Construction Contract Explained
Date: 23.08.2025 | Revision: 2025.08.a
Relationship
Major Types of Construction Contracts
Defined by Payment/Scope Structures
-
Lump Sum Contract
- Description: A fixed price for a clearly defined scope of work.
- Risk Allocation: The builder assumes the risk of cost overruns unless scope changes or variations arise.
-
Design and Construct (DNC) Contract
- Description: The contractor is responsible for both the design and the construction of the project.
- Risk Allocation: Design liability and construction risk largely sit with the contractor.
-
Cost Plus Contract
- Description: The owner pays for the actual costs of the work (labor, materials, etc.) plus an agreed fee (either a percentage of costs or a fixed fee).
- Risk Allocation: The owner bears the risk of cost overruns, as the final price can fluctuate with changing costs.
Standard Contract Forms
Issuing Authorities and Typical Biases
These are pre-drafted templates that reflect the perspectives (and often the vested interests) of their issuing bodies. Parties commonly use these templates as a base, then modify or “amend” them to suit specific project needs.
| Form | Issuing Authority | Typical Bias / Purpose |
|---|---|---|
| AS_Contracts | Standards Australia | A- relatively neutral baseline with balanced risk allocation. |
| Amended_AS | Customized by drafting parties (e.g., developers, principal’s lawyers) | Typically shifts risk to favor the drafting party—for instance, tighter deadlines or limited contractor entitlements. |
| MBA NSW | Master Builders Association (NSW) | Generally builder-friendly; aligns with NSW building legislation and includes provisions beneficial to contractors. |
| HIA | Housing Industry Association | Simplified residential contracts; typically builder-friendly with streamlined provisions for smaller-scale jobs. |
| ABIC | Jointly by the Australian Institute of Architects & Master Builders Australia | Balances architect and builder interests; architects often play a central role in contract administration (e.g., certifying payments). |
Why It Matters
- Developers often prefer using Amended AS contracts so they can insert clauses that shift more risk or impose stricter performance obligations on the builder.
- Builders frequently opt for MBA NSW / HIA contracts for their familiarity and builder-friendly terms.
- Architects typically recommend ABIC forms, which integrate design oversight and contract administration powers for the architect.
Understanding both contract type (lump sum, DNC, cost plus) and standard contract form (AS, MBA, HIA, ABIC) is crucial for balancing risk, controlling costs, and defining roles clearly in any construction project.