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Last edited 23 Jan 2021
Types of construction contracts in Australia
Construction contracts are agreements between employers and contractors to carry out works or supply goods and materials. Different types of construction contracts have different setups and different uses. The most common used in Australia are:
A residential contract is necessary when building a dwelling. This type of contract is under the Home Building Act. The NSW Home Building Act 1989 outlines the minimum statutory rights of homeowners, builders, and contractors. This includes warranties, payments, deposit, insurance, and other matters relating to residential construction work.
This also includes rights to transact with licenced builders, have insurance, and have the necessary warranties when building defects arise. Not being able to fulfil these have some legal consequences.
A commercial contract is used specifically for building commercial establishments. These buildings are for non-residential purposes. This includes building office spaces, shops, hotels, and other businesses that may need space for a private business.
Usually, commercial contracts are not that different from residential contracts. However, one may need to secure additional permits and other documents, depending on relevant zoning and other construction laws.
Under a lump sum contract, a “fixed price” for the work to be done is agreed by the client and contractor before the work begins. This contract can be applied to both home building and commercial contracts.
A lump sum construction contract can be more of a risk to the contractor as there are fewer mechanisms to allow them to vary their price. Contracts specialists can help determine whether a lump sum contract will be beneficial, and can also advise on construction contract provisions.
A cost plus contract states that a client agrees to reimburse a construction company for building expenses such as labour, materials, and other costs, plus additional payment usually stated as a percentage of the contract’s full price.
This type of construction contract is an alternative to lump sum agreements. It allows flexibility and transparency, and reduces the risk for a contractor since it guarantees them a profit. This can be applied to home building and commercial contracts.
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- NEC Option A: Priced contract with activity schedule
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