Does your building contract meet these 4 key legal requirements?

In Queensland, building contracts must meet a number of minimum legal requirements.

There are different requirements for commercial building contracts and domestic building contracts, which are both regulated by the Queensland Building and Construction Commission Act 1991 (Qld) (QBCC Act).  This article is focused on the requirements for commercial building contracts.

If you are undertaking building work in Queensland, or engaging contractors to undertake building work in Queensland, your contracts must comply with the legal requirements to ensure your rights are protected and your contract is enforceable.

Four of the key legal requirements for building contracts in Queensland are:

1. Basic requirements for the form of the contract;
2. Limits on retention and security before practical completion;
3. Limits on retention and security after practical completion;
4. Due dates for payment.

Basic requirements for form of the contract (section 67G)

If your contract value is over $10,000, it must in be in writing before works commence.

This includes contracts where the original value is under $10,000, but where variations have since altered the price above that amount.

Contracts valued at under $10,000 must be put into writing before the building work is finished.

A contract in writing must include the following requirements:

1. the scope of the building work;
2. when the building work is to be completed;
3. the amount to be paid for the work;
4. agreements about retentions and securities;
5. the name of the contractor;
6. the licence number of the contractor; and
7. the address of the building work.

Failure to meet these requirements is an offence, with penalties of up to 80 penalty units (currently $11,028).

2. Limits for retention amounts and securities before practical completion (sections 67K and 67L)

A retention amount or a security is usually held by the contracting party prior to practical completion to ensure that the contracted party performs its obligations.

There are, however, limits on what security can be held to ensure performance.

If the building contract is a head contract, the total value of the retention/securities before practical completion cannot be more than 5% of the contract price.

There are some instances that permit there to be more than 5% held. However, this can only occur if it is for the financial protection of the principal where something has not yet been installed in accordance with the contract.

Both parties can agree to expressly contract out of this provision.  If that occurs, the agreement to contract out must be in writing, explain the condition, expressly provide that the contract is not subject to the condition and be initialled by the parties.

If it is a subcontract, the retention/security amount before practical completion cannot be more than 5% the subcontract price.

Similar to the exceptions applicable to head contracts, the retention security amount for a subcontract can be more than 5% if it is for the financial protection of the contracting party where something has not yet been installed in accordance with the subcontract.

The limitation for subcontracts cannot be contracted out of.

3. Limits for retention amounts and securities after practical completion (section 67N)

After practical completion is reached, the value of retention/securities held cannot be more than 2.5% of the contract price.

This restriction does not apply to retention/security that does not relate to correcting defects identified in the defects liability period for the contract.

Consequently, building contracts must expressly provide for the reduction of retention/security at practical completion to comply with this requirement, or otherwise confirm the basis for continuing to hold excessive retention/security.

4. Due dates for payment (sections 67U and 67W)

The due dates for payment must meet the relevant requirements of the legislation:

• If your contract is a construction management trade contract or subcontract, the contract must provide for payment within 25 business days after the submission of a payment claim.
• If your contract is a head contract, the contract must provide for payment within 15 business days after the submission of a payment claim.

If the contract provides for payment later than these dates, the contract provision will be void.

In the QBCC Act, “business day” does not include:

1. Saturday or Sunday;
2. public holidays, special holidays or bank holidays; or
3. a day in the period from 22 December to 10 January (both days inclusive).

This definition now aligns with the definition of business days in the Building Industry Fairness (Security of Payment) Act 2017 (Qld).

Key Takeaways

Compliance with all legal requirements is critical to ensuring that your building contract is enforceable and your rights are protected.

Careful review of your contracts is necessary as the statutory regime in Queensland has a broad application and the consequences of not compiling can be severe.

If you need help understanding whether you are compliant with the provisions of the QBCC Act, get in touch here.