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A contract is basically made up of three components, a request, an offer and a consideration, the consideration is also known as the conditions of the contract.
It is always good practice to enter into a formal written agreement with a licensed contractor when undertaking any building work.
A contract should clearly detail to each party their respective scope of works, obligations and responsibilities.
Commonly used are standardised forms of contracts, which are published by related building industry associations.
Such as The Plain English Building Contract as published by The Department Of Fair Trade NSW, The Housing Industry Association, The Master Builders Associations, and The Royal Australian Institute of Architects.
Take time to understand the contract before signing. For information on where to obtain these standard contracts ask your Local Council, Architect or relevant State Government Authority.
Choose an appropriate contract and understand it well. If a contractor suggests another standard type contract, obtain a copy and study it well. If there are any areas of uncertainty seek advice.
For Owner Builders, the terms of payment to sub-contractors including progress claim periods, delays in payments and retention on payments should be included in the sub-contract conditions.
The majority of contracts used in residential work are of a lump sum type contract. A lump sum contract is where a total cost is agreed upon for the whole of the works as detailed on relevant drawings and specifications. However, the final amount paid may change due to authorised variations or approved cost adjustments.
Some standard contracts allow for supervision or inspection by the owner. It gives the owner or their representative a range of duties related to the works, which can include the checking of quality, authorisation of notices, certifying and making payment.
Some standard contracts also allow for the owner to appoint an architect or suitably qualified person to inspect the construction on the owner’s behalf.