Binder Contracts
Binder Contracts
Building contracts
PROJECT Published: 28 August 2012 | Edited: 22 June 2020
The architect is generally responsible for preparing the contract documents to fully define
the design intent. The architect will then often be responsible on behalf of the principal to
administer the terms of the contract as defined in the contract documents.
Page contents:
Contract selection
Other documents
Considerations
Contract conditions
1. The building contract defines the obligations, rights and responsibilities of the principal
and the contractor. Various standard-form contracts are available, published by bodies
including the Institute, the MBA, Standards Australia, the Property Council of Australia
and the HIA.
2. Specifications and schedules – the specifications describe in writing the workmanship and
materials, and the manner in which certain work is to be undertaken. The schedules
further list and prescribe aspects of the work to be carried out, and items to be supplied
and installed under the contract.
3. The drawings are prepared to visually describe the works and the details. The drawings
provide the graphical representation of the design intent from the original layout through
to construction details.
Contract selection
Selecting the right building contract can be critical to the successful completion of a project.
Contracts should be selected having considered a number of criteria including:
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state legislation (ie whether standard special conditions are needed and available or
incorporated).
Contract selection should be discussed with the client prior to tender so conditions can be
included in the tender. Architects should be familiar with the range of contracts to ensure
that they are able to select the most appropriate contract for each particular project.
Sometimes, the contract is selected simply because the architect is familiar with its
provisions or is comfortable using it, but familiarity and comfort won't overcome the
inherent difficulties that can arise if the contract is inappropriate for the project.
Some pro-forma building contracts published by builders' groups are not designed to be
administered by an architect.
You can search for and buy Institute contracts through our Online store.
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Other documents
Often it will be obvious whether or not a document other than the printed standard form is
part of the contract. If a document is other than one listed above, it may be obvious from its
face whether it is part of the contract or not. For example, it may be endorsed to that effect
and signed by the parties or it may be clearly incorporated by reference, eg the signed
documents may refer to a particular published cost-adjustment formula or a particular
published standard.
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Considerations
Where there have been negotiations over terms, matters that have been the subject of letters
and discussions will usually be mentioned in the written contract and therefore in view of
the subsequent expression of agreement, the former documentation lapses. Ideally this
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should always be the case, but there may be situations where all the agreed terms are not
encapsulated in one neat written document.
In deciding whether such earlier agreements still apply, a court will look at the
documentation as a whole, and consider the following questions:
It will not always be easy to determine whether a document or a spoken assurance is part of
the contract. In such circumstances the architect should remember that the provision of
legal advice concerning the contract is not part of the architect's role, and pursuant to the
conditions of engagement, the client is obliged to provide 'specialised counselling' not
normally provided by architects. The architect should ask the client to seek legal advice in
this situation.
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Contract conditions
Prevention is better than cure. All contract conditions should be consolidated and clearly
expressed in clearly identified contract documents, which should include only the results of
any negotiations, not superseded proposals or offers.
The practice of including additional documents may increase the possibility of confusion and
conflict between documents and lead to disputed claims for additions at a later stage. It is
preferable for the base drawings, specifications and, as necessary, the contract agreement, to
be amended to reflect any changes agreed between the parties post-tender but pre-signing of
the contract.
Some contracts require a bill of quantities to form part of the set of contract documents and
the form of contract may require the bill of quantities to be priced. This will require a time
interval after the acceptance of any offer to enable the contractor to complete and return the
priced bill of quantities. In such cases the time available to the successful tenderer must be
clearly stated in the tender conditions.
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Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into
account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should
seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute
endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has
become inaccurate over time. Using this website and content is subject to the Acumen User Licence.
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Reference Info:
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Contract preparation
PROJECT Published: 20 November 2017 | Edited: 27 July 2022
Page contents:
Introduction
Order of precedence
Amending contract documents
Amending standard-form contracts
Contract schedules
Liquidated damages
Incorporating government policy
Introduction
A building contract comprises a set of documents (generally referred to as the 'contract
documents') that form a binding agreement between owner and contractor and define the
agreed terms and conditions under which a project will be completed.
