Australian Standards Contracts for Small Builders in Residential Construction

There are numerous standard form contract templates available to small builders in the residential construction market including Australian Standard contracts. Small builders in the residential construction can use Australian Standard contract templates to perform their work. There are Australian Standard contract templates such as:

AS4000;

AS4902; and

AS 4305.

Should a Small Builder in Residential Construction use an Australian Standard Contract?

A notable study found that “the Australian Standard forms continue to dominate the Australian construction contracting landscape.” Although this article is limited to my personal experience with small builders in residential construction, one observation about that study is that it appears to be skewed toward affiliates with the University of Melbourne or members of the Society of Construction Law Australia or the Australian Construction Industry Forum. 

My experience is that my clients, who are small builders in residential construction, are not often university educated, especially not from the University of Melbourne and not members of the Society of Construction Law Australia or the Australian Construction Industry Forum. Rather, my experience is that residential builders are often TAFE educated and, if they hold membership, they are members with the Master Builders Association and Housing Industry Association.

In saying that, it is my experience that most small builders in the residential construction market use either the State Government’s Office of Fair Trading contract(s), Master Builders Association contract(s) or the Housing Industry Association contract(s).

5 Common Pitfalls with Australian Standard Contracts for Small Builders in Residential Construction

1.       The Australian Standard contracts are lengthy and they deal with many subjects that are beyond the requirements of a standard residential build.

2.       The Australian Standard contracts, due to their length and many subjects, can be intimidating to your average consumer. It is very often the case that a small builder’s client is a mum and dad.

3.       SAI Global are the licensors of the Australian Standards contracts in Australia. Unlike the MBA or HIA, SAI Global are not an industry association that provides free general advice on their templates. Small builders will likely need assistance from a lawyer to properly prepare an Australian Standard contract which will probably not be allowed for in the builders quote.

4.       Small Builders need to be familiar with the terms and conditions of any contract they sign. The length and many subjects of the Australian Standards contracts can make contract enforcement more difficult if the terms and conditions are not properly understood and followed.

5.       Australian Standard contracts are known to be commonly used for commercial contracting and less commonly used in residential construction.

There are numerous reasons why a builder would not use an Australian Standard contract for residential construction. We will dive into analyse the AS4000 contract template to provide further insight whether a small builder should use an Australian Standard contract.

4 Contractor-Peeves with Australian Standards Contracts

I’ve seen my share of Australian Standards contracts. Here are some common peeves from a commercial contractor’s perspective.

Size

1.       Have you seen the size of those things? They are thick. And the devil is in the details for any commercial contractor.

Terms

2.       Ok, so the thickness doesn't scare you. What about the compliance terms then? Take the insurance clause for example. It requires joint insurance and a waiver of subrogation. You may just find yourself in BREACH of contract before you even start work!

Special Conditions

3.       Fine then, you've updated your insurance policy and spent the cash on all the compliance requirements, or at least you think you have. Let's dig deeper. What are the key terms that protects your interests?

Contracts are supposed to be fair. Australian Standards contracts are used a lot in commercial contracting and the building and construction industry is renowned for contractors being ripped off. The Australian Standards templates are not written for the sole benefit of the commercial contractor. Special conditions can make the contract worse for the contractor.

Time Bars

4.       So you've priced in the risks with the risk allocation. If you have gotten to this stage, then you are either an awesome contractor or you're kidding yourself. Read the terms and conditions in that Australian Standards template, the devils in the detail I say. Two words - time bars!

You somehow can understand all the terms and conditions, you somehow can write like a lawyer to make a Compliant Notice, BUT you must send those notices in within limited time. How long does it take to price a variation? Time is of the essence!

Oh, you must have a full time contracts administrator and estimator. Fine then, I guess it’s fair to say you've allocated another $200k+ to your project.

This list obviously can go on-and-on but you get the drift. I have experienced firsthand on many, many occasions what it's like to be on the commercial contractors’ end of an Australian Standards contract. So I'll suggest some basic things you can do to manage the above risks.

Tips for Commercial Contractors to Manage Australian Standards Contracts

1.       Voila, it’s probably the most commonly overlooked step when you are excitedly awarded a large contract from a new client! Often you’re dreaming of how you will spend the profit from your estimation. Well let me tell you, Due Diligence! You must know who you are sleeping with. We are talking about high value transactions here, not pennies!

2.       Implement systems into your business. Obviously your systems need to be contractually compliant with Australian Standards but just as important your systems should also add value to your business's bottom line. What I mean by this is that the value can be an efficiency or reduction in head count.

3.       Negotiate the contract terms and surround yourself with experts in commercial contract administration. Let's face it, you may be a great at your trade and everyone on site might love you. BUT when the differences in opinion come about, as they often do with project work, then you better be sure you have excellent paperwork.

4.       Site diaries for all staff is a MUST! Put simply, Site Diaries can help you track the life of the project. But they do so much more. They can be a powerful tool for future work and disputes. For example: They provide support with tracking your cost to complete, assist with future estimating, provide evidence for allegations with disputes, and much more. This is a simple but effective thing that any commercial contractor can do. A site diary can even help manage time bar risks if the person responsible for preparing the notice can easily track the diary notes.

5.       Walk away from the contract if you don't feel good about it. We have so many insolvencies in our industry. Be prepared to walk away.

6.       Australian Standards contracts are detailed yes, but the single best thing I think any commercial contractor can do is COMMUNICATE. Collaboration can help reduce the need to look at the contract in the first place.

My view is that Australian Standards contracts are too difficult to comply with. If you are a commercial contractor wanting to build a successful AND sustainable business, then I want to hear from you.

John Dela Cruz

Small Builders – Building Software

Founder and CEO