8 Contract Clauses NSW Builders Should Check Before Signing a Home Building Contract

Before signing or issuing a NSW home building contract, a builder should check eight areas: the contracting parties and mandatory documents, the scope of works and contract documents, the contract price and allowances, insurance and progress payments, the variation procedure, the construction period and extensions of time, site conditions and owner obligations, and the suspension, termination and special conditions. Each is set out below. 

A residential building dispute often begins before construction, with an unclear scope of works, an incomplete provisional sum schedule, an unsigned variation or a missed extension-of-time notice. 

For builders, a signed contract should do more than secure the project. It should clearly define the work, allocate risk and provide practical procedures for managing payment, variations, delays and disputes. 

1. The contracting parties and mandatory documents 

The builder named in the contract must be the same legal entity that holds the relevant contractor licence. 

For example, a licence held personally by a director does not authorise the director’s company to enter the contract as the licensed builder. The company itself must hold the appropriate licence. 

The contract should accurately record: 

• the builder’s full legal name, ABN, ACN and contractor licence number; 
• the homeowner’s full legal name; 
• the correct property and title details; 
• the contract price and GST treatment; 
• the date of the contract; and 
• the person authorised to sign for each party. 

For residential building work worth more than $20,000, the contract must also contain the prescribed information and documents, including the statutory warranties, progress payment schedule, cooling-off statement and homeowner checklist. 

Builders should ensure that the homeowner has received the current: 

• Consumer Building Guide; 
• prescribed contract checklist; 
• registered certifier information, where applicable; 
• Security of Payment Guide; and 
• Home Building Compensation certificate, where required. 

Using an old industry template without checking current legislative requirements can expose a builder to compliance and enforceability risks. The current requirements are summarised in the Building Commission NSW guidance on providing home building contracts. 

2. The scope of works and contract documents 

A description such as “as per plans and specifications” is only useful if the relevant plans and specifications are complete, clearly identified, and actually attached to the contract. 

Before signing, the builder should confirm that the contract contains a document register identifying every document forming part of the agreement, including: 

• the tender or quotation; 
• architectural plans; 
• engineering plans; 
• specifications; 
• schedules of finishes and selections; 
• soil, survey and geotechnical reports; 
• BASIX documentation; 
• development consent or complying development certificate; 
• inclusions and exclusions; and 
• any special conditions. 

Each document should have a title, date and version number. The parties should sign or initial the agreed versions. 

The builder should also check that the contract contains a workable order of precedence. If the plans show one product while the specification identifies another, the contract should make clear which document prevails. 

Unresolved inconsistencies can lead to allegations that the builder supplied the wrong material, omitted work or charged a variation for something already included in the contract price. 

3. The contract price, allowances and price adjustments 

A contract described as “fixed price” may still allow adjustments for variations, prime cost items, provisional sums, site conditions, authority requirements or changes in taxes and levies. 

The builder should ensure that every permitted adjustment is clearly explained. 

Prime cost items 

Each prime cost item should identify: 

• the particular fixture or fitting; 
• the quantity allowed; 
• the allowance per item; 
• whether the allowance includes GST; and 
• the builder’s applicable margin. 

Provisional sums 

Each provisional sum should describe the work covered by the allowance and provide a reasonable estimate of the cost. Expressions such as “as per tender” should not be used unless the tender contains a complete and itemised schedule and is expressly incorporated into the contract. 

The contract should also explain how the builder will substantiate the actual cost and calculate any increase or credit. 

Broad clauses allowing the builder to change the contract price unilaterally should be reviewed carefully. The adjustment should be connected to an identifiable event, supported by an objective calculation method and no broader than reasonably necessary to protect the builder’s legitimate commercial interests. 

4. Insurance, deposits and progress payments 

For residential building work exceeding $20,000, the principal contractor must obtain Home Building Compensation cover unless an exemption applies. 

The insurance must be taken out: 

• in the same legal name as the entity entering the building contract; 
• for the relevant project and property; and 
• before the builder requests or accepts any payment or commences residential building work. 

