Home building contracts in WA, step by step

The contract in the order you meet it

1. The plans agreement

   Before a building contract, a builder may ask for a preliminary agreement, also called a preparation of plans agreement, to pay for the plans and technical papers for a particular house on a particular site. It is a separate contract outside the Act, its costs are unlikely to be refunded if no building contract follows, and home indemnity insurance does not cover it. The builder may count money paid for the plans as part of the deposit on the building contract.

2. The notice, then a written contract

   Every term you agree with the builder belongs in a written contract, dated and signed by both of you or your representatives, and the owner must be given a copy before work starts. If those steps are missed, you may terminate the contract. The Act’s protections apply whether or not the builder is registered, and cannot be signed away.

3. The 45 working days

   The contract depends on two approvals arriving within 45 working days of its date: the building permit and the Water Corporation’s approval. If the time runs out through the builder’s fault, the contract carries on as signed unless you both agree otherwise. If it is your fault, nobody’s, or both of yours, the builder may raise the price by written notice; an increase of more than 5 per cent lets you terminate within 10 working days of the notice, paying the builder’s reasonable costs to that date.

4. The deposit

   Before work starts, the most a builder can require is 6.5 per cent of the contract price. One narrow exception allows up to 20 per cent, where off-site cabinetry makes up more than half of the contract’s value. Outside the $7,500 to $500,000 range the Act sets no deposit limit at all, and home indemnity cover for a lost deposit stops at $40,000. On work over $20,000, the builder must hold home indemnity insurance before asking for any payment, deposit included: see home indemnity insurance.

5. Progress payments, stage by stage

   Once work begins, each payment has to match work actually done or materials actually supplied. Building and Energy’s own example: a builder cannot claim for bricks until they have been delivered to the site. Paying ahead, other than the deposit, is not allowed and can affect a later claim on the insurance. There are no industry-wide standard stages; the builder can propose a schedule, provided each payment genuinely reflects the value of the work for that stage. The common stages are set out on the home page. You, someone you authorise, or your lender may inspect the work during the builder’s ordinary working hours, as long as the inspection does not unreasonably get in the way of the building.

6. The price, and when it may rise

   The contract price is fixed: a clause that passes on later rises in labour or material costs, known as a rise and fall clause, is not allowed. The contract may allow an increase in actual costs from three causes only: government taxes or charges rising after signing, the builder having to comply with a State or Commonwealth law, or work not starting within 45 working days of signing through no fault of the builder. If the delay rise is more than 5 per cent, you may terminate within 10 working days of the written notice, or complain to the Building Commissioner in that time. Prime cost items, such as tiles chosen later, and provisional sums, such as site works, must be estimated at no less than the lowest reasonable cost.

7. Variations

   Each change to the work, with its cost, is put in writing, dated and signed by you both, and you get a copy before the changed work starts. Two kinds of change can skip those steps: directions from a building surveyor or another person acting under a written law, and unforeseen circumstances, which do not include unforeseen rises in labour or material costs. If you dispute that a circumstance was unforeseen, a complaint to the Building Commissioner has to be made within 10 working days of the builder’s written information about it. A builder may also vary the contract to extend the time for completion, for example for bad weather or materials that cannot be found.

8. Ending the contract

   Where the Act gives a right to terminate, you exercise it by written notice to the builder before the work is finished, and may then complain to the Building Commissioner for a financial adjustment between you. Building and Energy warns that ending a contract can make an owner liable to the builder for damages and expenses, lost profit included, so it suggests getting advice first.

If the contract is cost plus

• A cost plus contract lets the builder recover actual costs plus an amount for profit. It has to be headed “cost plus contract”, and both of you have to acknowledge in it that the Act does not apply except for home indemnity insurance.
• If it lacks either, you may terminate it.
• The insurance on a cost plus contract protects against one risk only: an order against the builder that cannot be enforced because of the builder’s death, disappearance, insolvency or loss of registration on financial grounds.

When something goes wrong

An owner or builder who believes the contract or the Act has been breached can lodge a home building work contract complaint with Building and Energy, generally within three years of the contract date or of the cause of the dispute arising. The steps, and the longer limits for faulty work, are on practical completion and defects.