Becoming the project manager of your own dream home or renovation is an adventurous opportunity that comes great responsibility, and one of those responsibilities is managing contracts as an owner builder.
Contracts are the backbone of any construction project. They lay out the expectations for all parties involved, detail the scope of work to be done, set out payment terms, and provide a plan for resolving any disputes that may arise.
Think of it as the rule book for your owner builder project. Without it, things can quickly go off track, leading to confusion, delays, and potentially more costs.
But fear not!
With careful management and some know-how, you can navigate the world of contracts like a pro. Managing contracts might not be your thing, but let us break it down for you.
Construction Contracts In A Nutshell
Here’s a summary of why contracts are so crucial in construction projects.
- Foundation. A contract is the foundation of your building project. It sets the ground rules for everything that follows and helps prevent misunderstandings that could derail your project – this is a super important point to remember.
- Blueprint. Contracts lay out all the nitty-gritty details. They outline what work will be done, who will do it, when it will be completed, and how much it will cost.
- Compliance. In the construction world, there are heaps of rules and regulations to follow, from building codes to health and safety laws. A good contract should spell out who is responsible for complying with these rules, helping you avoid legal headaches down the line.
- Managing expectations. Working with contractors usually comes with many moving parts and different people involved. It's easy for misunderstandings to occur. That's where contracts come in. Contracts help ensure everyone is on the same page and working towards the same goal – completing your project successfully.
Standard Contracts for Owner Builders
Note – there can be a cost associated with purchasing a contract template.
The main types of building contracts are:
Works Exempted Under the Act (BS5)
This applies if the work performed is specific to one type of trade. Trades such as electricians, plumbers, wall and floor tilers, glaziers, painters, and insulation/carpet/vinyl/security door installers fall under this category. These professionals are defined as “tradespersons” under the Act.
Minor Domestic Building Works (BS6)
This contract is suitable for works under $10,000 as per the Act. It's applicable if the work involves home improvements that require more than one trade. Non-exempted trades under the Act performing work valued at under $10,000 fall into this category. This includes carpenters, joiners, cabinet makers, bricklayers, concretors, roof tilers, bathroom & kitchen renovators, re-stumpers, and door & window replacement specialists.
Major Domestic Building Works (BS8)
For works exceeding $10,000 under the Act, this contract is recommended. It applies when the project involves more than one trade and all persons involved are not exempted under the Act. The value of their work should exceed $10,000. All involved parties must be registered with the Building Practitioners Board. If the value of the work surpasses $12,000, these individuals are defined as “builders” under the Act. They must provide Warranty Insurance for their portion of the work.
Elements Of A Good Contract
Now that we've got a grasp on why contracts are so essential let's dive into the elements that make up a good contract. Think of this as your checklist for what to look out for when drafting or reviewing your contracts.
Scope Of Work
First up is the scope of work. This is where you outline exactly what the project entails. It's like the blueprint for your construction project, detailing everything from the type of work to be done to the materials to be used and the timeline for completion.
The more specific you are here, the better. Having a well-defined scope of work helps prevent misunderstandings and keeps everyone on the same page.
Next are the payment terms. Money matters, right? That's why it's important to clearly outline how and when payments will be made.
Will you be paying in instalments or in one lump sum at the end? What are the milestones for payment? When does the contractor need to issue invoices? These are all things that should be clearly stated in your contract.
Now, no one likes to think about disputes, but it's always wise to plan ahead. That's why your contract should include a dispute resolution clause.
This sets out how any disagreements will be resolved, whether through negotiation, mediation, arbitration, or even court action. Having this clause in place can save you a lot of time and stress if things go pear-shaped.
Contractor Licensing And Insurance
Finally, let's talk about contractor licensing and insurance. When you're hiring contractors, you want to make sure they're legit, right? That's why it's crucial to check that they're licensed and insured.
This not only protects you if something goes wrong, but it also gives you peace of mind knowing you're working with professionals.
Read this in-depth article about insurance as it covers dealing with Sole traders and Pty Ltd Contractors.
Managing Contracts Effectively
Onward, we go to the practical stuff! Let's chat about how you can manage contracts effectively.
- Understand Your Contract: Contracts can be complex. Take your time to read through it, understand each clause, and ask questions if you're unsure about anything. It is worth getting a lawyer to review it if you're uncomfortable.
- Record-Keeping: It helps you track what's been agreed upon, done, and what's still left to do. Plus, if any disputes arise, these documents will be your best friend.
- Communication: Regularly check in with your contractors to ensure they understand the contract and their responsibilities. Also, keep them updated on any changes or issues affecting their work.
Legal Obligations Of Owner Builders in Australia
As an owner builder in Australia, you've got some specific legal obligations to keep in mind. These aren't just guidelines or recommendations – they're laws that you must abide by.
These obligations can vary from state to state but generally include things like obtaining an owner builder permit before starting work, ensuring all work complies with the Building Code of Australia, and making sure that any contractors you hire are properly licensed and insured.
You're also responsible for maintaining a safe work site!
Now, you might be thinking, “What does this have to do with contracts?” Well, a lot, actually. Your contract can help you meet these obligations by clearly outlining who is responsible for what.
For instance, it can specify that your contractor is responsible for complying with specific building codes. It can also include clauses requiring your contractor to maintain insurance or follow safety protocols.
So you see, your contract isn't just a tool for managing your project; it's also a tool for ensuring you meet your legal obligations.
Check out our interview with Construction Lawyer John de la Cruz for further great insights – click here!
Remember, being an owner builder isn't just about overseeing the construction work. It's about managing contracts, relationships, expectations, and legalities. It might seem daunting, but with the right tools – including a solid understanding of contracts – you can navigate this journey successfully.
So take these insights to heart, keep your contracts clear and comprehensive, and you'll be well on your way to managing your projects effectively.
After all, a well-managed contract leads to a well-managed project.
Frequently Asked Questions
What is a “Change Order” in a contract?
A Change Order is a document that outlines any changes to the original contract. This could be changes in the scope of work, project timeline, or cost. It's important that any changes to the original contract are documented and agreed upon by both parties to prevent misunderstandings.
How do I handle contract breaches as an owner builder?
If a contractor breaches the contract, such as not completing work on time or using substandard materials, you should first refer to the dispute resolution clause in your contract. If the breach cannot be resolved through the agreed-upon methods, you may need to seek legal advice.
Can I terminate a contract with a contractor?
Yes, but the terms of termination will depend on what is outlined in your contract. Generally, contracts can be terminated due to breach by either party or due to other conditions specified in the contract itself. It's advisable to get legal advice before terminating a contract to ensure you're not breaching any laws or regulations.