Module 1 – Project Task 1.3 – Prepare a Contract 2

Table of Contents

Module 1 – Project Task 1.3 – Prepare a Contract 2

Outline why the chosen contract type was selected, referring to relevant legislative and regulatory requirements 2

Details of who you consulted regarding the contract selection and/or preparation (industry association or consumer regulatory authority) 2

Approved Domestic Building Contracts Checklist from Director of Consumer Affairs Victoria 3

Details of site accommodation 5

Small plant that would be required 5

The time allocation for the Supervisor to manage the project 5

A schedule of the estimated completion dates for the stages in the payment schedule 6

List of documents that is included in the contract to ensure it is a legal contract 6

Construction Contract Checklist 7

Introduction 7

B. General points 7

C. Design responsibility 8

D. Remedies for delay 9

E. Defective work 10

D. Contract price/payment provisions/tax 11

References 13

Module 1 – Project Task 1.3 – Prepare a Contract

Outline why the chosen contract type was selected, referring to relevant legislative and regulatory requirements

It was selected because we are building a new home and Master Builder Association Victoria has specified “New Home Building Contact” for this type of jobs.

Above contract is specifically design for new home construction.

The MBAV contract follows the reference and satisfied the requirements of the Domestic building contract Act and also adhere to the followings Australian Standards:

  • AS 4000 General conditions of contract
  • AS 2124 General conditions of contract

The builder must also provide Domestic Building Insurance as a contract exceeds more than

$16,000.

Details of who you consulted regarding the contract selection and/or preparation (industry association or consumer regulatory authority)

  • Master Builder Association of Victoria
  • Consumer Affairs
  • Legal Practitioner

Approved Domestic Building Contracts Checklist from Director of Consumer Affairs Victoria

Section 31(1)(r) of the Domestic Building Contracts Act 1995

This checklist must be included in major domestic building contracts entered into from 1 September 2016 in substantially the same form or to the same effect as follows.

Before signing this legally binding contract, check this list:

If the cost of the building work is more than $16,000, has an insurance policy or certificate of currency for domestic building insurance covering your project been issued and provided to you? (Note: If not, the contract is conditional upon you receiving either an insurance policy or a certificate of currency for domestic building insurance.)Yes
No
If this contract is conditional upon you receiving written approval for finance, have you obtained such approval?Yes
No
Have you appointed a private building surveyor or has a municipal building surveyor been engaged? (Note: If not, you will need to choose and engage a building surveyor before your building work starts so that a building permit can be issued for your building work.)Yes
No
If you answer ‘NO’ to any of the following questions that apply to your building project, you are not ready to sign the contract:*
Have you had this contract long enough to read and understand it?Yes
No
Have you been provided with evidence that the builder named in this contract is registered with the Victorian Building Authority?Yes
No
Are the price and progress payments clearly stated?Yes
No
Do you understand how the price is calculated and may be varied?Yes
No
Has the builder assessed the suitability of the site for the proposed works? If tests are necessary, have they been carried out?Yes
No
If a deposit is payable, is it within the legal limit?
The maximum under the Domestic Building Contracts Act 1995 is: 10% if the price is less than $20,000, or 5% if the price is $20,000 or more.
Yes
No
Is the work shown and described clearly in the contract, plans and specifications and any other relevant documents (such as engineering computations or soil report)?Yes
No
Are your special requirements or standards of finish included in the plans and specifications?Yes
No
Are the commencement date and completion date clearly stated or capable of being worked out?Yes
No
Do you understand the procedure for extensions of time?Yes
No
Are any ‘provisional sums’ or ‘prime cost items’ clearly stated in the schedules and understood by you?Yes
No
Do you understand the procedure for variations of plans and specifications?Yes
No
Do you understand the circumstances in which you can end the contract?Yes
No
Did your builder give you a copy of the Domestic Building Consumer Guide?Yes
No
If yes, insert the date on which you were given a copy of this guide dd/mm/yyyy
Have you read the Domestic Building Consumer Guide and the related information at consumer.vic.gov.au/buildingguide?Yes
No

This checklist does not form part of the contract.

I/we have read and completed this checklist:

Signature/s
Date dd/mm/yyyy

* Note: Not all of these questions will apply to a domestic building contract that covers a limited scope of work, for example, a contract that is limited to the preparation of building plans and specifications. (Victoria, 2016)

Details of site accommodation

A domestic site like this will not be requiring site accommodation. However, if site is located in a remote location a nearby caravan park or hotel or motel can be use as a temporary site accommodation.

A small plant that would be required

Some of the small plants are required as follows:

  • Excavator
  • Dingo
  • Generator
  • Compressor
  • Small Crane
  • Cement Mixer
  • Battery powered tools.
  • Scissor lift
  • Duct Lifter
  • Scaffold
  • Shoring
  • Ladders
  • Gates

The time allocation for the Supervisor to manage the project

Time allocation for supervisor is 6 months to complete the build or 164 x days of schedule work.

