era | Pact YOUR CONTRACT
STEP FIFTEEN
IN THE PROCESS TO DESIGN + BUILD ARCHITECTURE SPECIFIC TO YOU.
make a deal
Look at the options and decide which contract is right for you and your project.
Or if someone is making the decision for you, understand more about the contract you will be involved with.
Get to know your contract.
A contract is a legally binding agreement between two parties.
It is whatever you both agree to. It can be for anything and be made up of anything!
If you are employing any type of professional – a consultant or a contractor – you will likely enter a formal agreement with them to work with you.
For example, you may agree with a consultant that they will design your architecture and you will pay them for it. Or, you may agree with a contractor that they will build your architecture and you will pay them for it.
Because you are asking for something to be done, it is important to be open, honest and very clear about what you are asking for, and therefore what they will be delivering to you in return. This avoids confusion or dispute and ensures a positive outcome for both parties.
Keep in mind that a contract can be made between parties even if you have not made a formal written agreement of what that contract consists of. This is a risky way to proceed, as no-one is quite sure what their roles and responsibilities are. With no clarity about what is being agreed, dispute is more likely to arise.
The NSW Government Department of Fair Trading notes that
‘Your chosen builder or tradesperson must give you a written contract if:
the contract price is over $5,000 (including GST), or
the contract price is not known, is for the provision of labour and materials by the contractor the reasonable market cost of which is more than $5,000 (including GST).
Jobs worth between $5,000 and $20,000 require a ‘small job’ contract with basic information, while building jobs worth more than $20,000 must be covered by more extensive written contracts.’
This is a big topic, with so much to go into, so I will summarise the different types of construction contracts and not go into any detail here.
It is worth noting that contract types and contract law differs from place to place. Although a contract is a tool used in various parts of the process, it can be a complex form of law to administer [particularly when disputes arise] and people spend their lives learning its intricacies.
Note that the information in this section is a simplistic overview and relates to contracts utilised in Australia.
What is a construction contract?
A construction contract is made up of a number of documents.
If your architecture has been tendered, the tendered documents will form the construction contract.
These documents are referred to as the contract documents and may include some of the following:
- Contract Agreement
- General Conditions of Contract
- Special Conditions of Contract
- Scope of Work
- Drawings
- Specifications
- Breakdown of Construction Costs
- Unit Pricing or Bill of Quantities
- Security
- Insurances
- Any other documents included by either party to establish the contract
There are several different types of contract.
Here is a general breakdown of the different types of construction contract:
TIP: In case you are not familiar, ‘The Works’ is often the contractual term to describe ‘ your architecture’.
Standard Form Contract
Some clever people have taken the time to prepare a wide variety of standard contract documents. Each one has been made with a particular purpose in mind, for example, for a design and construction agreement. A standard form contract is often used as the general conditions for a set of contract documents. Amendments or modifications are sometimes made to the general condition standard form in order to meet the requirements of the project. However, some projects simply utilise the standard form contract as it is without modification.
Lump Sum | Fixed Price Contract
This is the most common type of contract.
The works to be completed are fixed and there is there is a fixed price to complete the works.
This also means that the works are fixed.
The works can be changed with additions, deletions or modifications which are called variations.
Variations will ultimately alter the cost of the works, usually with an increase in value.
Cost Plus Contract
This contract type is based on the idea that the contractor is paid for the works plus an agreed percentage.
It is also known as an Early Contractor Involvement contract.
This is a contract which can be more flexible than a lump sum|fixed price contract.
As there is not a fixed price or known price set for this type of contract, there is not a set limit to the extent of works or to the cost of the works.
Therefore, these are risky contracts to enter into, as the outcome, including the cost, is uncertain. Ensure to obtain professional advice prior to entering a Cost Plus Contract.
Custom Contract
This contract is a bespoke document prepared especially for your work.
The contract may be prepared from scratch, or it may be that a standard contract form is used and amended or modified to suit the requirements of your works.
How to find your construction contract.
To be fair, the decision for which contract you will use may have been made for you by someone else.
It may have been made at the time you chose your plan.
If you haven’t established which contract you will use yet, then it may be a topic you will discuss with your design team, or it may be something you are deciding for yourself.
There are a few organisations in Australia who prepare standard form contracts, with each type they make suitable for a different scenario where a contract is required.
The most common include:
Australian Standards suite of contracts prepared by the Standards Australia Committee on General Conditions of Contract and published by SAI Global
Australian Building Industry Contract suite of contracts prepared through a joint venture between the Master Builders Australia Ltd and the Australian Institute of Architects
There are other organisations that produce standard contract forms in addition to those noted above.
These include the Master Builders Association as well as local government bodies, such as the New South Wales Department of Fair Trading.
Each standard contract form is updated from time to time and it is important to note the year the contract form you are using is dated because each edition varies as this affects the conditions of each contract.
They can be used as they have been prepared, or modified with amendments to suit the particular agreement. The modified amendments are written additions or modifications to the standard form. These modifications are often determined based on the experience of the people involved in preparing the contract documents.
A study completed by the University of Melbourne in 2014 discovered that choosing which construction contract to use for a project often came down to which contract the person making the decision was familiar with. It also found that the Australian Standard forms were the most popular.
Australian Standards – Most Commonly referred to as AS with the four digit number following
Two suites of Australian Standard forms of contract have been prepared over time.
The AS2124 suite was prepared first.
The AS4000 suite was prepared to replace the AS2124 suite.
The publisher, SAI Global, notes that the AS4000 suite is updated from the AS2124 suite to:
‘reflect current industry practices
include current rulings in the law
make the contract easier to use and understand (in plain English)
reflect more recent trends in the industry (such as programming and ecommerce).’
There are more standard contract forms to choose from in the AS4000 suite than in the AS2124 suite. However, the AS2124 suite was established first and it is familiar to the people using it. As such, the AS2124 suite is still commonly used in Australia today.
How to read the Australian Standard Form Number:
AS = Australian Standard
The next four digits = the Standard Form Number
Then there is a ‘–‘ = Separation Between Four Digit Numbers
The last four digits = the Year the Standard Form was Released
You can reference all of the current Australian Standards suite of contracts online.
Australian Building Industry Contracts – Most Commonly referred to as ABIC
There are different contracts that have been prepared for each purpose as well as for each state in Australia.
ABIC MW-2018 Major Works Contract
ABIC MW-2018-H Major Works Contract – Housing
ABIC SW-2018 Simple Works Contract
ABIC SW-2018-H Simple Works Contract – Housing
ABIC BW-2018-C Basic Works Commercial Contract
ABIC CP-2014-C Commercial Cost Plus Contract
ABIC EW-1-2003 Early Works
Learn about the different types of contract, discuss the options with the professionals you are working with and agree a contract that will suit all of you as well as your architecture.
If you have employed a professional such as an architect or designer, they can likely discuss the contract options with you and guide you through choosing a type suitable for your architecture.
If you have employed a design and construction organisation or project home builder, they will likely already have chosen a contract for you.
Your construction contract in the process.
The following will help determine the contract you use:
- The plan option you chose
- The procurement option you chose
- The type of documents you wish to include in the contract
The choice of what type of construction contract you use will determine which construction process you will utilise to build your architecture.
THE PROCESS.
This is the fifteenth step in the process to design and build architecture.
If you would like to see how this step fits within the process, you may be interested in a little Book I have written that sets out each step in the Process in one place. It is a guide and workbook to help you through each step in your architectural journey.
The process is summarised in this little Blog post - era | the Process to Design + Build Architecture.
Each step in the process will also be broken down into its individual steps right here in this little Blog - so keep checking in to see the whole set!
Til next time!
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