Contracts for Home Improvements

We recommend using a written contract, regardless of the cost of the work. This ensures both parties are clear about the terms of the contract and their obligations.

For work worth up to $5000, a contract should include:
• The date the contract is effective (this is the date on which both parties have signed)
• A start and finish date for the work, with allowances for delays
• A plan and specifications (detailed description) of the work to be done, including references to any Australian standards that apply
• The make and model number of any fittings such as ovens, tiles or tapware, and who is responsible for supplying these
• Details of how variations to the contract may be made
• Labour costs per hour; and per person if more than one person will be doing the work
• Any insurances or warranties that may apply
• Details of what happens if you cancel the contract, including any cancellation fees

Look very closely at any long-term ‘guarantees’. These can sound attractive but may not be of any benefit if the business is later sold or closed. Check carefully what they cover.

Changing a Major Domestic Building Contract Checklist

• Use a written Variation Notice for all changes to a contract
• As much as possible, avoid having prime cost and provisional sum items in your contract

You do not have to pay for variations that are ordered to deal with issues that the builder should have identified before starting work.

Legal Changes to a Building Contract
The law only allows certain changes to the price stated in a signed major domestic building contract.

Legal changes to the contract price include:
• Variations to the plans and specifications
• Prime cost items
• Provisional sum items

Variations to the plans and specifications must be in writing and signed by you and the builder. We recommend you do the same for prime cost and provisional sum items.

Variations
Variations are changes to the contract that:
• You and the builder agree to make
• A building surveyor (or another authorised person) orders after the contract has been signed and building work has started

If you do not agree with the changes ordered by an authorised person (building surveyor, architect, building inspector or engineer), you must advise the builder in writing within five business days of receiving the notice.

By law, you and the builder must agree in writing to the variations (using a Variation Notice) and include the details and cost of the changes in the contract (including the new total price and new completion date) before the work commences.

A Variation Notice is not required when your builder reasonably believes the changes will not:
• Require a change to any permits for the project
• Cause delay
• Add more than two per cent to the original contract price

To avoid disputes, we recommend changes are made in writing and signed by both parties.

Prime Cost Items

Prime cost items are your selections of fixtures and fittings (for example, ovens, taps and tiles) that are listed items in the contract, but which are not specifically identified and costed. This is because you or your builder could not determine or agree the make, model, or exact price of the item at the time you signed the contract – you could only estimate the price, which could be less than the final cost.

Where possible, avoid prime cost items. Try to include the specific details of your selections (such as make, model, colour, and style) in your contract, so that the building cost is final.

Get a copy of any invoice, receipt or other document that shows the cost of any prime cost item.

Provisional Sum Items

Provisional sum items are items listed in the contract for possible additional work, such as excavation, where the builder cannot give you an exact price of the work at the time you sign the contract – they can only make a reasonable estimate of the cost.

Where possible, do not agree to provisional sum items as they can make your final cost higher.

For example, it is common for excavation work to be included as a provisional sum item. Be aware that this cost could increase substantially if additional excavation work is needed because rock was not determined in the soil report. Make sure that your builder has obtained a comprehensive soil report in order to give you a reasonable estimate of costs. Seek advice from your independent building consultant.

Your builder must make a ‘reasonable allowance’ for the nature and location of the building site when estimating supply and delivery in the contract price – for example, your builder must allow for transport costs if you are building on a rural property.

GET A COPY OF ANY INVOICE, RECEIPT OR OTHER DOCUMENT THAT SHOWS THE COST OF ANY PROVISIONAL SUM ITEM.

Getting Out of Your Contract (Cooling Off)
You have five business days after receiving a signed copy of your major domestic building contract to withdraw without penalty. This is your ‘cooling-off period’.
If you engaged a lawyer to review your contract prior to signing, then you are not entitled to a cooling-off period.