Building contract red flags in NSW

The biggest red flags in a NSW building contract are a builder name that doesn’t match the licence, no home building compensation (HBC) certificate before you’re asked to pay, a deposit above 10%, and a price that can move without a clear warning and explanation. For residential work over $20,000, the Home Building Act 1989 also says what the contract must contain, so anything missing from that list is a red flag in itself.

By BuilderVet team · Last reviewed 2 November 2026 · Sources checked 2 November 2026

This guide is general information, not legal advice. If your contract has special conditions or the builder has changed a standard form, NSW Government advice is to get legal advice before you sign.

The red flags at a glance

Use this table as a first pass over a contract. Each row says what to look for, what NSW law or official guidance says, and where you can check it yourself. A “yes” in the last column doesn’t prove a problem. It tells you what to ask about before signing.

Sources for every row are listed at the end, all checked 2 November 2026.

Which contract rules apply to my job?

The rules depend on the contract price, including GST, or the reasonable market cost of labour and materials if the price isn’t known.

• Up to $5,000. The written contract rules start above $5,000, but NSW Government advice is still not to pay any money without a written contract.
• Over $5,000 and up to $20,000. You need a written “small jobs” contract. It must be dated and signed by both parties and contain the parties’ names, the licence holder’s name as it appears on the licence, the licence number, a description of the work, any plans or specifications, the price if known, and a clause saying the work will comply with the Building Code of Australia, other relevant standards and any development consent conditions. The builder must also give you the Consumer Building Guide.
• Over $20,000. You need a full “large job” contract with everything in the next section, HBC cover before any payment, and a 5 clear business day cooling-off period.

Licensing works on a lower trigger. Residential building work over $5,000 needs a contractor licence, and specialist work such as electrical wiring, plumbing, drainage, gasfitting and air conditioning and refrigeration needs a licence whatever it costs.

The deposit cap of 10% applies to both small and large job contracts.

What must a NSW building contract over $20,000 include?

This is the list most red flags come back to. NSW Government guidance on the Home Building Act 1989 says a contract for residential building work over $20,000 must include:

• the date, and signatures of both you and the contractor
• the parties’ names, including the licence holder’s name exactly as shown on the licence, and the licence number
• a sufficient description of the work, with plans and specifications attached
• the statutory warranties that apply under the Act
• the contract price, prominently on the first page, with a warning and an explanation if the price isn’t known or may change
• the cost of cover under the Home Building Compensation Scheme, where insurance is required
• a clause saying plans, specifications and variations form part of the contract, and that any agreement to vary the contract must be in writing and signed by both of you
• a progress payment schedule, limited to fixed payments for completed stages, payments as work is done and costs are incurred (backed by invoices or receipts), or a mix of the two
• a termination clause stating the contract can be ended in the circumstances the general law allows
• the 17-item checklist from the Home Building Regulation 2014, and a caution not to sign if you can’t answer yes to every item
• a note that you’re entitled to a copy of the signed contract within 5 days of signing
• a note that the contractor must give you an HBC insurance certificate
• a clear statement of the 5 clear business day cooling-off period
• your signed acknowledgement that you’ve read the Consumer Building Guide and answered yes to every checklist item
• a quality of construction clause covering the Building Code of Australia, other relevant standards and development consent conditions
• an information sheet on registered certifiers, where a certifier is needed, saying you’re free to choose the certifier

The Building Commission NSW publishes a free plain-English contract for work over $20,000. A builder can use their own contract or one from an industry association instead, as long as it contains everything above. If a contract you’ve been given is missing an item, ask why before you sign.

Red flag 1: does the name on the contract match the licence?

This is the first thing we check, because everything else depends on it. The law requires the contract to name the licence holder as shown on the contractor licence, and to give the licence number.

NSW Government guidance is direct about one common trap. A licence held by an individual doesn’t let that person’s company or partnership make the contract, even if the individual is a director. If a company is the party to your contract, the company itself needs the licence.

How to read the public record. Search the licence number on Verify NSW. Note four things: the holder’s exact name, the licence class or categories, the status, and the expiry date. Then look up the ABN or ACN printed on the contract on ABN Lookup and the ASIC register. The licence holder, the ABN or ACN owner and the contracting party should be the same business.

Three mismatches to look for:

• a trading name on the contract, with a different legal entity on the licence
• a company on the contract, with the licence held by a director personally
• a company on the contract whose ACN belongs to a different, similarly named company

None of these proves anything is wrong. Each one is a question to put to the builder in writing, and the answer should end with all three records naming one business.

The NSW licence check also shows more than the status. It lists any cancellation or suspension under the Home Building Act or the Fair Trading Act, conditions on the licence, public warnings, formal cautions, penalty notices, non-compliance with a tribunal order and prosecution results where the holder was found guilty. Read the whole record, not only the word “Current”.

Our free builder check brings the NSW licence, the company or ABN record and regulator actions into one view with source dates. Step-by-step instructions for doing it by hand are in How to check a NSW builder in 5 minutes.

Red flag 2: is the HBC certificate missing, late or wrong?

For residential work over $20,000, the builder must have cover under the Home Building Compensation Scheme. NSW Government guidance says it’s illegal for the contractor to ask for a deposit or any other payment under the contract until the cover is taken out and you’ve been given the certificate. The contract must also show what the cover costs.

So a request for a deposit “to book you in” before you have the certificate is a red flag on its own.

When you get the certificate, check that:

• the property address is your site
• the builder named is the licence holder on your contract
• the description of work matches your job

Then confirm it on HBC Check, or with the insurer named on the certificate. HBC Check searches by certificate number, contractor, company or property address.

