BUILDING INDUSTRY REGULATION

SOUTH AUSTRALIA



Overview of Part 5 of the Act | Contract formalities | Statutory warranties | Insurance | Remedies


In South Australia the Building Work Contractors Act 1995 (SA) (Act) applies broadly to all types of building works, whether commercial or residential.

Unlike some other states (such as NSW and Western Australia), South Australia has not enacted legislation relating only to contracts for residential home building. Instead of specific legislation, the Government made provision for 'domestic building works' in Part 5 of the Act.



Overview of Part 5 of the Act



The four main objectives of Part 5 of the Act for domestic building work contracts are:

  • disclosure: the requirement for a minimum standard of disclosure;
  • payments: provisions for uniform regulation of payments;
  • payments: protection for building owners by setting warranties which will be implied in all domestic building work contracts; and
  • insurance: providing a regime of compulsory building indemnity insurance to protect against financial loss if the contractor can't complete the work or cannot meet a valid claim for faulty workmanship.

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Contract formalities



What type of work does Part 5 of the Act apply to?



The Act applies to contracts for more than $12,000 and where the work involves:

  • constructing, erecting, underpinning, altering, repairing, improving, adding to or demolishing a house, or the excavating or filling of a site for that work;
  • constructing, altering, repairing or improving a swimming pool or spa within a house; or
  • any other building work within or on the boundary of the curtilage of a house.

The Act defines a 'house' as a building intended for occupation as a place of residence. It does not include a number of buildings such as hotels, motels, youth hostels, residential camps, boarding or lodging houses, university halls of residence, boarding school dormitories, barracks, nurses' homes or residential facilities for workers or for training purposes.


Who does Part 5 of the Act apply to?



Both the contractor and the building owner must comply with Part 5 of the Act.

The key requirements are:


  • no contracting out: the parties cannot contract out of the application of Part 5 of the Act; and
  • waivers are void: any attempt to waive a right given by Part 5 of the Act is deemed to be void and the provisions of Part 5 still apply.


Are there exemptions to the application of Part 5 of the Act?



Part 5 of the Act does not apply to contracts for domestic building work where the building owner is either a public company or a subsidiary of a public company within the meaning of the Corporations Act 2001 (Cth).

There are other exemptions that apply to Part 5, for example, domestic work that consists solely of demolition work or is for the construction of a multi-storey residential building.



What are the key provisions of Part 5 of the Act?



The key provisions of Part 5 of the Act require contracts for domestic building work to:

  • be in writing and set out all the contractual terms in full;
  • set out the contractor's business name and licence number (and if the contractor has any partners, the business name and licence number of those partners);
  • be signed by both the contractor and the building owner, either personally or through an authorised agent of the contractor or building owner;
  • state:
  • a specific fixed price for the performance of the building work and the terms of payment (unless the contract says that the work is to be completed within a specified time period, in which case the parties can choose to have a rise and fall included in the contract); and
  • if the price is an estimate only, a fair and reasonable estimate and contain the statement 'This Price May Change' or 'Estimate Only'.

Also:

  • the building owner must be given a legible copy of the signed contract as soon as reasonably practicable after it has been signed by both parties, together with a notice setting out the building owner's rights and obligations under the contract and the Act; and
  • if the contract provides for the payment of progress payments to the contractor, then these payments can only be paid for work that has actually been performed and upon a written request from the contractor or if the contractor is entitled to these payments under the Building and Construction Industry Security of Payment Act 2009 (SA SOP Act).

    Furthermore, a person must not demand or require that a payment be made under a contract by the building owner unless the payment is:


  • a genuine progress payment for work already performed;
  • to a third party for engineering, drawing, surveying or other professional services;
  • to reimburse the cost of building indemnity insurance or the amount of any fee required to be paid under the Act;
  • a deposit of $1,000 or less - if the contract was made before 1 September 2011 (or for a contract made after 1 September 2011 and the price stipulated in the contract for the performance of the building work is less than $20,000);
  • a deposit of not more than 5% of the price – if the contract was made after 1 September 2011 and the price stipulated in the contract for performance of the building work is $20,000 or more; or
  • an entitlement under the SA SOP Act.

