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What is a domestic building contract in Victoria?

An Overview on Domestic Building Contracts

As the principal Victorian domestic building legislation, the statutory intention of the Domestic Building Contracts Act 1995 (Vic) is to regulate domestic building contracts, domestic building disputes, and insurance requirements expected of builders when carrying out domestic building work. The Act also prescribes standards for the carrying out of domestic building work. This intent to regulate domestic building work is expressly stated in the statute’s objectives:

….to provide for the maintenance of proper standards in the carrying out of domestic building work in a way that is fair to both builders and building owners.

In this article, we address the frequently asked questions amongst owners, builders and property developers, including:

What is a domestic building contract?

The Act prescribes a statutory meaning for a domestic building contract, and this is defined as:

A domestic building contract is a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a subcontractor.

Furthermore, common types of domestic building contracts can take various forms, including:

  • New Home Contracts
  • Alterations & Additions Contracts
  • Minor Works Contracts
  • Small Works Contracts
  • Cost Plus Contracts
  • Preliminary Agreements

What is the difference between a domestic building contract and major domestic building contract?

A major domestic building contract is also a domestic building contract. The difference between the two types of contracts is that a major domestic building contract has a stated contract price to be qualified. In summary, a major domestic building contract is a domestic building contract in which the contract price for the carrying out of domestic building work is more than $10,000. 

In our other topics, we describe how variations may be performed and the statutory requirements that are expected to be complied. Those include:

The statutory meaning of a domestic building contract requires that the contract relates to domestic building work. The Domestic Building Contracts Act 1995 (Vic) regulates and provide meaning to the kind of domestic building work that the Act applies. In summary, domestic building work includes:

Domestic Building WorkSummary
HomeDomestic building work may apply to the erection or construction of a home, including renovation, alteration, extension, or repair.
 
Furthermore, domestic building work may also extend to the demolition or removal of a home.
Landscaping and StructuresDomestic building work may include landscaping, paving or erection or construction of retaining structures, driveways, fences, garages, workshops, swimming pools or spas that is to be carried out in conjunction with the renovation, alteration, extension, improvement or repair of a home.
ResidentialAny work associated with the construction or erection of a building on a land zoned for residential purposes under Victoria’s planning schemes and a building permit is required.
Site WorkCertain kinds of site work that are within the ambit of the statutory definition of domestic building work.
PreparationsCertain kinds of preparation with plans or specifications for the carrying out of work within the ambit of the statutory definition of domestic building work.
RegulationsAny work that regulations state is domestic building work for the purposes of the Act.

Read More: What is domestic building work in Victoria?” provides an overview on the meaning of domestic building work, and when the Domestic Building Act 1995 (Vic) may apply.

Are there exceptions to domestic building work?

There are exceptions that carve-out certain kinds of building work as not being the kind of building work that is regulated by the Domestic Building Contracts Act 1995 (Vic). This may include building work in relation to farm buildings, buildings intended to be used only for business purposes, or buildings intended to be used only to accommodate animals.

Outside of the Act, exceptions to domestic building work are also prescribed in the Domestic Building Contracts Regulations 2017 (Vic). The exceptions in the regulations may include exempting building work that relate to work carried out under a contract for one type of certain building work and work carried out in relation to certain buildings and premises.

Read More: For more information about domestic building regulations, “What is the Domestic Building Contracts Regulations 2017?” provides an introduction to the format and layout of the regulations.

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What are the statutory warranties that form part of a domestic building contract?