A schedule of the estimated completion dates for the stages in the payment schedule

Timeframe in weeksPercentageAmountStage of build
2 Weeks0%$0Pre-contract
2 Weeks5%$16,000Deposit
4 Weeks10%$32,000Base Stage
4 Weeks15%$48,000Frame Stage
6 Weeks35%$112,000Lockup Stage
4 Weeks25%$80,000Fixing Stage
2 Weeks10%$32,000Final Stage

List of documents that is included in the contract to ensure it is a legal contract

List of documents as follows:

  • Soil Report
  • Energy Report
  • Engineering
  • Architectural Drawings
  • Planning Permit (if required)
  • Project Specifications

Construction Contract Checklist

Introduction

The purpose of this checklist is not to replace a review of the construction contract, but is intended to be used following such a review in order to check that all the key areas of the contract have been addressed. It is not essential to obtain positive answers to all the questions below in order to be able to give a contract a positive review, but hopefully the checklist will be useful in identifying areas of the contract which require further attention.

B. General points

  1. Has a full set of the contractual documents been provided for review?
  2. Does there appear to be any inconsistencies or any potential for inconsistencies between any of the contractual documents, e.g., two documents may cover the same area?
  3. Have all areas of the contract which need to be checked by a technical adviser been identified in the review, e.g.:
    1. technical aspects;
    2. employer obligations;
    3. rely on information;
    4. performance tests;
    5. all limits on liabilities; and
    6. Levels of liquidated damages?
  4. Has the contract been entered into? [If so, has it been executed as a deed?]
  5. Is the contract unconditional?
  6. Is there or has there previously been any interim arrangement in place between the employer and the contractor, e.g., work may have commenced under a letter of intent? If so, what are the implications of this ongoing or previous arrangement?
  7. What law governs the contract? Has advice been taken on the implications of this choice of law?

Is the contract based on one of the well-known standard forms of contract e.g. I Mech E or FIDIC?

C. Design responsibility

  1. What is the level of duty of care assumed by the contractor in respect of design? Is it an absolute obligation or only an obligation to use reasonable skill and care?
  2. Does the contract identify “performance criteria” which the plant when completed is required to meet? Is the contractor’s obligation to meet these criteria an overriding obligation or is it subject to a contractor’s duty only to use reasonable skill and care if such a duty of care is specified in the contract?
  3. What responsibility does the employer assume in respect of any designs, plans or technical information provided by him to the contractor?
  4. As regards any design/information provided by the employer, does the contract require the contractor to check this information and to assume responsibility for errors which could have been discovered by an experienced contractor?
  5. Is the contractor entitled to rely on the accuracy of any of this information (normally referred to as rely on information)? If so, does the employer have adequate recourse against the third parties who may have provided this information originally? (NB all rely on information will need to be checked by a technical adviser).
  6. Does the contract provide a mechanism for the employer to be able to review the detailed design of the contractor as and when it is produced?
  7. Are there adequate time periods provided for in the contract in order for the employer to carry out such review?
  8. If the detailed design is to be reviewed by the employer, by reference to what criteria is such approval to be made?
  9. Does the contract provide in respect of any design review and generally that approval by the employer does not release the contractor from any liability which he might otherwise have in respect of the design?
  10. If the review is to be carried out by a third party, such as an independent engineer, on behalf of the employer, is there provision elsewhere for a duty of care deed to be executed by that third party in favor of the lenders?
  11. Does the contract provide for performance tests to be performed to check (inter alia) that the plant is capable of achieving the performance criteria (see C.(2) above)? These tests will need to be reviewed by a technical adviser.
  12. When does the contract provide for these tests to be carried out? (This is normally upon mechanical completion.)
  13. Is the passing of the performance tests a condition precedent to handover?
  14. What does the contract provide for in the event that there is a failure in the performance tests?
  15. What is the effect of the plant passing the performance tests? (e.g., this should not exclude the contractor from any ongoing liability.)

D. Remedies for delay

  1. Does the contract provide for the payment of liquidated damages in the event of delay? If so, at what rate and up to what maximum limits? (The level of these damages should impose an adequate incentive on the contractor to complete on time 10-25 per cent. of the contract price as a maximum limit is a reasonable guideline.)
  2. What is “completion” for the purposes of establishing the payment of liquidated damages? Ideally the performance tests should have been successfully completed before completion can take place.
  3. Are there any unusual terms contained in the liquidated damages clause, e.g., liquidated damages calculated as being a percentage of the unfinished part of the work or only payable if the other parts of the project are already in place?
  4. If the contract is governed by English law, does the contract entitle the contractor to claim for extensions of time for employer’s default? (If not, the liquidated damages provision may not be enforceable). What other matters entitle the contractor to claim an extension of time?
  5. Consider the impact of the governing law on liquidated damages.
  6. Does the contract provide for a clear right of the employer to terminate for prolonged delay (i.e., when the maximum limit of liquidated damages has been reached)?
  7. If the employer is entitled to terminate the contract for prolonged delay, what damages are recoverable from the contractor following such termination? Is any element of consequential loss recoverable?
  8. Is there a clause in the contract requiring the contractor to catch up any delay which arises and providing that failure to do so amounts to a breach of the contract?
  9. Is the payment of the contract price front end loaded? The technical adviser should be asked to comment on this. If the contractor receives the bulk of his payment up front, the incentive on him to complete the works may be significantly reduced.