Contract works insurance and public liability insurance do not replace project-specific Home Building Compensation cover. Failure to obtain the required cover can affect the builder’s ability to enforce the contract or recover payment and may result in significant penalties. Further information is available from SIRA on insurance obligations for residential building work. 

The deposit must not exceed 10% of the contract price. 

The progress payment schedule should also be commercially realistic. Each payment should correspond with the value of work completed at the relevant stage, not simply the time that has passed or the builder’s cash-flow requirements. 

Before signing, builders should confirm that: 

• each stage is described in clear language; 
• the amount or percentage for each stage is stated; 
• the total payments equal the contract price; 
• the stages are acceptable to the homeowner’s lender; 
• the schedule is not excessively front-loaded; and 
• the contract explains how variations and price adjustments will be claimed. 

A poorly structured payment schedule may leave the builder financing later stages of the project or defending an allegation that the payments exceeded the value of the work completed. 

5. Variations 

Variations are one of the most common sources of home building disputes. 

A conversation on site, an email asking for “a small change” or an instruction given directly to a subcontractor may not provide the builder with sufficient contractual protection. 

Except in limited urgent circumstances, a variation should be documented and signed before the varied work is undertaken. 

A proper variation document should state: 

• who requested the variation; 
• the reason for the variation; 
• a clear description of the additional, substituted or deleted work; 
• any revised plans or specifications; 
• the increase or reduction in price; 
• GST and the builder’s margin; 
• any administration or design fees; 
• the revised contract price; and 
• the additional time required. 

The contract should also identify who has authority to approve a variation on behalf of the builder and the homeowner. 

Builders should avoid informal variation practices, including carrying out work first and attempting to agree on the price later. Even where the homeowner clearly requested the change, recovering the builder’s full cost may become difficult if the contractual procedure was not followed. 

NSW Government guidance confirms that variations generally must be in writing, attached to the contract, and signed by both parties. The calculation should be shown rather than recording only a final lump sum. For how these disputes look from the homeowner’s side, see our guide on what to do when a builder asks for more money. 

6. Construction period, extensions of time and liquidated damages 

A builder should be able to determine precisely when the construction period begins and how the completion date will be calculated. 

The contract should clearly address: 

• pre-commencement conditions; 
• approvals and construction certificates; 
• evidence of the homeowner’s finance; 
• site possession and access; 
• selections and owner-supplied items; 
• the construction period; 
• industry shutdown periods; 
• qualifying causes of delay; 
• extension-of-time notice requirements; and 
• liquidated damages. 

An extension-of-time clause is only useful if the builder follows it. 

Builders should not wait until practical completion to submit a consolidated delay claim unless the contract clearly permits that approach. Extension notices should ordinarily be issued when the delay occurs and supported by contemporaneous records, including: 

• site diaries; 
• weather records; 
• photographs; 
• subcontractor correspondence; 
• supplier notices; 
• updated construction programs; and 
• evidence showing how the event delayed critical work. 

If liquidated damages are stated as applying per working day, the builder should calculate the potential exposure before signing. The contract should also make clear whether liquidated damages are intended to be the homeowner’s sole monetary remedy for delay and whether any overall cap applies. 

Leaving the liquidated damages amount blank may not remove the risk. Some standard contracts insert a nominal default amount, while the homeowner may still attempt to pursue other remedies. 

7. Site conditions, exclusions and owner obligations 

Builders should not rely on a general exclusion for “unforeseen site conditions” without identifying the information on which the contract price was based. 

Before signing, the builder should consider: 

• soil and geotechnical conditions; 
• rock excavation; 
• contamination or asbestos; 
• demolition requirements; 
• cut and fill; 
• retaining walls; 
• stormwater and subsoil drainage; 
• service locations and connection costs; 
• access for machinery and deliveries; 
• adjoining property constraints; 
• easements and restrictive covenants; and 
• authority requirements. 

