Domestic building work encompasses most work involving the construction of a home. This includes any landscaping, paving and the construction of any building or fixture with the home (e.g. retaining structures, driveways, fencing, garages, carports, workshops, swimming pools or spas) and the supply of lighting, heating, ventilation, air conditioning, water supply, sewerage and drainage to the home.

Domestic building work also extends to the renovation, alteration, extension or improvement or repair of a home, including any site works related to this work. Domestic building work also included the preparation of plans or specifications for the carrying out of the work referred to above.

Whenever a builder is doing domestic building work for an owner and the job value is more than $10 000, the builder must be a registered building practitioner (i.e. DB-M, DB-U or DB-L) and execute a major domestic building contract with the owner. Examples of conforming major domestic building contracts are: the New Homes Contract (HC-7), Home Improvements Contract (HIC-6), Domestic Cost Plus Contract (DCP-2), Minor Works Contract (MW-2), and the Australian Building Industry Contract Simple & Major Works Contracts – ABIC SW (Housing) 2018 and ABIC MW (Housing) 2018.

Can an unregistered person do domestic building work on a job valued at more than $10,000? Unregistered persons may not carry out any building work. There are some, very limited, exceptions to this rule:

1. No registration is needed whenever a person is a subcontractor to a registered building practitioner.
2. A builder who is solely engaged in the business of carrying out domestic building work if the cost of the domestic building work carried out by that person is $10,000 or less, in each case. (But a demolisher and a reblocker must be registered for all work, even less than $10,000).
   Note: it is unclear what happens if there is more than one such ‘person’ carrying out work on the same project, and the total exceeds $10,000.
3. Building work as otherwise excepted under r7-9 of the Domestic Building Contracts Regulations 2017.

Cost plus means that the builder charges a fixed price (being the actual cost of the works) plus a fee (based on a fixed amount or percentage or a combination of both), on an agreed basis for his work. There are restrictions on when a builder can use a cost plus agreement for domestic building work and penalties exist for infringing these restrictions.

Essentially, a builder is not permitted to enter into a domestic cost plus arrangement unless:

1. The reasonable estimate of the cost of the job is $1,000,000 or greater; or
2. The work to be carried out under the contract involves renovation, restoration or refurbishment of an existing building and it is not possible to calculate the cost of a substantial part of the work without carrying out some domestic building work.

For number 2 to apply, you must be able to show that a substantial proportion of the work could not be costed before commencing works. This does not mean that the work is difficult to price, but almost impossible. Therefore before using 2, we recommend that you first seek independent legal advice, as penalties for non conformance may apply.

Master Builders has a Domestic Cost Plus Contract (DCP-2). Please call (03) 9411 4555 or visit our products for more information.

If the contract price is $20,000 or greater, then the builder is entitled to no more than 5 per cent deposit. If the contract price is less than $20,000 then a maximum deposit of 10 per cent is allowed.

Failure to comply may mean that the owner can avoid the contract at anytime before completion, seek a full refund of some or all money paid as well as the builder receiving a penalty.

Variation payments are strictly dealt with by the domestic building legislation and there are requirements which must be satisfied. Either the owner or the builder may request a variation to the building contract.

The New Homes Contract (HC-7), Home Improvements Contract (HIC-6), and the Minor Works Contract (MW-2) set out the required procedures for dealing with these types of variations.

To help you, Master Builders has available for purchase a Variation Requested by the Builder – HCV-1B and Variation Requested by the Owner – HCV-1A forms.

Prime Costs and Provisional Sums are slightly different concepts. However, they both require the builder to use reasonable care and skill when providing allowances for them in their contracts.

Prime Cost Items (PCs) are an item (e.g. a fixture or fitting such as a basin or light fitting) that has not been selected, or whose price is unknown when the contract is entered into. It covers the cost of supply and delivery by the builder.

Provisional Sums (PS) means an estimate of the cost of carrying out particular work (including the cost of supplying any materials needed for the work such as landscaping) under the contract for which the builder, after making reasonable enquiries, cannot give a definite amount when the contract is entered into.

For both Provisional Sums and Prime Cost Items, the builder should complete the information that is required in the PS and PC schedules of the Appendix in the contract. The builder needs to complete the information that includes a description of the item, estimate of the quantities required, estimate of the allowance per item and the builder’s percentage margin on excess.

It is important to note that the builder must supply all invoices, receipts and other documents to the owner as soon as practicable after receiving the invoice, receipt or documents. Failure to comply may lead to substantial penalties for the builder.

Liquidated damages are a pre-agreed estimate of any loss or damage to which one party will be entitled in the event of delay caused by the other party. It is important that the amount agreed is a reasonable and genuine pre-estimate of the loss or damage likely to arise, otherwise it may be deemed to amount to a penalty held to be invalid.

Usually they are payable to the owner if the builder fails to bring the works to completion by the extended completion date. They are calculated for the period between the date for completion and the date the works actually reach completion or the date on which the owner takes possession, whichever is earlier.