In addition to the documents that are used for tendering purposes, a number of other
documents must be included to form the contract documents. The contract documents
should accurately reflect the extent or scope of work to be undertaken and the cost agreed
for the works.
This task can be made difficult if there are disputes as to what does or does not form part of
the contract. Questions may be raised as to which other documents form part of the contract
or whether there are also oral or implied terms.
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When the selection of the contractor and finalising of the contract terms is either by tender
or negotiation, questions may arise as to whether information supplied to tenderers, or offers
and counter-offers made in the course of negotiations, are part of the contract.
The contract documents should include the documents used for tendering along with any
addenda or records of negotiation. The drawings and specifications should be altered to
reflect the amended scope or extent of work, labelled 'For construction' and issued.
Clear, traceable records should be kept of all such changes and changes
clouded or highlighted.
The tender documents should be maintained as a record set for possible future reference.
Note: the tender documents do not always form part of the contract.
Special care should be taken to ensure that the contract agreement selected for the project
will comply with any relevant legislation in the state or territory, eg domestic-building
legislation is applicable in most states and there may be other legislative requirements
relevant to the particular location of the works.
The architect should be fully aware of the particular requirements of the form of contract
agreement selected for any project.
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Order of precedence
The order of precedence of the contract documents should be stated in the contract
documents as this will be used to resolve discrepancies and inconsistencies in and between
the documents.
Where the conditions of contract include an order of precedence, the contract documents
should follow the same order if possible. The following order of precedence for the contract
documents is generally consistent with most standard-form building contracts:
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1. Special conditions shown in the schedule to the contract (including any owner occupier
special conditions).
2. The conditions set out in the contract/general conditions. This document is generally
referred to as 'the contract' and will contain a number of clauses describing the roles and
responsibilities of the parties and other matters relating to the construction of the works.
The contract may consist of a number of standard clauses, or include a set of special
conditions or a combination of both to reflect the requirements of the parties for a
particular project. Some standard forms of contract require a separate document known as
the 'Instrument of Agreement', which will be unique for any particular project and will be
executed by the parties to signify their agreement to the standard form of contract.
3. The specification for the works. This will describe the standards and quality of labour and
materials required to complete the works.
4. The drawings for the works. The drawings describe by way of plans, elevations, sections
and details, the scope and extent of the works. The drawings would normally form a part
of the documents used to obtain tenders for the works but the tender drawings may not be
the same as the contract drawings due to any agreed amendments to the scope of the
works made after the close of tenders but prior to the execution of the contract. The
contract set of drawings must reflect the actual scope of work as agreed between the
parties at the time of the execution of the contract.
5. Any other documents in the order shown in the schedule of the contract.
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Amending any standard building contract is a task which should not be undertaken without
knowledge of contract administration, legal knowledge and document drafting skill. Should
your client be caused loss by an amendment made by you, it is possible that they will look to
you for recompense. It is also possible that, unless you are a legal practitioner, the drafting of
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significant amendments to a contract to which you are not a party (such as a building
contract) contravenes your state's Legal Practitioners Act.
Should you consider that a standard amendment is necessary to the contracts you
administer, have your solicitor draft it. If an amendment is necessary for a particular job,
either at your initiation because of particular circumstances or, at the client's request, ask
your client to have a solicitor draft it, taking into account the contract as a whole, including
any 'standard' amendments.
Either way, standard contracts should only be amended for clear and sufficient
reason and after due consideration of all the possible effects of the
amendments.
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Contract schedules
Most standard-form building contracts include schedules which detail the particular
requirements or conditions of contract for a project. The schedules must be completed before
tenders are called and will become part of the contract when it is signed.
The Australian Building Industry Contracts (ABIC) contract schedules are integrated into
single downloadable contract documents for all state and territory versions. Refer Acumen
note ABIC contracts (and navigate to your relevant state or territory page).
Ambiguity in contracts has the potential to lead to misunderstandings at best, and litigation
at worst. When completing contract schedules, architects should exercise care and diligence.
Contractual provisions might seem peripheral, but they warrant the same attention as those
functions closer to the core of architectural practice. The issues are not difficult, but their
simplicity belies their importance.
