Why a good con­tract is so im­por­tant

Kapi-Mana News - - WHAT’S ON - ALAN KNOWSLEY

Good con­tracts are crit­i­cal for avoid­ing dis­putes and debts. It is manda­tory to have writ­ten terms of trade for build­ing projects worth more than $30,000, but it is rec­om­mended to have them for all build­ing work ex­cept the small­est jobs.

In ad­di­tion to the min­i­mum re­quire­ments of the Build­ing Act set out un­der the Build­ing (Res­i­den­tial Con­sumer Rights and Reme­dies) Reg­u­la­tions 2014, your build­ing con­tract should have th­ese essentials:

1. The par­ties to the con­tract. Are the con­tract­ing par­ties in­di­vid­u­als, part­ner­ships, body cor­po­rates, trusts, or so­ci­eties? If this is not cor­rect in the con­tract, you may not be able to en­force it.

2. The scope of the build­ing work. It helps to be very clear on this point to avoid dis­putes.

3. How the build­ing work will be car­ried out. As re­quired by the Act it is im­por­tant that, as well as de­scrib­ing what is to be done, you also de­scribe in de­tail how it will be done.

4. The cost of the build­ing work. You need to be clear at the out­set about how much it will cost. That may be an agreed quote or es­ti­mate, or a method for de­ter­min­ing cost. What­ever the agree­ment, make sure it is recorded in your con­tract.

5. Pay­ment. It is im­por­tant that your con­tract is clear about when pay­ment is due. It is not enough to in­clude a due date for pay­ment on an in­voice when it is ren­dered with­out hav­ing a spe­cific clause in the con­tract. The con­tract should there­fore:

Iden­tify whether pay­ment claims will be made and, if so, how many over the course of the build­ing work.

6. Iden­tify when pay­ment claims and/or in­voices will be is­sued, when they will be­come due, and how they will be re­ceipted.

For the terms of trade to be en­force­able against the other party, it is best (and manda­tory when the build­ing work is more than $30,000) to have them signed by both par­ties. You should have two signed copies of the build­ing con­tract (or one for each party).

The build­ing con­tract might also:

Re­quire a de­posit and fur­ther pay­ments/top-ups as fur­ther work is re­quired.

In­clude a clause set­ting out that in­ter­est at a set rate will be


payable on any amount over­due. The in­ter­est rate must be rea­son­able for it to be en­forced.

Con­tain a de­fault clause al­low­ing re­cov­ery of any amount spent in try­ing to re­cover the debt.

You need to be clear at the out­set about how­much it will cost.

Con­tain a per­sonal guar­an­tee from the di­rec­tors or trustees of a com­pany or trust. A valid per­sonal guar­an­tee will en­able (in the event the com­pany or trust de­faults on its obli­ga­tions un­der the con­tract or be­comes in­sol­vent) a claim against those who guar­an­teed the debt.

There are par­tic­u­lar re­quire­ments for a guar­an­tee to be valid, in­clud­ing that the guar­an­tor’s sig­na­ture must be in­de­pen­dently wit­nessed.

Once the con­tract is in place, both par­ties need to en­sure they com­ply with all their obli­ga­tions and keep good records of what has been agreed, what has been done and what pay­ments have been made.


Sub­stan­tial build­ing work re­quires a good con­tract so both par­ties have a clear un­der­stand­ing of the terms and con­di­tions.

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