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Understanding Building Contracts

Read about the 'ins' and 'outs' of building contracts and why you should use HIA or MBA contracts when building a house.

The Ins and Outs of a Building Contract.

Building contracts can seem like a very complex thing to understand. It’s not until you read through all the glossaries and meanings etc, until you can really begin to get your head around the whole idea and the dos and don’ts of what you want included.

A contract that’s written up by a building company will obviously benefit the building company, there will be clauses within the booklet that give the builder options of retrieving money from you the client that you may not seem fair. The contract will however still be within legal rights of both parties to usually go through the building process in a friendly manner.

It is not uncommon for many clients to shy away from these type of contracts as they believe no matter how much they believe they understand everything, they will still get ‘burnt’! This is the reason many building companies use common building contracts that are written up by the associations of building such as the HIA or the MBA. These contracts are written by lawyers to see the project run smoothly and fairly and both parties can benefit from all clauses if strictly adhered to throughout the building process. There are many clauses in these booklets that are clearly written and easy to understand. This ensures you can feel safe in signing the contract knowing that as long as you adhere to the clauses outlined, the builder must also to.

Understand the project instalments and the amounts so you can pre plan this with your bank loan. When a certain stage of building is reached, the builder will send an invoice for an instalment payment. This is for stages such ‘concrete foundation’. Meaning the concrete foundation has been laid. This ensures the builder doesn’t have to outlay their own money to build your home. Some stages will help pay for the delivery of some major building materials such as the timber for the wall and roof frames.

Keep an eye on any ‘Prime Cost’ sums. These are amounts that the builder has estimated you will spend on items such as sanitary ware and tiles etc.

Sometimes clients like to have a figure amount and try to adhere to this amount whilst choosing their fixtures and fittings. This can be reached. If you go over, you will receive a Variation cost. If you go under you will receive a credit. Note the credit will be minus an admin fee which the builder has a right to charge. Make sure these amounts are substantial too. Some low cost builders advertise cheap homes by lowering these amounts to unreachable amounts. This in turn makes the contract seem cheap until you begin choosing items and find the Prime Cost sum was ridiculously low. This is common with the concrete foundation sum.

If you wish to have no Prime Cost sums, you will need to adhere to the initial selections you are given from the builder. Usually they have a range such as a ‘Gold’ range where if you choose everything from this range. They know the exact cost already.

When signing, always bring a witness to sign as well, the builder can supply a witness or you may choose to use a friend. Ensure all details are correct! Incorrect details can cause a heart ache so make sure you have everything true and correct with final figures and sums etc. You will receive a copy as well so ensure both copies are exactly the same. In the end you just need to be confident when signing. If you’re not sure of any written clauses, ask the builder to explain until you do. Remember you’re spending a lot of money and you don’t want to end up in the red due to unseen extras that you didn’t check up on.

Article written by: Josh Story

Josh Story is a licensed building supervisor in Australia, founder and owner of 'Trades Check'.
Follow him on Twitter, Google+ and Facebook.

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