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What does a construction contract do?
A construction contract allocates risk. It records who pays, who builds, what is built and to what standard, and what happens when the ground is harder than expected, the design changes or the work runs late.
The general conditions set the rules; the particulars fill in the contract sum, dates, defects period and security; special conditions amend the rules for the project; and the drawings, specification and any bill of quantities describe the work. An order of precedence clause says which document wins when two disagree.
The owner, called the principal in commercial forms, pays and the builder builds. On commercial jobs a superintendent, often an architect or project manager, administers the contract between them. A subcontractor signs a separate subcontract with the builder, which often passes head contract obligations down to the trade.
Construction contracts explained: the four main contract types
Contract types differ mainly in who carries the risk that the work costs more or takes longer than planned. There are four main families.
Lump sum. The builder agrees a fixed price for a defined scope and carries the risk that its estimate was too low. The owner carries the risk that the drawings left something out, because work outside the documented scope is priced as a variation. It suits a design that is complete before tender.
Cost plus. The owner pays the actual cost of labour, materials, plant and subcontracts plus an agreed fee or percentage, so the owner carries the cost risk and depends on open books. It suits work whose scope cannot be fixed at the start, such as renovating an old structure.
Design and construct. One contractor completes the design from the owner's brief and builds it. The owner gains a single point of responsibility, gives up some control over design detail and relies on the quality of the brief.
Construction management. The owner pays a construction manager a fee to plan the job, procure the trades and run the site, and usually holds the trade contracts directly. The owner sees every trade price and carries more of the cost and coordination risk.
Variants include schedule of rates contracts, which remeasure quantities as work proceeds, and guaranteed maximum price arrangements, which cap a cost plus contract. Whatever the label, ask who sets the price, who carries each risk and what happens when the scope changes.
What is an AS 4000 contract, and where do AS 2124, AS 4902 and AS 4905 fit?
AS 4000, AS 2124, AS 4902 and AS 4905 are commonly used Australian Standard contract families for commercial building work, published by Standards Australia. A job on an AS 4000 contract uses that set of general conditions, with particulars and special conditions completed for the project.
AS 4000 and AS 2124 are general conditions for construct-only work, where the owner supplies the design. AS 4902 is the design and construct family. AS 4905 is a shorter minor works form for simpler jobs. Each uses a superintendent to assess claims, direct variations and certify completion.
Confirm which edition the contract names, and read the special conditions first, because they often rewrite the printed position on time, latent conditions, variations and security. These forms are written for commercial work; a home build or renovation for an owner in Victoria falls under the domestic rules below.
Which domestic building contract forms are used in Victoria?
Domestic work such as a new home, an extension or a renovation is often carried out on a published industry form. Master Builders Victoria publishes contracts including a Minor Works Contract for work from $10,000 to $50,000 (MW-2), a Home Improvement Contract (HIC-6), a New Homes Contract (HC-7), General Conditions of Contract (GCC6), a Cost Plus Contract (DCP-2), a Commercial Cost Plus Contract, a Construction Management Contract (CM 2012) and a Design & Construct Contract (DECON 2013) 1.
The deposit and stage rules below apply to what Victorian law calls a major domestic building contract, and Consumer Affairs Victoria publishes a checklist for builders preparing one 4.
Consumer Affairs Victoria currently publishes a deposit limit of 10 per cent of the contract price where the total contract price is less than $20,000, and 5 per cent where it is $20,000 or more 2.
A request for a larger deposit is a reason to ask questions before signing. Deposit limits are among the rules moving into regulations under the 2025 amendments, so these figures are due to change 5.
What are the progress payment stages on a Victorian home build?
A major domestic building contract is paid in stages. Consumer Affairs Victoria publishes the percentage of the contract price for each stage, which depends on how far the contract takes the build 2. Its current figures are:
- Contracts to build all stages: base 10 per cent, frame 15 per cent, lock-up 35 per cent and fixing 25 per cent 2.
- Contracts to build to fixing stage: base 12 per cent, frame 18 per cent and lock-up 40 per cent 2.
- Contracts to build to lock-up stage: base 20 per cent and frame 25 per cent 2.