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Statutory warranties



Part 5 of the Act sets out a number of warranties that are implied in every domestic building work contract in South Australia.

Those implied warranties are:


  • standards: the work has to be performed in a proper manner to 'accepted trade standards';
  • specifications: the work has to be completed in accordance with the plans and specifications agreed on by the parties;
  • materials: all the materials supplied by the contractor and used in the work have to be 'good and proper';
  • statutory requirements: the work has to be performed in accordance with all statutory requirements;
  • time: if the contract does not stipulate a time period for completion then the contractor has to finish the work with reasonable diligence;
  • habitable: if the domestic building contract is for the construction of a house then the house must be reasonably fit for human habitation; and
  • purpose: if the building owner expressly tells the contractor that there is a specific purpose for the work or a particular result that the building owner desires, then the building work must be reasonably fit for that purpose or reasonably achieve the desired result.

If a house is built under a domestic building contract and is then sold or passed on to another person, then the warranties in favour of the person who originally had the house built will pass on to the person who receives the transfer of the house.

It is important to note that any proceedings against a contractor for breach of one of the statutory warranties must be started within 5 years after the building work is completed. This period of limitation cannot be extended.

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Insurance



The home indemnity insurance provisions under Part 5 of the Act apply to home building work of any value over the prescribed amount, currently $12,000.


Exemptions



Building indemnity insurance is not required for:

  • domestic building work for which approval under the Development Act 1993 (SA) or the repealed Building Act 1971 (SA) is or was not required; or
  • minor domestic building work below $12,000.


How does building indemnity insurance work?



Under Part 5 of the Act, any contractor who performs domestic building work must be insured in relation to that work, and the contractor must provide the building owner with a copy of its insurance certificate.

The insurance policy held by the contractor must insure the building owner against the risk of loss resulting from non-completion of the building work due to the
insolvency, death or disappearance of the contractor. The policy must also insure the building owner against the risk of being unable to enforce or recover under the statutory warranties, again due to the insolvency, death or disappearance of the contractor.

The intention of building indemnity insurance is to ensure that domestic building work will be completed at no additional cost to the building owner if the contractor dies, disappears or becomes insolvent, and that any defective work is also rectified in those circumstances.

The insurance cover held by the contractor must:


  • be for at least $80,000;
  • only have an excess of up to $400;
  • allow at least 90 days for a claim to be made under the policy; and
  • not allow the insurer to avoid liability on the ground of misrepresentation or non-disclosure by the contractor.

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Remedies



The building owner's right to terminate



Part 5 of the Act allows the building owner to terminate a domestic building work contract by giving the contractor a written notice of termination:

  • before the end of 5 clear business days after the making of the contract (the 'cooling off period'); or
  • if the contractor has failed to comply with the formal requirements for the contract or the rules in relation to price, payments and insurance under the Act – before the time of completion of the building work under the contract.


What powers does the court have?



If the building owner terminates the contract, the building owner or the contractor may apply to the court for an order providing for the return or repayment of any payment made by the building owner, or payment to the contractor for materials supplied or work already performed under the contract.

The court can also determine disputes:


  • arising out of a domestic building work contract on the application of a party to the contract, where the dispute involves some question of whether building work has been performed in accordance with the contract; and
  • arising out of the performance of the building work to which the warranty relates, on the application of a person entitled to the benefit of a statutory warranty.

The court can make a number of orders including orders:

  • to perform remedial work;
  • requiring payment of amounts due under the contract or by way of compensation; and
  • to employ an alternative builder to do remedial work (at the original contractor's expense).

If a dispute is for an amount of $100,000 or less, then the dispute will be heard by the Magistrates Court. If the dispute is for an amount greater than $100,000, the dispute will be heard by the Civil Division of the District Court.


Are there any special relief provisions?



If the contract contains terms and conditions which are either harsh or unconscionable then the court can:

  • declare a term or condition of the contract void;
  • modify the terms or conditions of the contract; and
  • order the repayment of any amount paid by the building owner under the term or condition that has been declared void or modified.

The court is also able to make orders against any person who has shared in the profits of or received a beneficial interest from the contract.

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Updated 31 July 2013