Key Considerations for Construction Contracts in 2025

Introduction

Construction contracts form the bedrock of any property development project in Australia. They define the scope, allocate risk, and dictate payment flows. As the construction landscape evolves, particularly with ongoing supply chain pressures, rising costs, and significant legislative reforms anticipated in 2025, developers must pay closer attention than ever to the drafting and negotiation of these critical documents. This article outlines key considerations for construction contracts heading into 2025.

1. Clarity is King: Defining Scope, Time, and Cost

A fundamental principle, yet often a source of disputes, is the need for absolute clarity in defining the project scope. Ambiguity regarding materials, labour, specifications, or required standards can lead to misunderstandings, variations, and costly disputes. Ensure the contract clearly outlines:

Scope of Work: A detailed description of all tasks, deliverables, specifications, and quality standards (referencing the National Construction Code (NCC) and relevant Australian Standards).
Timeline: A realistic program with clear milestones, commencement and completion dates, and mechanisms for extensions of time.
Cost: A comprehensive breakdown of the contract sum, including provisional sums, prime cost items, and clear procedures for valuing variations. Payment terms, including frequency and conditions for payment claims, must be unambiguous.

2. Risk Allocation: Who Bears What?

Construction contracts inherently involve allocating various risks between the principal (developer) and the contractor. Key areas to scrutinize in 2025 include:

Design Risk: In Design and Construct (D&C) contracts, the contractor typically assumes design responsibility. Ensure the principal's requirements are clearly defined.
Site Conditions: Clearly define responsibility for unforeseen site conditions (e.g., latent conditions clauses).
Material and Labour Costs/Availability: Given ongoing market volatility, consider how risks of price escalation and delays due to shortages are allocated. Fixed-price contracts shift this risk largely to the contractor, who may price accordingly. Contracts with rise-and-fall mechanisms share the risk.
Legislative Changes: Contracts need robust 'Change in Law' clauses. As discussed below, uncertainty around upcoming legislation (like the NCC 2025) makes negotiating these clauses critical.
Liability and Indemnities: Clearly define each party's liabilities, including limitations and exclusions. Ensure indemnity clauses are reasonable and insurable.

3. Navigating Legislative Changes in 2025

Several significant legislative changes are anticipated or underway across Australia, impacting construction contracts:

National Construction Code (NCC) 2025: The release and adoption timeline for NCC 2025 is currently uncertain. The Australian Building Codes Board (ABCB) has deviated from its usual schedule, creating ambiguity about the final content (including proposed updates to energy efficiency and fire safety) and commencement date. This uncertainty directly impacts 'Change in Law' clauses. Contractors may resist taking the risk of unknown NCC 2025 changes and seek specific carve-outs, potentially affecting contract sums and programs. Developers need to carefully negotiate how this risk is shared.
Security of Payment (SoP) Reforms:
- Victoria: Significant changes to the VIC SoP Act are expected, potentially removing 'reference dates' and 'excluded amounts', prohibiting certain 'unfair' clauses (like some time bars), extending claim periods, and limiting new reasons in adjudication responses.
- Queensland: The final rollout of the statutory trust regime under the QLD SoP Act (extending to private projects >$3M from March 2025 and >$1M from October 2025) has been deferred again due to industry pressures and lack of preparedness. The timing remains uncertain pending a review by the Queensland Productivity Commission. Developers and contractors need to monitor this closely as compliance will be significant when implemented.
NSW Building Bill: A proposed consolidation bill in NSW aims to overhaul licensing (extending to commercial builders), expand the statutory duty of care, reform certification, and mandate continuing professional development. While still under consultation, its eventual passage will impact contractor obligations and potentially standards of work.

4. Essential Clauses for 2025

Beyond the basics, ensure your contracts adequately address:

Variations: A clear process for directing, valuing, and approving variations to the scope.
Extensions of Time (EOTs): Fair and clear mechanisms for claiming and assessing EOTs for qualifying delays.
Dispute Resolution: A tiered approach, starting with negotiation, potentially followed by mediation or expert determination, before resorting to arbitration or litigation. Ensure compliance with any mandatory pre-litigation steps.
Termination: Clear grounds and procedures for termination by either party.
Insurance: Specify required policies (e.g., Contract Works, Public Liability, Professional Indemnity) and levels of cover.
Security: Mechanisms for performance security (e.g., bank guarantees, retention money).

Conclusion

Drafting and negotiating construction contracts in 2025 requires careful attention to detail, a clear understanding of risk allocation, and awareness of the dynamic legislative environment. Developers should prioritize clarity in scope, cost, and time, proactively address risk allocation concerning market volatility and legislative uncertainty (especially the NCC 2025), and ensure compliance with evolving SoP laws. Seeking specialist legal advice during drafting and negotiation is crucial to protect your interests and provide a solid foundation for project success.

Disclaimer: This article provides general information only and does not constitute legal advice. Developers should seek specific advice tailored to their circumstances.