Building Contracts: Review and Drafting

10 November 2025 in Building and Construction Law | 5 min read | skip to FAQs

A building contract is a contract which relates to a building or construction project. A building contract will typically contain provisions relating to the labour and materials necessary to complete a construction project. The nature, complexity and number of contracts entered into by parties will depend on the type of construction project that is being completed. Factors that that influence contract provisions include the scale of the project, the number of parties involved and the estimated time of completion.

A building contract is a legally binding agreement that create rights and obligations for all parties. A well drafted contract will help ensure that all parties to a project clearly understand their rights and obligations and allows the agreement to be more easily enforceable. Building contracts encompass projects ranging from the construction of a home to the construction of large-scale infrastructure.

The contract must govern the key aspects of a building project which broadly fall into the categories of quality, time and cost. Not having a clear and effectively written contract in place can create legal problems and may lead to disputes between the parties.

Common Types of Building Contracts

Home Building

A small building job on a residential building requires a contract to be in place if the work ranges between $5,000 and $20,000. Section 7AAA of the Home Building Act 1989 (NSW) (HBA) provides the key clauses which must be included in any home building contract for small jobs (up to $20,000).

Section 7 of the Home Building Act 1989 (NSW) provides the key clauses which must be included in any home building contract for jobs with a value over $20,000. Such clauses include the name of the parties, the contractor’s licence number, any description of the work, the contract price and evidence of the builders home building compensation insurance.

Section 7A of the Home Building Act 1989 (NSW) provides that it is an offence for any person to contract to do home building work unless the contract complies with the requirements of sections 7, 7AAA and 7E. Importantly section 10 of the Home Building Act 1989 (NSW) states that a person who contracts to do home building work under a contract which is not in writing or does not include a sufficient description of the work or in contravention of any other provision of the Home Building Act 1989 (NSW) is not entitled to damages or to enforce any other remedy under the contract or enforce the contract.

Home Building Compensation Insurance

The general rule, as set out in section 92 of the Home Building Act 1989 (NSW), is that builders performing residential building works that are over $20,000 must have insurance. Specifically, the builder must obtain a contract of Home Building Compensation insurance, that complies with the HBA, is current during the construction and is in the builders name. The builder must also provide a certificate to the homeowner which is attached to the contract. The builders insurance must insure the homeowner and those who subsequently purchase the property against any risk of loss arising from building defects and of non-completion of the works. For more information on home building compensation insurance, please see our article.

Fixed Price or Lump Sum Contracts

This is where the contract clearly defines both the building work to be done and the cost of that work. This allows parties to agree on a fixed price.

Cost plus Contracts

A cost plus building contract allows the contractor to be paid for the costs of completing the relevant work. This allows a contractor to recover costs associated with wages, subcontractors and materials used plus allows a certain amount of profit. This type of contract is useful when the exact nature or price of a building project cannot be determined.

Drafting of Building Contracts

Many disputes in construction occur because of poor contract drafting. It is important to have an experienced building and construction lawyer negotiate prior to the drafting of the contract to ensure the removal of unreasonable risks. This ensures that you have adequate control over the building process, that the schedule of payments reflects the progress of works and that there are no unexpected price variations. The contract needs to address risk and responsibility allocation, liabilities and insurance, provision for variations, quality and inspection, delay and extension of time, payment and potential disputes. The issue of risk and responsibility allocation can be handled in several ways, including design and construct, construction management and the use of both collaborative and traditional approaches. This is reflected in how contracts are drafted.

Review of Contracts

Any building contract should be thoroughly reviewed prior to signing. Changes and additions can be inserted anytime prior to the signing of contracts. Parties should negotiate any amendments to ensure that their requirements with regard to quality, price and time requirements are addressed and that this is reflected in the contract. These amendments may include the timing of progress payments, the inclusion of liquidated damages, control of the building schedule, delays and extensions of time, risk management and approval of all variations.

There are several standard building contract forms, such as those produced by the Housing Industry Association (HIA) and Standards Australia. An experienced building and construction lawyer will be able to explain the legal terms and repercussions to you, provide clear advice and make relevant amendments to these standard forms.

Administration of Contracts

Once the contract has been drafted, amended, agreed to by all parties and executed, it will need to be well administered. Issues that may arise during this process may include variations, delays, extension of time, payment claims, requests for information, insurance matters, disputes and defective works.

Dispute Resolution Clauses in Contracts

Any building contract should include a thorough dispute resolution clause setting out how disputes may be resolved. Disputes in the building industry are unfortunately common and may relate to defective building work, variations, delays, extensions of time and payments. Dispute resolution mechanisms include litigation and alternative dispute resolution including negotiation, mediation, conciliation, expert determination, adjudication and arbitration. For further information on dispute resolution, please see our article on home building and construction disputes.

How can BSM Sydney Lawyer assist you?

Brander Smith McKnight Sydney law firm are recognised as industry experts in building and construction. We have over 35 years of experience in the review, negotiation and drafting of building contracts. We will advocate for you and protect your rights. Our senior construction lawyers provide a free 20-minute consultation.

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BSM Lawyer Sydney has offices conveniently located in Sydney CBD, Sutherland, Parramatta, Shellharbour and Wollongong.