Check the full table on that page for the balance of the price. Consumer Affairs Victoria defines the frame stage as the frame completed and approved by a building surveyor; lock-up as when the external wall cladding and roof covering are fixed and the flooring is laid; and fixing as when internal cladding, architraves, skirting, doors, built-ins, baths and basins are fixed 3.
Because each payment is tied to a definition, an owner can check a stage on site before paying and query in writing a claim made early or for more than the published share. These percentages are due to change when the 2025 amendments take effect and the stages move into regulations 5.
What is a defects liability period?
A defects liability period is a set time after completion during which the builder must return and fix defects that appear. For domestic building contracts, Consumer Affairs Victoria explains that a defects liability clause gives the builder three, six or nine months to fix defects, and that the period should not be used to fix defects known at the time of completion 3. Known faults belong on a list to be fixed before completion is agreed.
Commercial contracts set the period in the particulars and often link the release of the last retention or security to its end, so diarise the date and inspect before it arrives.
Watch the wording. Commercial forms use practical completion to mark when the defects period starts. The Consumer Affairs Victoria glossary does not define it 3, and its checklist for builders preparing a major domestic building contract says to replace the phrase with "complete in accordance with the plans and specifications" 4. Other rights under Victorian law may continue after the contractual period, and a lawyer can advise on those.
What changes when the 2025 domestic contract amendments take effect?
Consumer Affairs Victoria reported that the Domestic Building Contracts Amendment Bill 2025 passed Parliament on 11 September 2025, moving deposit limits, progress stages and payment limits into regulations, and stated that the new laws will take effect by 1 December 2026 5.
Under the same changes, cost-escalation clauses will be permitted in contracts of $1 million or more and can only add up to 5 per cent to a contract's price, and preliminary agreements for plans, specifications and bills of quantity will be allowed 5.
Treat the deposit and stage percentages in this guide as the figures Consumer Affairs Victoria currently publishes, which are due to change. Ask which rules a contract has been drawn under, check the Consumer Affairs Victoria website for the regulations in force on the day you sign, and read any escalation clause for its trigger and cap.
What should you check before signing a construction contract?
Find problems before signature, while the wording can still change. These checks apply to head contracts, domestic contracts and subcontracts alike.
- Scope: every drawing and specification listed with its revision, realistic prime cost and provisional sum allowances, and verbal promises written in.
- Exclusions: what the price leaves out, such as site works, service connections, rock or permits, and who carries the risk of hidden ground conditions.
- Variations clause: how a change is requested, priced and approved, whether written approval comes before the work, and the margin on variation work.
- Time: start and completion dates, how extensions of time are claimed, liquidated damages and any delay costs.
- Payment: the deposit, stage or monthly claims, what triggers each payment and the time allowed to pay.
- Security: retention, bank guarantees or other security, the amount, when it is returned, and required insurances.
- Dispute steps: the notice that starts a dispute, any meeting, mediation or expert determination, and where the matter goes next.
- Special conditions: every change they make to the printed form, and the order of precedence.
Keep a marked-up copy of your questions and the answers given. For a domestic contract, compare the deposit and payment schedule with the figures Consumer Affairs Victoria currently publishes 2.
When should you get a client-side reviewer?
A client-side reviewer reads the contract for the party who will sign it and answers only to that party. The useful time is before signature, when a clause can still be negotiated or a payment schedule corrected. Kept on afterwards, the same person can administer the contract: checking claims, recording variations, issuing notices and tracking defects.
A homeowner on a first build or major renovation gains from a check of the deposit, stages, exclusions and allowances. A developer on a design and construct or construction management contract needs the brief and risk allocation tested. An owners corporation committee answers to lot owners, so a written review supports its decision. A subcontractor handed a subcontract that passes down head contract terms should ask to see those terms before pricing.
Sami Strategy Co., a Melbourne consultancy whose directors are Sandra Seo and Mina Song, provides contract administration and client-side project management across Victoria and remotely Australia-wide. We read contracts for scope gaps and risk, explain each clause in plain words and leave legal questions to your lawyer. This guide is general information only; the current legislation and the contract itself govern each party's rights.