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Why contracts are valuable

Last updated: 21 March 2016

If you are doing a residential building project that will cost $30,000 or more (including GST), you must have individual contracts with your designer and builder.

We recommend you have individual contracts with everyone involved in your building work. This could be a verbal, written, or handshake agreement (all of which are enforceable in court). We encourage you to ask your contractors for a written contract as it can help to avoid misunderstandings later on.

However, it is mandatory to have a written contract with your main contractor if your residential building work will cost more than $30,000 (including GST). It is your contractor's responsibility to provide the contract.

Why written contracts are valuable

A written contract protects you and sets out your rights and obligations. It will help to ensure your project is built right the first time and makes sure key matters are clear before the work begins.

A written contract is good for:

  • confirming the price of the build
  • setting out the roles of each contractor
  • confirming any subcontractors
  • setting start and finish dates for your work
  • planning the payment schedule
  • defining an acceptable quality of work
  • detailing the materials and products used for your build
  • confirming who pays for any council fees
  • understanding what to do if there are defects
  • detailing simple procedures for any disputes
  • stating any ongoing maintenance work.

Deciding when to have a contract

If your project will cost $30,000 or more (including GST), you will need a written contract with your designer and your main contractor (usually your builder). If your builder is not arranging subcontractors, you will also need to have a contract with any other contractors you employ for your project, such as plasterers or painters.

Each person you have a contract with must give you a disclosure statement if you ask for one. This provides you with information about their:

  • business and trading details
  • skills and qualifications
  • licensing status (what restricted building work they can do)
  • insurance or guarantees they provide.

They must also give you a consumer protection checklist before the contract is signed. This is required by the Building Act.

Consumer protection - disclosure and checklist has more information.

Contracts with subcontractors

You do not need to have contracts with your builder's subcontractors, but their names should be listed in the contract with your builder.

Hiring subcontractors has more information.

Types of contracts

There are three different types of contracts you can have with your builder. They are:

  • full contract
  • labour-only contract
  • managed labour-only contract.

The payment terms and schedule are different in each contract. You can also arrange your own payment schedule with your builder. Ensure you include this in the contract you sign.

You may pay your main contractor or other tradespeople hourly, weekly, or for a fixed or set price. Make sure you understand and confirm the payment schedule in your contracts.

If your contract does not set out a payment schedule, the default provisions set out in the Building Act apply:

  • At the end of each payment period the contractor can serve you with a payment claim. This must be in writing.
  • Once you receive this, you can either pay the claimed amount before the due date (20 working days after service of the payment claim) or provide a payment schedule to the contractor.

Full contract

The builder becomes the 'main contractor' under a full contract, and manages the whole building process. They may take care of:

  • getting a building consent
  • supplying and arranging all the building materials and products
  • hiring subcontractors such as the plumber, electrician and tiler
  • health and safety on site
  • working with the architect or designer
  • arranging council inspections and the necessary stages
  • letting the council know if variations or amendments arise during building
  • arranging for the final inspection and issue of the code compliance certificate
  • anything else you discuss, agree on and include in the contract.

Under a full contract, the builder is responsible for the quality of their own work and their subcontractors' work. You are able to work with the builder to make decisions that may arise during the build.

Labour-only contract

You are responsible for managing the whole building process if you have labour-only contracts with the tradespeople you hire. The tradespeople will only be responsible for the trade you have hired them to complete.

Unless you have arranged for your designer to take on a project management role, you may be responsible for:

  • getting building consent
  • making sure the work meetings Building Code requirements
  • buying and managing materials, products and supplies
  • finding and hiring other tradespeople you may need for the project
  • health and safety on site
  • arranging council inspections
  • communicating any variations or amendments to the council.

Make sure the role of each tradesperson is clearly defined in any written contracts you may have with them. Each tradesperson you hire is still obligated to produce quality work.

If you fail to organise the building process, such as hiring subcontractors, buying materials and arranging building inspections, then each tradesperson may be held up. This can cost you and your tradespeople in the long run.

Managed labour-only contract

A managed labour-only contract means the builder takes care of the day-to-day management of the build. You can arrange for them to have additional responsibilities if they agree to it.

You or your builder may be responsible for:

  • pricing the job
  • getting consent
  • organising materials, supplies and products
  • hiring subcontractors
  • arranging inspections
  • communicating with the council.

You need to communicate about the roles you will each take on to avoid delays or failing to complete crucial stages of the building process.

Make sure you document each of your roles and responsibilities in the contract to avoid crucial stages of the build not being completed.

The contract document

Most contractors will have their own form of contract which they adjust to your project's specifications. You never have to accept a contract straight away. You can negotiate and discuss any changes you would like.

We recommend you get a lawyer to look over the document before you sign it.

Contracts for your building project will help you understand what to put in each contract document.

You can download a booklet to help you understand your consumer protection measures. This has information for both homeowners and contractors about quotes, contracts, implied warranties and defects.

Homeowners can download Building Or Renovating? Do your homework

Contractors can download Contractors: Do your homework

This information is published by the Ministry of Business, Innovation and Employment’s Chief Executive. It is a general guide only and, if used, does not relieve any person of the obligation to consider any matter to which the information relates according to the circumstances of the particular case. Expert advice may be required in specific circumstances. Where this information relates to assisting people: