FAQ

Building Industry Frequently Asked Questions
 

Residential Building Contracts (RBC)

 DISCLAIMER
These FAQs provide a general overview of what may be applicable for your particular enquiry in regards to a Residential Building Contract (RBC) and should not be deemed as legal advice. Matters in relation to building works are dependent upon various contractual, legislative and technical requirements which may determine the actual responsibilities and outcomes for the persons involved. You are advised to seek your own professional legal and/or technical advice to allow you to consider your available options.
Legal referrals may be found through the Queensland Law Society at http://www.qls.com.au/Home 

Click on the question that most relates to your query about the RBC.

How does a security account work? 

Your building contract may contain a provision to use a security account for monies which are not subject to a loan approval from a financial institution. There are a number of ways to achieve this security of payment:

  • Deposit the contract monies into the Master Builders Trust Account 
  • Open a joint account 
  • Obtain an unconditional Bank Guarantee 

How does the Master Builders Trust Account work?

The Master Builders Trust Account is used when there is a monetary dispute between parties where a building contract is in place. The primary purpose of the Master Builders Trust Account is to hold the disputed amount of money in trust until the matters are resolved. 

The Master Builders Trust Account can be used in the following instances:

  • A building contract contains a condition that a security for costs be deposited for arbitration as nominated by the President of the Queensland Master Builders Association. 
  • There is a current dispute on file. 
  • A Court or Tribunal order states specifically that the money is to be paid into the Master Builders Trust Account. 
  • A building contract contains a condition that disputed amounts may be paid into the Master Builders Trust Account. 
  • There is a direction from an arbitrator. 
  • There is a direction from an adjudicator appointed under the Building and Construction Industry Payments Act 2004 
  • A Master Builders' member utilises the Master Builders Trust Account in the administration of the building contract eg. a security of payment provision.

What are liquidated damages?

Liquidated damages are monies you are able to deduct if your contractor fails to complete the contract by the time nominated in the contract, or extend by the terms of the contract. These are called liquidated damages because both parties have agreed, prior to signing the contract, that the costs represent a genuine pre-estimate of a party's loss that may flow from a specific breach of contract by the other party (at the time the contract was entered into). 

Liquidated damages should not be regarded as a penalty. Penalties are 'extravagant and unconscionable' when compared with a genuine pre-estimate of loss.

What are the payment stages under the contract? 

The RBC used dictates when the owner needs to make regular progress payments to the contractor as payment for the work carried out on site. The payments are based on the works completed.

In keeping with legislative requirements, the Master Builders RBC offers two options for choosing how these payments are made.

Method A – prescribed under section 66 of the Domestic Contracts Act 2000. If Method A is used the maximum deposit cannot be more than 5% if the contract price is $20,000 or greater and 10% if less than $20,000. 

The stages and percentages are fixed by the Act (progress payments for designated stages). 

Refer to Part D of the Appendix to the Master Builders contract. At the designated stages, the building contractor must not demand or receive an amount that is more than the percentage of the original contract price as specified in the '% of the contract price' column. 

 

Method B – is applied when both parties agree that these percentages don't apply. This agreement must be in writing to satisfy any requirements prescribed under a regulation. 

Master Builders Method B satisfies this requirement. The maximum deposit cannot be more than 5% if the contract price is $20,000 or greater and 10% if less than $20,000. 

The stages and percentages are agreed to by the parties to the contract. Refer to Part D of the Appendix to the Master Builders contract. At these stages, the building contractor must not demand or receive an amount that is more than the percentage of the original contract price as specified in the '% of the contract price' column. 

Furthermore, the percentages must not exceed the actual value of the work completed for that stage. 

What deposit is payable under the Domestic Building Contract?

On signing of a contract, an owner is required to pay a deposit to the contractor as follows:

Contracts under $20,000 – maximum payable is 10% of contract price 

Contracts greater than $20,000 – deposit must not exceed 5% of the contract price 

What is cost escalation and how does it apply?

Cost escalation is a condition of the RBC to which you will have agreed to. In certain circumstances, this condition will allow your contractor to increase the contract price for delays which they are not responsible for. An example of this kind of situation is a delay when you are obtaining building approval, or a delay in providing the builder or contractor access to the site.

The amount/percentage of cost escalation will vary, depending on whether the delays were caused before or after works began.

Your contractor will ensure that you initial clause 25 or 26 (whichever is applicable in your contract). Failure to initial the relevant clause will prevent the contractor from claiming any cost escalation.

Note: The cost escalation clause does not allow your contractor to increase the contract price just because increases have occurred in labour or material prices during the course of your contract. The Domestic Building Contracts Act 2000 has strict provisions for the inclusion of a cost escalation clause.

Can a retention amount be held on a residential contract?

A retention amount can be held on a residential contract only if the terms of the contract allow for a retention amount to be deducted and retained by the owner. If the contract gives the owner a right of retention then the contract conditions should nominate the percentage of the amount the owner can deduct and retain from the GST Exclusive Contract Sum. The amount retained by the owner secures the performance of the contractor's obligation under the contract, including the contractor's obligation to rectify defects.

Can I inspect the works during the course of construction?