Where the precise cost cannot be determined, the contract should include an appropriate provisional sum, unit rate or variation mechanism. 

The contract should also clearly identify work to be completed by the homeowner or another contractor. This may include demolition, landscaping, retaining walls, service connections or owner-supplied fixtures. 

The builder should specify: 

• the required standard of that work; 
• when it must be completed; 
• who bears the risk of delay or defective work; 
• whether the builder may suspend work; 
• any resulting extension of time; and 
• how additional rectification or supervision costs will be calculated. 

Clear allocation of these responsibilities is particularly important where the builder requires exclusive possession and control of the site. 

8. Suspension, termination and special conditions 

Suspension and termination clauses should be treated as risk-management procedures, not merely remedies to be considered after a dispute has escalated. 

The contract should identify: 

• what constitutes a substantial breach; 
• whether written notice is required; 
• the period allowed to remedy the breach; 
• how notices must be served; 
• when the builder may suspend work; 
• when work must recommence; and 
• the financial consequences of termination. 

A builder who suspends or terminates without a valid contractual or legal basis may itself be found to have repudiated the contract. Legal advice should be obtained before issuing a suspension, default or termination notice. Where a dispute has already arisen on a project, see our building contract disputes lawyers page. 

Special conditions also require careful review. Clauses giving the builder broad unilateral rights to increase prices, suspend work, impose fixed administration charges or restrict the homeowner’s communications may be subject to the unfair contract terms provisions of the Australian Consumer Law. 

Since November 2023, proposing, using or relying on an unfair term in a standard-form consumer contract may attract penalties. A term may be unfair if it creates a significant imbalance, is not reasonably necessary to protect the builder’s legitimate interests and would cause financial or other harm if relied upon. See the ACCC’s guidance on unfair contract terms and our guide to unfair contract terms for small businesses.

Builders should also remember that contractual special conditions cannot remove or restrict the statutory warranties under the Home Building Act 1989 (NSW). For what those warranties cover, see our Home Building Act disputes lawyers page. 

A builder’s pre-signing checklist 

Before issuing or signing the contract, the builder should be able to confirm that: 

• the correct licensed entity is entering the contract; 
• the latest contract and mandatory guides are being used; 
• all plans, specifications and tender documents are identified and attached; 
• inclusions and exclusions are clear; 
• prime cost and provisional sum allowances are properly itemised; 
• the HBC cost and certificate have been addressed; 
• progress payments reflect the value of completed work; 
• the variation procedure is commercially workable; 
• the construction period and extension-of-time procedure are clear; 
• site risks and owner obligations have been allocated; 
• insurance policies will remain current throughout the relevant period; and 
• all special conditions comply with the Home Building Act and Australian Consumer Law. 

The builder should also have an internal contract administration system ready before construction begins. A well-drafted contract will provide limited protection if project staff do not issue notices, obtain signed variations or retain supporting records within the required time. 

How Citilawyers can assist builders 

A contract review is not intended to remove every commercial risk from a construction project. Its purpose is to ensure that the builder understands the risks being accepted, that the contract accurately reflects the agreed project and that the contractual procedures can be administered in practice. 

Citilawyers can assist builders by: 

• reviewing NSW home building contracts before signing; 
• reviewing contracts published by industry associations or based on NSW Government templates; 
• preparing or reviewing builder special conditions; 
• identifying missing or inconsistent contract documents; 
• reviewing scope, exclusions, prime cost items and provisional sums; 
• advising on variations, delays, progress payments and termination provisions; 
• identifying statutory compliance and unfair contract term risks; and 
• providing a concise written risk report with recommended amendments. 

Early legal review is usually more efficient than attempting to resolve an ambiguity after construction has commenced. For the full scope of what a pre-contract review covers, see our home building contract review lawyers page. 

If you are a builder preparing to issue or sign a home building contract, call Citilawyers on (02) 9233 7737 for a free initial phone consultation, or contact us. Tell us the date you need to sign and send the contract with the tender, plans and specifications.