E. Defective work

  1. What is the duty of care imposed by the contract in respect of materials and workmanship?
  2. Does the contract provide for the employer or engineer to be able to inspect the works as they are performed and to require the contractor to put right any defective work?
  3. Is there a defects liability period and, if so, for what period? Does the contract draw any distinction between different aspects of the work (e.g., between engineering and civil works)?
  4. What is the effect of any final certificate issued at the end of the defects liability period? Does the contractor try to exclude his liability in any way for any defects arising after the end of this period (e.g., is there an exclusive remedies clause)?
  5. What does the local law provide as regards a contractor’s residual liability for latent defects?
  6. If the contractor fails to remedy any work for which he is responsible, does the contract entitle the employer to employ a substitute contractor to do this work and then for the employer to recover his costs from the original contractor?
  7. Are there any caps on the liability of the contractor to put right any defective work? Does this cap apply to any re performance requirements imposed on the contractor prior to handover?
  1. What does the contract provide for in respect of defects remedied during the defects liability period, i.e., does a new defects period start to run in respect of the replaced part and/or is the overall defects liability period extended by the period of time during which the works were put out of use due to that particular defect?
  2. How does the contract deal with the responsibility for costs in the situation where the employer requires the contractor to uncover work on the grounds that he has a reasonable suspicion that there may be a defect, having identified a similar defect elsewhere in the works? It is not necessarily logical simply to allocate the costs of uncovering work by reference to whether or not a defect is discovered.
  3. Does the contract require the contractor to notify the employer/engineer prior to any work being covered up?
  4. Is the employer entitled to take over the plant if it is not operating as required by the terms of the contract (e.g., it has failed the performance tests) and recover liquidated damages in respect of the short falls in performance (“buy down” liquidated damages)?
  5. Does the contract exclude liability for consequential and/or economic loss?
  6. Is the employer entitled to deduct sums from interim invoices in respect of defective work?

D. Contract price/payment provisions/tax

  1. Except for clearly identified additional payments, is the contract price a fixed lump sum? Have all entitlements to additional payments been identified in the review?
  2. Is the contract price expressed to include all contingencies and not to be subject to revision to take account of any fluctuations?
  3. How are payments triggered? What is the time for payment? What interest is payable by the employer if there is delay in making payment?
  4. Does the contract provide for payment by reference to milestones? (If so, they should be reviewed by the technical adviser.)
  5. If payment is by milestones, does the contract deal with what is to happen where progress is delayed due to the employer’s default? (The contractor should not be entitled to a milestone payment in these circumstances simply because the employer’s default has prevented this milestone being achieved, since otherwise there is a danger of overpayment.)
  6. Is payment by reference to a pre agreed payment schedule? If so, in what circumstances is the employer entitled to adjust this schedule?
  7. Is the employer entitled to deduct sums for defective work or for the cost of repairs carried out by a replacement contractor?
  8. Does the contract price include any provisional sums? Are these subject to maximum limits?
  9. What is the size of the “project negative” gap throughout the contract, i.e., the gap between expenditure by the employer and value received by the project either in terms of engineering or on the ground? (This should be reviewed by a technical adviser.)
  10. Does the contract envisage amendments to take account of the requirements of export credit agencies?
  11. Does the contract provide for the contractor to supply sufficient evidence of work done with interim invoices in order for the employer to be able to check that payments are due under the contract?
  12. Does the contract provide for any retentions from payments to be made to the contractor?
  13. Is the employer responsible for any taxes otherwise payable by the contractor? If the employer is responsible for payment of such taxes, does the contract expressly exclude penalties payable by the contractor and is there provision for the contractor to reimburse to the employer any tax credits subsequently recovered? (PPP in Infrastructure Resource Center for Contracts, Laws and Regulations (PPPIRC), 2008)

References

PPP in Infrastructure Resource Center for Contracts, Laws and Regulations (PPPIRC), 2008. Construction Contract Checklist. [Online]
Available at: http://www.worldbank.org/ppp
[Accessed 25 June 2021].

Victoria, C. A., 2016. Director of Consumer Affairs Victoria. [Online]
Available at: consumer.vic.gov.au/buildingindustry
[Accessed 25 June 2021].

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