You (or your authorised representative) are allowed reasonable access to your land and a reasonable opportunity to view any part of the works (provided the contractor's performance is not obstructed) during construction. 

However, you cannot enter the site at any time you choose – you must provide your contractor with a written request, with any access by prior arrangement during working hours or other times as agreed by both you and your contractor.

How can the contract be terminated?

The general conditions in your contract will outline the procedure for either party to follow if you intend to terminate a contract. Formal notices that must be served on the other party in accordance with the general contract conditions are required. These notices provide each party the opportunity to respond.

If you intend to terminate a contract, we recommend you seek formal legal advice before doing so.

How can I be sure that the contractor has a current QBCC contractors licence?

You can ask to see their contractor's licensed card. The complete details of their licence are available online at www.qbcc.qld.gov.au

How is the date for commencement determined under the contract?

The date for commencement is usually determined as stated in the contract schedule with reference to the general conditions and/or special conditions to the contract. 

In a Master Builders RBC the contractor is generally required to commence works within ten days of the owner providing:

  • All information, evidence and consents required to be given by the owner 
  • Satisfactory evidence of their capacity to pay the contract price 
  • All necessary building and/or planning approvals required, 
  • Notice to the contractor from the lending body that works may commence (if a financial institution is providing loan money). 

The contractor is required to confirm the commencement date depending on how the contract schedule is filled in.

Is a contractor entitled to payment of a variation that has not been put in writing and signed by the owner?

If there is disagreement about the amount of a variation and the variation has not been put in writing and signed off by the owner, the contractor cannot force payment of the variation from the owner. However, this does not mean the contractor is not entitled to payment.  To gain payment the contractor will need to make an application to the Tribunal to have this matter settled.

What happens to the allocated inclement weather delay days in a contract if there is no delay as a result of inclement weather?

The days allocated to inclement weather are not deducted from the contract if no delays occur as a result of inclement weather. However should the contractor want to claim additional days over and above those allocated in the contract they will need to show that the allocated days have been used.

What happens with defects at practical completion?

Defects liability – the defects liability period is a specific section in your contract which commences once practical completion has been reached and runs for a specific period of time, which is nominated within your contract.

In many cases, defects are not discovered until after the contract has been completed – which is why this defects liability period has been included in your contract. If you discover defects during this period, you are required to give written notice to the contractor requesting they rectify the defect.

If the contractor fails to rectify this defect, you can have it rectified by another party and sue the contractor for damages. 

One thing you should note here: if you fail to give your contractor appropriate written notice of the defect that requires rectification and proceed with having it rectified by another party, the defect liability will be limited to the cost the original contractor could have rectified the defect for – and not the third party's cost, which in many cases could be dearer.

What if there are defects discovered during the course of the contract?

In the first instance the owner should notify the contractor. However, if either party believes that a reasonable outcome cannot be achieved concerning the defect then they must look to the contract terms which should detail the appropriate course of action to be followed. Depending on the nature and severity of the defect in question it may be appropriate to seek independent advice from a suitably qualified person.

What is practical completion?

Practical completion is the stage when works have been completed in accordance with the contract and all relevant statutory requirements (with the exception of minor defects or minor omissions) and the works are reasonably suitable for habitation. When your works reach this stage, your contractor will hand over possession of the building with all compliance certificates to you, once you have paid the monies due under the terms of the contract.

What is the consequence for a contractor under a regulated residential contract of an owner not receiving both a copy of the contract and contract information statement (CIS)?

If the contractor does not give an owner both documents the mandatory cooling off period of five business days will not commence until the owner has received both documents. Consequently an owner who has not received a copy of both the contract and CIS could during the course of the contract elect to enact the mandatory provisions for the cooling off period during any stage of the contract and thereby bring the contract to an end.

When making progress payments who should be paid?

The written contract will state the names of the parties who have entered into the contract. The person making the progress payment should only pay the party (person or company) whose name appears on the contract. For example, if John Smith (owner) and Bill Blogs (contractor) have signed a building contract then John Smith should only pay Bill Blogs.

When should a variation amount be paid?

When a variation results in an increase to the contract price the owner must pay the contractor the amount of the increase in accordance with the time stated in the variation document. Note that all variations must be put in writing and signed off by the owner. Also the contractor should ensure the owner has the financial capacity to pay the cost of the variation prior to commencing the variation.

Where do I lodge an application for a residential building dispute?

All residential building disputes are lodged in the Queensland Civil and Administrative Tribunal (QCAT). It should be noted that QCAT also has the jurisdiction for commercial disputes up to the value of $50,000. Further details about QCAT and lodging an application are online at www.tribunuals.qld.gov.au

Who owns copyright of the plans?

Under a preliminary building agreement, all drawings and specifications become and remain the sole property of the contractor. You warrant that the use of the design, plans or documents does not infringe on copyright or any other intellectual property right when:

  • the contractor carries out the works in accordance with any plans or documents supplied by you 
  • the works incorporate designs which were prepared under your instruction, supervision or direction, 
  • the works were prepared from sketches supplied by you. 

NOTE: As the owner, you also indemnify the contractor against all proceedings, claims, losses and demands in respect of any actual or alleged infringement of copyright or any other intellectual property right by the contractor as a result of the carrying out of the works.

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