In legal documents, such as contracts, the effects of ambiguous terms can be significant for
the parties to the contract. Furthermore, if an architect has had a hand in those ambiguous
terms, such as ambiguously filling out the schedules to an ABIC contract, that architect may
be sued for professional negligence, the damages for which would extend to the loss suffered
by the client as a result of the architect's negligence.
The meanings of the terms 'N/A' and 'not applicable' were considered by the High Court in
Deaves v CML Insurance (1979, 23 ALR 539). Though the matter does not appear to have been
directly argued before the court, most of the judges nevertheless felt compelled to address
the relationship between the terms, the eventual conclusion of which was that 'N/A' is
synonymous with 'not applicable'. However, the fact that the matter had to be discussed by
the High Court at all is reason enough to avoid the issue altogether – better to be explicitly
clear than slightly ambiguous. Accordingly, if a provision is not to apply, it should be filled out
'not applicable', rather than 'N/A'.
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Of greater concern is the use of the term 'nil', which is defined in the Oxford Dictionary as
'nothing' or 'no number or amount'. Clearly, 'nil' is not synonymous with 'not applicable'.
Similarly, neither 'not applicable' nor 'nil' are synonymous with 'no'.
This was part of the problem before the court in Deaves, where the answer to a question in
an insurance application form had been filled out 'N/A'. The question being answered in this
fashion related to whether the property proposed to be insured was already insured with
another insurer. The property was, in fact, insured with another insurer. Unfortunately for
the owners, the law will usually allow an insurer to avoid paying out on a policy if there has
been a material misrepresentation in the application form. In this case, the insurer was
trying to do just that – avoid paying out on the policy because (as far as the insurer was
concerned) the answer 'N/A' meant that the owner had falsely represented that the property
was not insured with another insurer, when in fact it was. Judge Jacobs focussed on the
ambiguity:
The statement 'N/A', meaning 'not applicable', is ambiguous. It may mean 'not
applicable because there is no other insurance' or it may mean ‘The request is not
applicable in the circumstances.' (1979, 23 ALR 539 at 574)
For Judge Jacobs, if the former had been intended, there had been a material
misrepresentation and the insurer was not bound to pay out; if the latter had been intended,
there was no material misrepresentation and the insurer was bound to pay out. Clearly, if the
form had been filled out 'yes' (or 'no' if it had not been insured with another insurer), the
whole expensive and protracted legal exercise could have been avoided because the answer
would have been clear.
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Liquidated damages
Liquidated damages are a pre-estimate of the 'loss' a client/owner is likely to suffer if the
practical completion of a building project is delayed beyond the date for practical completion
(as legitimately extended under the terms of the contract). Liquidated damages are meant to
be a genuine estimate of the loss the owner is likely to suffer if practical completion is not
achieved when due. If the amount inserted is treated not as compensation but designed to
injure the other party, it will likely be challenged and struck out as a penalty. For example, if
the client/owner is renting accommodation while their house is being built, the liquidated
damages might be equal to the rent they are paying. To complete the schedule item at the
time of signing the architect needs to take advice from their client/owner, after explaining
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that this must reflect reasonable estimates of the client/owner's costs at the time practical
completion is anticipated.
It is good practice to document the client’s reasoning and keep this on the
project file.
It is not uncommon for contracts to now expressly provide that if liquidated damages are not
recoverable because they are found to be a penalty, then general or common law damages will
apply.
Court awarded damages (at common law which are designed to put the plaintiff in the
position it would have been in but for the breach) and liquidated damages are not necessarily
mutually exclusive remedies; depending on the wording of a contract, one or the other, or
neither may be an available remedy for the client/owner. Even if liquidated damages are
excluded, the parties need to show clear and completely unambiguous words in the contract
that they intend to exclude common law damages for delay in completing a project. However,
it is unlikely that the owner will agree to forego all rights of recovery if the project is delayed.
There is no guarantee that the following suggestions about how to complete a liquidated
damages schedule item will exclude the possibility that common law damages will apply. The
only way to guarantee that neither liquidated damages nor common law damages will apply
is to have a lawyer amend the contract appropriately.