Liquidated damages may also be payable to the builder by the owner for delays caused by the owner. Therefore, it is generally useful to insert a pre-agreed amount for liquidated damages in the contract in appendix item 17 & 17a of the New Homes Contract (HC-7) or the Home Improvements Contract (HIC-6).

The builder must provide the owner with home owners warranty insurance when domestic building work is done in excess of $16,000. The policy of insurance needs to be obtained before any work commences and the builder cannot enforce any rights under the building contract until the insurance is obtained, and a copy provided to the owner.

There are now some exceptions to the above requirement. Warranty insurance is not required for multi-storey residential buildings – which means buildings that have a rise in storeys of more than three (not including a space within a building that is used as a garage/car space) and contains two or more separate dwellings. Legal advice as to whether a building constitutes a multi-story residential building should be obtained before one relies on this exception.

Periods of warranty are calculated from the date of the occupancy permit or the certificate of final inspection. The period of insurance for domestic building work is currently six years for structural defects and two years for non-structural defects. The policy is for the benefit of the owners and will also protect future owners of the property.

Remember that the warranty insurance only applies if the builder dies, disappears, becomes insolvent or bankrupt either during construction or within coverage period or if a VCAT order for payment has been imposed, and the builder is unable to pay. Therefore, in most instances, disputes about defects and warranties should be resolved directly between the owner and the builder in the first instance.

Defective building work is defined by the domestic building legislation as:

• A breach of any of the builder’s implied warranties; or
• A failure to maintain the standard or quality of work specified in the contract.

If an alleged defect falls within one of the above categories and is notified to the builder within ten (10) years, then from the date of Certificate of Occupancy or Certificate of Final Inspection the builder will be responsible for rectifying the defect and any consequential damage.

Failure by the builder to fulfil their obligations may mean that the owner may be able to lodge an application with the DBDRV or if this does not resolve the dispute, bring an action in VCAT.

The Domestic Building Contracts Act 1995 states that every builder who enters into a domestic building contract provides the following implied warranties to the owner:

• All work will be carried out in a proper and workmanlike manner.
• All work will be carried out in accordance with the plans and specifications set out in the contract.
• All materials to be supplied by the builder will be good and suitable for their intended purpose and that unless otherwise stated the materials will be new.
• All work will comply with all laws and legal requirements.
• The work will be carried out with reasonable care and skill.
• The home will be suitable for occupation at the time the work is completed.

The builder should assess every claim of defective building work on its merits and  determine whether they are actually responsible. Any claim for defective work will ordinarily be against the builder. Where it involves workmanship by their subcontractors, the builder may accordingly seek compensation from the relevant subcontractor.

An owner builder is a natural person who constructs or renovates his or her own home on his or her own land. Since June 2016 owner builders may only obtain building permits if:

• They first obtain Certificate of Consent from the Victorian Building Authority.
• They ensure they read, understand and fully comply with all of their legal obligations and responsibilities including workplace safety and public safety at the site. The owner builder also needs to comply with the domestic building legislation which includes the Building Act 1993 and the Building Regulations 2018. The owner builder might also need to take out insurance for protection works against an adjoining property.
• They may only obtain building permits for a single dwelling on a single property and only once in any five year period.

Where owner builders engage contractors to do work for them, they remain responsible for managing the site and ensuring that all mandatory inspections are carried out in accordance with the laws. The owner-builder also needs to fulfil the following contractual requirements:

• Engage a registered building practitioner for all work over $10,000 (unless it is only one of the exempt single trades).
• Enter into a major domestic building contract for all building work more than $10,000.
• Ensure the registered building practitioner has warranty insurance cover for all work when it is more than $16,000.
• If the owner builder sells the property within 6.5 years after the date of the occupancy permit or the certificate of final inspection then they need to obtain a technical owner-builder inspection report that identifies defects. In addition, the owner builder needs to provide the purchaser with the requisite statutory warranty insurance if they sell the home within 6.5 years. It is an offence to sell a building without the required report and insurance

The builder needs to provide the owner with reasonable access to the building site on reasonable terms. This should always be under the builder’s supervision and control.

Remember that you are entitled to ensure that the owner does not interfere with the carrying out of the building works.

The builder has a contractual licence to do all works necessary under the contract and the owner needs to provide the builder with free and uninterrupted access to the site. If the owner denies the builder access or asks the builder to leave site then there will be contractual implications and the builder should obtain urgent legal advice.

If you receive anything in writing from any of these organisations then DO NOT IGNORE IT. In almost every instance there will be a ‘legal clock' running, and if you fail to respond within the required time, then you might miss your opportunities to defend yourself. It is also important to respond promptly, so that you are not regarded as having accepted the contents of the letter or document.

Therefore, you should always obtain professional advice if you are unfamiliar or unsure about the contents of the letter or document. You might consider obtaining advice from:

• Master Builders - if you are a member, you can obtain initial guidance
• An independent legal practitioner

A professional person with expertise and knowledge of the issues.

Please contact Master Builders on 03 9411 4555.