Reading a building contract: what to look for first

TL;DR

Read the four big-money clauses first: contract sum, payment schedule, variations, liquidated damages. Then PC/PS reconciliation, EOT mechanism, defects liability, insurance. State-specific home warranty and security of payment cover the rest. Don’t sign anything missing a written reconciliation method for PC and PS items.

The four big-money clauses

These move the most cash, fastest. Read them before anything else.

Clause	What to check
Contract sum	Lump sum or cost-plus? Includes GST? Includes PC sums and PS items, or are they on top?
Payment schedule	Stages, percentages, claim mechanism, retention amount. Does it match your cashflow needs?
Variations	Process, written authorisation requirement, builder’s margin on cost, dispute pathway.
Liquidated damages	Daily rate, cap, when it triggers. ABIC and HIA contracts have provision; check whether it’s filled in.

Vague or missing? Fix it before signing.

Contract type changes the risk

Type	Builder’s risk	Use when
Lump sum	High. Builder bears cost overruns.	Scope is clear, drawings complete.
Cost-plus	Low. Client bears cost. Builder takes a fee or margin on actuals.	Scope is messy, design evolving. Margin is usually thin.
D&C (Design and Construct)	High. Builder takes design risk on top of construction.	Builder has in-house design or trusted consultants.

Most residential lump-sum work uses HIA, MBA, or ABIC SW-2018 (Simple Works). Larger jobs use ABIC MW (Major Works). Owner-builder versus licensed-builder contracts have different statutory protections; check the relevant state guide.

PC sums and PS items, the reconciliation trap

PC sums (Prime Cost items) and PS (Provisional Sums) are allowances for things not yet specified or scoped. They are the single biggest variation source on most jobs.

Demand in writing:

The exact reconciliation method (supplier-quote-based, builder margin treatment, timing of adjustment)
Builder margin on PC and PS items. The ABIC, HIA and MBA suites each handle margin differently; check the contract wording before signing rather than assuming a percentage.
What happens if actual cost is below the allowance (refund, credit, or kept)
Owner-supplied items: who installs, who’s liable for damage, who covers delivery delays

“Allow $X” without a reconciliation method is a fight waiting to happen.

Programme and milestones

Read these clauses together:

Start date and “site possession” date, plus contingencies (permit issued, deposit cleared)
Construction period, weeks or business days
Milestones triggering payment
EOT mechanism (Extension of Time): grounds, notification period, supporting evidence
Practical completion definition. ABIC defines it; HIA defines it; check the wording matches your understanding.
Defects liability period length. HIA’s standard New Home contract uses 13 weeks. Other residential contracts run 3 to 6 months. Commercial contracts often go 12 months. Always check what’s filled in.

If the EOT clause is one-sided (only the client can extend, builder can’t claim weather delays), push back hard.

Insurance, state-by-state

Home warranty insurance protects the client if the builder fails. Builder must hold it before contracts can be signed in most states.

State	Scheme	Trigger threshold	Notes
NSW	HBCF (Home Building Compensation Fund), via icare	$20,000
VIC	DBI (Domestic Building Insurance)	$16,000	Threshold rises to $20,000 from 1 July 2026; administration moving from VMIA to the Building & Plumbing Commission.
QLD	QBCC home warranty	$3,300
SA	Building Indemnity Insurance, via SAFA / QBE	$20,000	Threshold lifted from $12,000 on 10 November 2025.
WA	Home Indemnity Insurance, under the Home Building Contracts Act 1991	$20,000
TAS	New Home Warranty Insurance scheme being introduced	$20,000 (proposed)	Tasmania had no compulsory HWI from 2008. Confirm current commencement before quoting it in a contract.
NT	Residential building insurance under the Building Act	$12,000
ACT	Builders Warranty Insurance under the Building Act 2004	$12,000	Minimum cover $85,000 per dwelling, 5 years from certificate of occupancy.

Verify current threshold and scheme name before quoting in a contract; these change.

Plus the standard policies on the insurance schedule:

Public Liability: $10m to $20m typical for residential builders. $10m is the most common floor; larger jobs and head-contractor work push to $20m.
Construction Works (also called Contract Works), covers damage to the works during construction
Workers Compensation for any direct employees

Security of Payment, state-by-state

Each state has a Security of Payment Act giving builders and subbies a fast pathway to chase unpaid progress claims via adjudication. The Acts differ in detail (timing, claim form, reference periods).

State	Act
NSW	Building and Construction Industry Security of Payment Act 1999
VIC	Building and Construction Industry Security of Payment Act 2002
QLD	Building Industry Fairness (Security of Payment) Act 2017
WA	Building and Construction Industry (Security of Payment) Act 2021
SA	Building and Construction Industry Security of Payment Act 2009
TAS	Building and Construction Industry Security of Payment Act 2009
NT	Construction Contracts (Security of Payments) Act 2004
ACT	Building and Construction Industry (Security of Payment) Act 2009

The Acts override anything in the contract that tries to contract out of them. Check your contract doesn’t try.

Red flags that should kill a contract

Walk away or rewrite if any of these appear:

Vague scope with no clear inclusions / exclusions list
No reconciliation method for PC sums or PS items
One-sided variation clause (client can vary down, builder can’t reprice up)
Missing insurance schedule or unrealistic insurance requirements
Liquidated damages unbalanced against EOT rights
No defects liability period stated
“Time of the essence” clauses without an EOT mechanism
Penalty clauses instead of liquidated damages (penalties are usually unenforceable; their presence signals the client is being aggressive or poorly advised)
Retention without a release trigger (retentions must release at practical completion or end of defects liability, in writing)
Statutory rights waiver attempts (you can’t contract out of SoP Acts or home warranty obligations)

What can go wrong

Common bites in the wild:

PC sum exposure ballooned because the reconciliation method wasn’t documented. Builder absorbs the variance.
Owner-supplied appliances arrive late or wrong size. Builder eats the programme delay because the contract didn’t address risk.
Liquidated damages filled in but EOT clause missing or one-sided. Builder gets pinged for rain delays they couldn’t claim.
“Practical completion” definition unclear. Client refuses to take handover over defects that are within tolerance per the HIA Guide to Materials and Workmanship.
Defects liability period extends through summer. Plaster cracks reappear, builder back fixing for free.
Final payment release tied to Occupation Certificate, but the certifier is dragging. Builder is out the last 5% for months.

References

HIA contract suite (Housing Industry Association) (verified 2026-05-02)
MBA contract suite (Master Builders Australia) (verified 2026-05-02)
ABIC Suite (joint Master Builders Australia + Australian Institute of Architects publication) (verified 2026-05-02)
HBCF (NSW), icare (verified 2026-05-02)
DBI (VIC), VMIA (verified 2026-05-02; threshold rises to $20,000 from 1 July 2026)
QBCC home warranty (QLD) (verified 2026-05-02)
Building Indemnity Insurance (SA), SAFA (verified 2026-05-02)
Home Indemnity Insurance (WA) (verified 2026-05-02)
Residential building insurance (NT) (verified 2026-05-02)
ACT Residential building work insurance (verified 2026-05-02)
State Security of Payment Acts via state legislation websites; cross-reference DLA Piper Australia security of payment guide (verified 2026-05-02)
HIA Guide to Materials and Workmanship (national workmanship reference)
HIA defects liability period guide (verified 2026-05-02)