Building Contracts for Developers: Five Risks to Fix Before You Sign

Fixed price and insolvency risk

Builder insolvencies, volatile costs and tight insurance markets have made fixed-price delivery less certain. The building contract is where most of that risk is allocated.

Most developers start from AS 4000 (or the older AS 2124), or AS 4902 for design and construct, and then amend heavily. Check whether rise-and-fall or escalation clauses have been added or removed, how provisional sums and prime cost items are defined and capped, what counts as a variation and who can direct one, and the builder's rights to suspend work or claim delay. Cost blowouts usually come from loosely scoped items.

Look at the builder's finances, pipeline and payment history before you sign. Make sure the contract gives you adequate security (such as unconditional bank guarantees or insurance bonds, and retention), step-in rights and clear termination triggers, and progress claims tied to certified work. In Victoria, the Security of Payment Act 2002 sets mandatory rules for progress claims and payment schedules, and you cannot contract out of it.

Time, process and feasibility

Many disputes are about process, not price or quality. Set out who can give directions, how variations and extensions of time are claimed and approved, and how disputes escalate without stopping work.

Every week of delay costs interest and erodes margin. You need liquidated damages set at a genuine, defensible estimate of your loss; notice requirements for delay claims with firm time limits; and a force majeure clause that is not so broad it excuses ordinary delay. If you have sold off the plan, the construction programme must fit inside your sunset dates. Under the Sale of Land Act you generally cannot rescind a residential off-the-plan contract under a sunset clause without the buyer's consent or a court order.

Choose the delivery model with the legal risk in view. Check the building contract timeline against your finance milestones and sunset dates before you commit. If the work is domestic building work, further rules apply under the Domestic Building Contracts Act 1995. Get advice early. Call (03) 8658 7069.

General information only, not legal advice. For advice on your matter, call MWBL Consulting on (03) 8658 7069.