CONSTRUCTION Alert: Changes to domestic building contracts from 1 July 2015

Jun 30 2015

Publications

As part of the Government’s red tape reduction program, the requirements imposed upon domestic building contracts in Queensland will substantially change from 1 July 2015.

It is important that all contractors carrying out residential building work in Queensland are aware of the upcoming changes and that they take steps to update their contracts to conform with the new requirements.  Those who do not do so may face fines of more than $100,000.

Background

Following its enactment in October 2014, the Queensland Building and Construction Commission and Other Legislation Amendment Act 2014 was proclaimed on 28 May 2015 and will now commence from 1 July 2015. 

From that date, the Domestic Building Contracts Act 2000 (Qld) (DBC Act) will be repealed and a new Schedule 1B will be inserted into the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) regulating domestic building contracts entered into after that date.

The DBC Act will continue to apply to those domestic building contracts entered into before 1 July 2015.

Formal requirements

The amendments will introduce a ‘dual contract’ system where contracts entered into after 1 July 2015 with a contract price between $3,300 and $20,000 will be known as level 1 regulated contracts, and contracts with a contract price in excess of $20,000 will be known as level 2 regulated contracts.

Level 2 regulated contracts provide additional protection for owners by requiring the contractor to comply with requirements such as, for example, the inclusion of a warning next to the contract price if any clauses within the contract may change that price. 

Commencement Notices

From 1 July 2015, contractors under level 2 regulated contracts will be required to give owners a Commencement Notice within 10 business days of starting work which states the date works commenced and the date for practical completion. Failure to provide the notice is an offence and may result in fines of more than $4,000.

Warranties

The warranties implied in all domestic building contracts by the DBC Act have been retained, however, the period within which owners may enforce those statutory warranties will change. 

For structural defects the period within which an owner may bring proceedings enforcing a statutory warranty under the QBCC Act will be six years and for non-structural defects that period will be one year. 

The statutory warranty period commences on:

  • the date the work was completed; or
  •  if the work was not completed, the date the contract was terminated; or
  • if the contract was not terminated, the date that work ceased; or
  • if the work was not started, the date of the contract.

The statutory warranty period may also be extended a further six months where the breach of the warranty only became apparent in the last six months of the applicable period. 

For non-structural defects the statutory warranty period has been substantially lessened meaning that owners must be diligent in identifying and seeking rectification of those defects at an early stage. 

It is also important to note that domestic building contracts may contain separate contractual warranties which may be enforceable for longer periods than the statutory warranties provided under the QBCC Act.

Deposits

For domestic building contracts where more than half of the value of the work has been carried out off-site, contractors will be able to charge a deposit of 20%. This reflects the growing popularity of modular and pre-fabricated kit homes within the industry.

Progress Payments

The previous system where contractors were entitled to prescribed proportions of the contract price at various stages of the work has been scrapped. Instead, contractors will be entitled to claim a portion of the contract price that is directly relevant and proportionate to the works carried out.

Consumer Building Guide

Contractors must provide owners with a Consumer Building Guide with each level 2 regulated contract.  The Consumer Building Guide is published by the Queensland Building and Construction Commission (QBCC) and can be downloaded from their website. It replaces the QBCC Contract Information Statement which was substantially lengthier.

Variations

Contractors will not be required to ensure owners sign variation documents before carrying out any variations, as required by the DBC Act, however, a variation must still be agreed in writing before it can be carried out. Further, contractors must provide a copy of the variation document to the owner within five business days of when the parties agree to the variation. 

Extensions of Time

There are new and strict requirements governing claims for extensions of time (EOT).  While there is no longer a requirement to include allowances for ‘calculable’ and ‘incalculable’ delays in the contract, it would be prudent to continue to allow for those delays. This is because contractors will only be entitled to an EOT that is, amongst other things, signed by the owner. This provides owners with significant power to approve EOTs and best practice would be to make allowance for expected delays in the contract rather than relying on the owner to approve EOTs throughout the project. In addition, owners should be expressly required to act fairly and in good faith in assessing claims for EOTs.

Contractors will also be required to make a written claim for an EOT within ten business days of becoming aware of the delay. Therefore, it is important that projects are managed effectively with detailed records kept by contractors in case disputes about EOTs arise.

Conclusion

In our view, the amendments are a victory for the domestic building industry as they substantially reduce the complexity of the requirements imposed upon domestic building contracts. However, it is important that contractors ensure the contracts used are adequately structured to take advantage of, and comply with, the new requirements and that projects are managed effectively.

If you would like some more advice in relation to your contractual obligations from 1 July 2015, please feel free to contact:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Andrew Mackintosh | Senior Associate | +61 7 3338 7551 | amackintosh@tglaw.com.au