Construction Contracts Under Pressure
Australia’s construction sector is under pressure. Builder insolvencies, volatile material costs, labour shortages, and insurance constraints have made fixed-price delivery riskier than ever. Developers and funders can no longer rely on traditional contracting models to protect margin or mitigate disruption.
Legal structuring now plays a frontline role in project viability. If you’re preparing to start a project, here’s what you need to know before signing that building contract.
1. Fixed-Price Contracts Are Not as Fixed as You Think
Many developers still enter into AS 2124 or AS 4000 style construct-only contracts on a lump sum basis, assuming price certainty. The reality is that these contracts are almost always modified — often in ways that shift more risk back to the developer or financier.
You need to know:
Whether escalation clauses have been inserted or removed
How provisional sums and cost-plus components are defined
What scope change or variation thresholds allow the builder to renegotiate price
Whether the builder has the right to suspend or delay without clear penalties
Cost blowouts usually happen in areas that were loosely scoped or poorly priced. Clarity at the contract stage saves costly arguments later.
2. Builder Solvency Is a Commercial and Legal Risk
Insolvency risk in the construction sector is no longer theoretical. Developers need to consider not just price, but delivery continuity. You should:
Conduct due diligence on the builder’s balance sheet, pipeline, and payment history
Require performance bonds, not just bank guarantees
Include step-in rights in case the builder collapses mid-project
Lock in retentions and staged claims with appropriate certification clauses
If your builder goes under, you don’t just lose time — you may also lose access to insurance coverage, subcontractors, and bank confidence.
3. Project Governance Must Be Built into the Contract
Legal risk often arises because of miscommunication, unclear authority, or gaps in documentation. You can reduce this by embedding governance tools into the contract from day one:
Project Control Group (PCG) structures with defined decision-making protocols
Clear documentation trails for variations, extensions of time, and progress claims
KPIs and milestone triggers linked to drawdowns or releases
Dispute escalation mechanisms that don’t grind the project to a halt
Many disputes aren’t about price or quality — they’re about process and accountability. Good governance clauses reduce finger pointing when problems arise.
4. Time Contingency Is a Legal Risk, Not Just a Programming Issue
Every delay affects revenue, debt interest, equity IRR, and reputation. From a legal standpoint, time must be managed with enforceable:
Liquidated damages provisions that are reasonable and quantifiable
Clear sunset date buffers if selling off-the-plan
Delay notification protocols with hard deadlines
Force majeure clauses that are not overly broad
You should also consider dual pathway programming for major infrastructure or complex planning conditions, especially in greenfield or infill sites.
5. Build Risk Reviews Should Be Embedded in Feasibility
Most legal risks are “priced in” too late. By the time you’re ready to sign, you may be stuck with bad terms for financial close.
A legal risk review at feasibility stage should:
Stress test procurement strategies (e.g. D&C vs construct-only)
Review delivery timelines against sunset dates, head contracts, and funding milestones
Identify the right balance between builder risk and pricing flexibility
Confirm whether head contractor model is even appropriate, or if early works packaging or construction management is more viable
The legal contract should match the commercial intent. That requires alignment early, not during final document review.
Final Word
Construction contracts are no longer back-office paperwork. They are commercial risk instruments. If the legal terms are wrong, your entire development stack is vulnerable — including your finance, timelines, and investor confidence.
This article contains general information only and does not constitute legal or financial advice. For tailored construction legal guidance, contact MWBL Consulting.