of your residential building project, it’s important that you act carefully if you want to ensure that you can make a claim under the QBCC Act.

If you think you may need to bring a claim, contact the team at Enterprise Legal to discuss your rights, obligations, and options to ensure that you aren’t barred from making a claim:

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Building your dream home can be one of the most exciting times in your life but securing the perfect location can be difficult in some circumstances, especially in the current market.

One of the ways to secure your dream block that is becoming increasingly popular is purchasing property ‘off the plan’. This simply means that the 'Lot’ (or block) you are purchasing has not yet been ‘created’ by the developer at the time of signing your land Purchase Contract. While purchasing off the plan can seem like a great way to secure your dream block, it is important to understand some potential issues you may face with this strategy.

Sunset Date

A Sunset Date is a date inserted in your Purchase Contract to say that the Seller must ensure the Lot has been created with the Titles Office by this date. By law, a Seller can take up to 18 months to do this. It is important to look at this date before you sign your Contract to make sure it fits in with your plans for the property, especially if you are planning on building straight away.

There are two approaches that a Seller may have in relation to a Sunset Date. Under the first approach, they may have a shorter timeframe, knowing that the subdivision is only a few months away from being completed and having a shorter timeframe is obviously more attractive to potential buyers. However, whilst you may think that the land will be subdivided by the date specified in the Contract, some key steps (i.e Ergon connection, council sealing) may take longer than expected and push dates out, meaning the Seller will need to ask for an extension of the Sunset Date to accommodate these delays. In these circumstances, you can agree or otherwise terminate the Contract, missing out on your ‘dream block’.

Alternatively, a Seller may include the full 18 months in the Contract as the Sunset Date even though they are expecting the works to be completed in 6 months (for example). The reason why sellers do this is to leave extra time ‘up their sleeve’ legally under the Contract, should progress be pushed back.

As a Buyer, it is extremely important that you understand that even though you may have been told by the Seller or real estate agent that the subdivision will be completed by a certain date, you will not really have the ability to rely on these representations, if they don’t match the timeframes and dates specified in the Contract. The takeaway here is to prepare for the ‘worst case scenario’ timeframe (eg. 18 months) and don’t get sucked in if the Seller or the agent make you promises to the contrary!

Build Contracts

As a Buyer, arguably the exciting part of this process is the actual building of your new home. Unfortunately, a lot of people rush into signing a build contract without fully understanding what some ramifications may be should there be a delay in the purchase of your block of land settling (refer to our comments above).

With the current state of the market and the construction industry, price increases are common. This is due to a range of factors, including an increase in the price of materials, supply chain issues and shortage of labour. If you sign your Build Contract around the same time as your land Purchase Contract, there is real potential for these costs to increase significantly over a potential 18 month period.

Even if you have a ‘fixed price’ Build Contract in place, it is important to check that there are still not any clauses in the Contract that allow for a price increase in certain circumstances. During these times, builders are relying heavily on these clauses to increase the contract price. Most standard contracts allow for the builder to increase a fixed price if there are material increases that ‘were outside of the builder’s control’.

Secondly, delays with your land Purchase Contract settling may cause issues with your Build Contract, depending on the anticipated start date included in your Build Contract. Should the builder not be at fault for the delay under you Build Contract (for example, if settlement of the land has been pushed back), you may need to pay the builder delay damages for each day that they are unable to commence the build. This is why it is so important to consider the Sunset Date in your land Purchase Contract and how this will affect your anticipated start date under your Build Contract, despite what you may have been verbally told by the seller or agent.

Given the potential severity of the above issues, we highly recommend that any Buyer who plans to build obtains legal advice on both your land Purchase Contract and your Build Contract, to ensure that both contracts work together to protect you from incurring unintended costs. . Unfortunately, at Enterprise Legal, we have seen dozens of times where this has occurred during the last two years, where clients should have had their Contracts reviewed.

If you would like to know more or for assistance with obtaining legal advice when purchasing vacant land ‘off the plan’ to build your dream home, please get in touch with EL's expert Property and Construction team:

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