Problems usually arise later when the client/owner at the end of the construction period
wants damages to be applicable for late completion after all. Whether damages at common
law are also available to a client/owner is a question architects should not try to answer. The
architect's role is to administer the contract, and if a client/owner wishes to investigate
recovering common law damages for late practical completion, it will be outside the scope of
the architect's services in administration of the contract. The architect should recommend
that the client/owner gets legal advice about what remedies might be available to them in
addition to the contract.
However, uncertainty often arises for administration of the contract itself where, at the time
the contract is signed, the parties do not indicate a positive dollar amount for liquidated
damages. Where possible have this detailed and both parties agree. If the circumstances
change at least a starting position is recorded.
Refer Acumen note Prevention Principle and the implied duty of cooperation.
The liquidated damages schedule item usually calls for a positive dollar amount to be
inserted. It is also advisable to ensure that the liquidated damages are either stated as a daily
rate or if another rate is chosen, for example a weekly rate, that the amount is readily
divisible by seven. With that figure available, the architect can apply the provisions of the
contract.
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Writing in 'N/A' or 'not applicable' is likely to result in ambiguity about the intention of
parties (refer 'some ambiguous terms' section above). While it might have been intended that
the liquidated damages provisions of the contract are not applicable, ambiguity may remain
because it is not clear whether common law damages are to apply.
Not completing the item at all also creates a serious ambiguity. The ambiguity arises because
the blank item means it cannot be determined from the contract what the parties intended.
It could mean that liquidated damages are not applicable (as above), that no liquidated
damages are payable (and common law damages may be or not be available), or that the
parties simply failed to think about or contractually agree on what liquidated damages rate is
to be applicable. In this case, if a court is asked to interpret the contract to determine what
damages remedy is available, the court may find it has no good basis to work out what the
parties really intended. The risk to the client/owner is that a court will be unable to resolve
the ambiguity and conclude that there is no entitlement to liquidated damages and the
owner/plaintiff will need to prove general damages or loss of use damages apply and then
prove the claim made by reference to actual loss. This particular ambiguity can be avoided by
completing the item with an appropriate dollar amount.
Caution also needs to be exercised in filling out the item as 'nil' or '$0.00'. This is a very basic
way of indicating that the parties did not intend liquidated damages under the contract to be
payable. The literal interpretation of inserting 'nil' or '$0.00' is that the contractor is still liable
under the contract provisions to pay the client/owner liquidated damages but at the rate of
$nil per calendar day (or other period stated) and that can be applied to the contract
provisions, but with a '0' result. For that reason, it is sufficient for contract administration
purposes to say that liquidated damages will not in effect be paid. However, it does not
answer any question of what damages remedy outside the contract (such as common law
damages, also known as ‘loss of use’ damages), if any, is available to the client/owner. That still
depends on the wording of the particular contract. If the question is raised, the architect
should recommend that the client/owner get legal advice about their possible remedies.
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Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into
account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should
seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute
endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has
become inaccurate over time. Using this website and content is subject to the Acumen User Licence.
Reference Info:
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Once the contractor has been selected the architect must prepare the contract for execution
(signing). The owner and the contractor should sign the building contract before any building
work commences. In some states, this is mandatory for residential work.
The ideal place for the execution of the contract is at a joint meeting between the parties,
preferably in the architect's office. While not a party to the contract the architect can act as a
witness to the signing if required and, in the process, will be able to ensure all documents are
correctly signed, dated and initialled as appropriate by both parties.
Page contents:
The drawings
The specification
Bill of quantities
Contracts and copyright
The ABIC suite of contracts comprises three copies of the contract, which the architect must
ensure are correctly completed, dated and signed. Usually, two sets of documents are signed,
one for the owner and one for the contractor. A third should be prepared for the architect as
a reference copy, but need not be signed. Refer to the ABIC User Guides for document
preparation and signing.
It should be noted that the two signed contracts are of equal status.
The architect should ensure all special conditions, alternatives, schedules, blanks etc, are
correctly filled in and addressed to reflect what has been agreed for the particular project.
Where the contract agreement includes an appendix or a series of schedules, the appendix
and/or the schedules must be completed. There should be no blank spaces unless the default
provision noted is to apply. (Alternatively, the default provision can be inserted exactly as
noted). Each item must be either filled in with the appropriate information or struck out and
designated as 'deleted' to clearly indicate its status within the contract.