To ensure appropriate standards as to building work, the Domestic Building Contracts Act 1995 (Vic) prescribes implied statutory warranties for building work carried out under a domestic building contract. These statutory warranties form part of every domestic building contract

The statutory warranties are thematically summarised in the table:

Statutory WarrantiesSummary of Statutory Warranties
Proper and WorkmanlikeBuilding work should be carried out in a proper and workmanlike manner and performed in accordance with a contract’s plans and specifications.
Materials SuppliedAll materials to be supplied by the builder for use in the building work should be good and suitable for the purpose that they are used. Unless otherwise stated in the contract, those materials supplied should be new.
ComplianceBuilding work should be carried out in accordance with all laws and legal requirements.
Reasonable Care and SkillBuilding work should be carried out with reasonable care and skill and should be completed by a date or period specified in the contract.
Suitable for OccupationIf building work involves erection or construction of a home, or is building work intended to renovate, alter, extend, improve or repair a home to a stage suitable for occupation, then the home should be suitable for occupation when the building work is complete.
Fit for Particular PurposeIf the contract states a particular purpose for the building work required, and there is reliance by the owner on a builder’s skill and judgement, then the building work and any material used in carrying out that building work should be reasonably fit for that purpose or should be of such a nature and quality that the builder might reasonably be expected to achieve that result.

What are the penalties if a person enters into a major domestic building contract without registration?

Before a major domestic building contract is entered between a builder and an owner, there are obligations that the person carrying out the building works must comply. For example, the person carrying out domestic building work must not enter into a major domestic building contract unless:

  • the person is a registered building practitioner; and
  • the person’s registration authorises the person to carry out the work.

There are significant penalties involved for contravention when entering into a major domestic building contract without proper accreditation or registration. This involves penalties comprising 500 units for a natural person and 2500 penalty units for body corporate. Furthermore, a person in contravention is at risk of not being entitled to payment under the contract unless they meet certain exceptional circumstances.

Read More: What is a major domestic building contract in Victoria” explores the contents contained in those kinds of contracts.

When is a cost-plus contract permitted as a domestic building contract?

While fixed price or lump sum contracts are common, generally, at law, builders may not enter into a cost-plus building contract for domestic building work. In summary, a cost-plus contract is a contract based on work carried out on the net cost, plus a margin. A builder may be permitted to enter into a cost-plus contract for domestic building works if they meet exceptions requirements.

Examples of the exceptions when a cost-plus contract may be permitted is illustrated in the table below:

PeriodsSummary
Before 1 August 2017Cost-plus contracts for work entered into before 1 August 2017 that is reasonable estimated to cost $500,000 or more.
On or after 1 August 2017Cost-plus contracts entered into on or after 1 August 2017 that are reasonably estimated to cost $1,000,000 or more.
Public constructionDomestic building contracts, as cost plus contracts, for public construction where the Crown or a public entity is a party to the Contract.

Further, cost-plus contracts may be permitted if there is a contract involving 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.

What is a prime cost item and provisional sum in a domestic building contract?

Prime costs items and provisional sum may be incorporated into the contents of a domestic building contract. The terms, prime cost items and provisional sum, are given statutory meaning, and the terms are summarised in the table below:

TypesSummary
Prime Cost ItemIn summary, prime cost items are items that either has not been selected, or whose price is not known, at the time a domestic building contract is entered into. However, the cost of the supply and delivery of prime cost items must be made with reasonable allowance in the contract.
Provisional SumIn summary, a provisional sum is an estimate of the cost of carrying out particular works (including labour and materials). After making all reasonable inquiries, this estimate sum is made when a builder cannot give a definite amount at the time the contract is entered.

Notes and Further Information

On other discussions relating to issues on domestic building work and construction, our topics include:

Domestic Building Work | Domestic Building Contracts Act 1995 | Domestic Building Contracts Regulations 2017 | Major Domestic Building Contract | Variation (Owner) | Variation (Builder) | Domestic Building Insurance | Progress Payments | Variations (General) |Termination | Repudiation | Causation | Damages |

If you are looking for legal expertise and have any questions, connect with an author or a member of our building and construction team.

Do you need legal advice? Call us on (03) 5331 1244 to get in touch and arrange an appointment with one of our lawyers.

You can also connect with us by filling out your details and telling us about your information for legal advice below:

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Authored by:
Ben Franklin, Managing Partner (LIV Accredited Specialist – Property Law), &
Matthew Tran, Lawyer.

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