Contracts and agreement types

Preliminary agreements are common in the building industry.  

These agreements are made before a building contract, allowing a licensed contractor to get paid upfront for any initial (preliminary) work they do or organise for an owner.  

This preliminary work is often essential in order for the licensed contractor to calculate an accurate price for the building contract.

Preliminary work can include (but is not limited to):  

• having designs drawn up
• developing plans and specifications
• undertaking soil tests and contour surveys.

The contractor is able to take full payment upfront to cover their costs in arranging this work on your behalf. However, as with any contract, carefully read the terms of the agreement before signing to ensure you are clear on exactly what you are paying for.

WARNING: Some preliminary agreements include fees or penalties if you choose not to proceed with the building contract after receiving the final price. This may be illegal, so home owners should get legal advice before signing an agreement containing these types of charges.

A contract is not required if the work is valued less than $3,300 (including labour, materials and GST).  

However, we still recommend having a record or agreement in place.  

We’ve prepared a simple, two-page ‘small building projects contract’ template where you can record:

• contractor details
• address where the work is taking place
• description of the work
• commencement and completion dates  
• payment details.  

This will give you peace of mind that you and your contractor are on the same page. 

If your building work is valued at more than $3,300, you will need a contract.  

This is known as a Level 1 contract and must include:  

• names of the contracting parties including the name and licence number of the building contractor as it appears on their contractor’s licence
• address where the work is taking place
• description of the work
• the contract price (or method for calculating it, including the contractor’s reasonable estimate of the contract price)
• Queensland Home Warranty Scheme premium—the QBCC’s nation-leading safety net for home owners  
• the date for completion or how the date is to be determined (e.g. within 20 business days of work commencing onsite)
• any plans and specifications required for the contracted work
• a notice advising you of your cooling off period rights.

The contractor must give you a fully signed copy of the entire contract within five (5) business days after entering the contract.

This is known as a Level 2 contract and must contain all inclusions for a Level 1 contract, plus the following:  

• The QBCC Consumer Building Guide must be provided to you to read before you sign the building contract
• The start date (in addition to a date for practical completion), or how it is to be determined (e.g. within 10 business days of building approval being issued).
• The contract price (if a fixed amount without allowances) and a price change warning (setting out any contract provisions that could cause the contract price to increase or decrease, e.g. because of agreed variations) must be stated on the first page of the contract schedule  
• If the contract price is not fixed, the method for calculating the price including any allowances (e.g. for Prime Cost Items or Provisional Sums) must be stated in the contract schedule  
• Relevant Statutory/Implied Warranties must be stated in the contract. Key inclusions:  
  • Materials must be new and suitable for purpose (unless otherwise stated in the contract).
  • Work must be carried out in accordance with all relevant laws, legal requirements and plans and specifications (if plans and specifications form part of the contract).
  • Work must be carried out in an appropriate and skillful way and with reasonable care and skill.
  • Work must be carried out with reasonable diligence.
  • If the contracted work consists of the construction, renovation, improvement or repair of a home to a stage suitable for occupation – the home will in fact be suitable for occupation when the contracted work is finished.
  • If the contract price includes any allowances for prime cost items (e.g. fixtures and fittings such as tiling, kitchen appliances, bathroom fittings, etc.) and/or provisional sums (e.g. contracted services such as rock or termite removal), such allowances will be calculated with reasonable care and skill. 

A cost plus contract is defined in section 1 of Schedule 1B of the QBCC Act as ‘... a domestic building contract under which the amount the building contractor is to receive under the contract cannot be accurately calculated when the contract is entered into, even if prime cost items and provisional sums are ignored’.

Cost plus contracts are particularly dangerous for owners because of the lack of certainty around the final cost of the project and the high incidence of serious disputes associated with the use of this contract for both parties. As the contractor’s payment claims are proportionate to the total cost of materials and subcontractor’s charges, there is actually a disincentive for the contractor to minimise those costs.  

We’ve received reports for many home owners suggesting that final costs under a cost plus contract are often considerably higher at 50% to 100% greater than they anticipated.

WARNING: As a consequence of the uncertainty surrounding the final contract price for cost plus and construction management contracts, protection for non-completion under the Queensland Home Warranty Scheme is not available to home owners when these contracts are used. We strongly recommend you obtain formal legal advice before agreeing to use either contract for domestic building work. 

In a standard domestic building contract, the home owner hires a builder who then manages trades (e.g. plumbers, electricians, etc).

However, the main distinguishing feature of a construction management contract is that, in addition to hiring a licensed builder to act as a construction manager the owner may also be required to engage directly with multiple trades and is ultimately responsible for their performance.  

A breakdown in this type of contract, or one of the trade contracts, may impact on other trade contracts, potentially leaving you exposed to delays and costly legal action.  

WARNING: As a consequence of the uncertainty surrounding the final contract price for cost plus and construction management contracts, protection for non-completion under the Queensland Home Warranty Scheme is not available to home owners when these contracts are used. We strongly recommend you obtain formal legal advice before agreeing to use either contract for domestic building work. 

If you’re building a new home, your contractor will use a new home construction contract, which differs to contracts used for renovations, extensions, improvements and routine repairs – as detailed above.  

We suggest downloading our new home construction contract template to get an idea of what’s required in that contract before embarking on a new build.