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The architect may, as the agent for and with the prior agreement of the owner, arrange for
the owner's copy of the contract to be filed at the architect's office if a third copy is not
prepared.
While it may appear excessive, it is appropriate for the parties signing the contract
documents to initial or sign each page or drawing and to initial each hand-written
amendment within them.
If one of the parties is an incorporated body (ie a company), the method of execution should
be checked. Usually, two directors or one director and the company secretary must sign. If the
company's constitution requires it, the signatures must be accompanied by the company seal.
The architect should, therefore, ask for confirmation long before the event if the seal is
required.
If the parties are individuals or a partnership, the opposite party may insist on a witness to
the party's signature or signatures. There should be a separate witness for each party if both
require witnessing. There is nothing wrong with the architect being a witness to one party,
but there is some doubt about the legality of the architect being the witness to both parties.
It is, therefore, a good idea when arranging the signing of documents to have another person
present who can witness the contractor's signature, if you intend to act as the witness for the
owner. A witness must be identifiable and should print their name with their signature on
any document they sign. In common law, a witness should not be a related party to the
person signing the document.
All documents included in the contract set must be signed and it is good practice to require
both parties to initial specific changes or amendments on any particular page thereby
indicating agreement to the amendment or change of text.
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The drawings
The drawings need to be clearly identified as being part of the set of contract documents.
This can be done with a stamp (example below) applied to each drawing with appropriate
spaces for signing by both parties and inserting the relevant date. Alternatively, a space can
be included as part of the title block on each drawing for the signatures and date. In all cases,
the stamp and/or title block will need to designate the fact that this is a ‘contract drawing’.
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The specification
The specification also needs to be clearly identified as being part of the set of contract
documents. Again, this can be done with a stamp (as above) applied to the cover of the
specification indicating that it is the 'contract copy' of the specification. Some clients insist
that both parties initial every page of the specification. Alternatively, a face sheet signed by
the parties may be inserted describing the specification with the relevant number of pages
and sections. For most projects, owners and contractors will be satisfied with a contract
specification where the cover clearly indicates the status of the document.
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Bills of quantities
Where the selected form of contract agreement requires a bill of quantities to become part of
the contract documents, the bill will be executed in a similar manner to the contract
specification. Where a priced set of bills of quantities is required, it is wise for both parties to
initial every page of the document.
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Additionally, standard form contracts typically used in the Australian market, such as the
contract forms published by Standards Australia or other industry bodies, are subject to
copyright and licensing restrictions.
You should take care to consider whether there are any restrictions or limitations on your use
(including adaptation or modification) of contracts prior to attempting to do so. This includes
considering whether additional steps are required in order for you to use a document
provided by a client, such as obtaining:
a warranty from the person providing the contract that they have the right to use the
document and allow you to use the document supported by an indemnity in the event of
any claim by a person asserting ownership of the copyright
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a licence to use the document provided by the person who holds the intellectual property
in the contract.
In addition to copyright, there are other risks that may arise from working with a form of
contract provided by a client. These include:
Transcription risk: It is very easy to make mistakes in transcribing a contract. These could
be significant. If a loss was suffered by the client due to a transcription error, the client
could have an action against the architect.
Familiarity with terms: If a bespoke contract is issued as part of a tender package (rather
than terms with which tenderers may already be familiar), tenderers may require
additional time to review those terms and may also increase their tender pricing to
account for its unfamiliarity with those terms.
Interpretation of terms: The terms of contracts that are based on standard forms may
have been considered by courts. Therefore, case law may exist regarding the way particular
terms have been interpreted which can assist parties in having greater certainty
interpreting a particular term if a dispute arises.
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Disclaimer
This content is provided by the Australian Institute of Architects for reference purposes and as general guidance. It does not take into
account specific circumstances and should not be relied on in that way. It is not legal, financial, insurance, or other advice and you should
seek independent verification or advice before relying on this content in circumstances where loss or damage may result. The Institute
endeavours to publish content that is accurate at the time it is published, but does not accept responsibility for content that may or has
become inaccurate over time. Using this website and content is subject to the Acumen User Licence.
Reference Info:
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