It’s worth knowing what this cover does. icare describes HBC as last resort cover. It applies when the builder becomes insolvent, dies, disappears, or has their licence suspended for not complying with an NCAT or court order to pay you. It doesn’t cover everyday disputes while the builder is still trading. The total limit for current policies is $340,000 per dwelling, and the fact sheet sets a sub-limit for incomplete work of 20% of the contract price as varied.

That 20% sub-limit is one reason the deposit and payment schedule matter. Our HBC check by address shows certificates on record for a NSW site address for builders we’ve checked. A missing record there isn’t proof that no cover exists, so always ask the builder for the certificate itself.

Red flag 3: is the deposit more than 10%?

Under NSW home building law, the most a builder can ask for as a deposit is 10% of the contract price. That applies to small job and large job contracts.

Watch for ways a contract pushes more money up front without calling it a deposit:

• a “site establishment” or “preliminaries” payment due on signing
• a first progress payment due at a stage that requires little or no work
• separate “admin” or “booking” fees on top of a 10% deposit

Item 8 on the official 17-item checklist asks whether the deposit is within the legal limit of 10%. Item 13 reminds you that you don’t have to pay a deposit or progress payments until you have the insurance certificate, where insurance is required.

Our sibling guide Builder deposits and progress payments in NSW goes through payment schedules stage by stage.

Red flag 4: are the inclusions vague?

The contract must have a sufficient description of the work, with plans and specifications attached. “Supply and install kitchen” is not much of a description. If the brand, model, finish and quantity aren’t written down, you can’t hold anyone to them.

NSW Government advice is to choose fittings and appliances before you sign and list brand names and models where you can. That turns a guess into a fixed price.

Signs the inclusions are too thin:

• “builder’s range” or “standard” finishes with no list attached
• plans that don’t match the quote, or no plans attached at all
• items in the quote that don’t appear in the contract
• exclusions that are buried, or that appear only in an email

Also check one specific clause. NSW Government advice is to make sure nothing in the contract makes you responsible for termite control instead of the builder.

Red flag 5: is too much of the price in allowances?

Allowances are amounts in the contract for things that can’t be priced exactly at signing. There are two kinds you’ll see:

• Prime cost (PC) items. Fixtures you choose later, such as an oven or tapware. NSW Government guidance says the builder should allow a price that covers their expected cost.
• Provisional sums (PS). Work that can’t be priced yet, often things like excavation or rock removal.

NSW Government guidance says it’s best to get a fixed price for all work. When allowances turn out too low, the difference comes back to you. A contract with a large share of its price in allowances has a less certain final price than the number on page one suggests.

What to check:

• Add up every PC and PS allowance and work out its share of the contract price.
• Ask how each allowance was estimated, and whether it’s realistic for what you’ve said you want.
• Ask what margin the builder adds if an allowance goes over, and where the contract says so.
• Ask for the site investigation, such as a soil report, that a provisional sum for excavation is based on.

The contract must carry a warning and an explanation wherever the price may change. If there are allowances but no warning next to the price, ask why.

Red flag 6: is it cost-plus with no estimate or cap?

In a cost-plus contract, you pay what the work costs plus a margin. NSW law allows progress payments made “as work is performed and costs are incurred”, which may include a margin, but those claims must be supported by invoices, receipts or other documents.

Because the final price isn’t known, the contract must carry a prominent warning and an explanation on the first page. Ask for:

• a written estimate of the total cost
• how the margin is calculated, and whether it applies to variations
• how often you’ll be invoiced, and what records come with each claim
• whether there’s any cap, and what happens if the estimate is exceeded

Cost-plus can suit some jobs. It moves the price risk to you, so the paperwork needs to be complete before you sign.

Red flag 7: can the builder vary the contract without your signature?

NSW law requires a large job contract to say that any agreement to vary the contract or the plans must be in writing and signed by both of you. NSW Government guidance adds:

• Variations must be in writing, attached to the contract and signed by both you and the builder, or their nominated supervisor or agent.
• The variation document must explain the cost and its effect on the total contract price, with the calculation shown, not only a dollar figure.
• Before work on a variation starts, the builder should give you a written description, any plans, the extra cost and any extra time.
• If the variation is needed because of the builder’s own fault, you don’t have to pay for the extra work.
• If there’s a likely danger to someone or damage to property, the written variation can come after the work.

Red flags in a variation clause include a right for the builder to vary “as reasonably required” without your signature, a fixed variation fee or margin you haven’t agreed, or wording that treats an instruction on site as approval.

For how to push back on variations and price, see How to negotiate with a builder in NSW.

Red flag 8: is there a cooling-off period, and how does it work?

For a contract over $20,000, you can cancel without penalty within 5 clear business days after you’re given a copy of the signed contract. If you aren’t given a copy within 5 days of signing, the 5 clear business days start when you become aware you were entitled to one. This comes from section 7BA of the Home Building Act 1989, and the contract must state the cooling-off period clearly.

To cancel, the notice must be in writing and say you are rescinding the contract. Under section 7BA it must be given to the licence holder personally, left at the licence holder’s address shown in the contract, or served in the way the contract’s notice clause allows. The builder can keep reasonable out-of-pocket expenses incurred before you cancel and must refund the rest.

A contract can shorten or remove the cooling-off period only if you give the builder a certificate signed by your own independent lawyer. If a builder asks you to waive cooling-off without that, treat it as a red flag.

The builder must also give you a copy of the signed contract within 5 business days. NSW Government guidance says weekends, NSW public holidays and 27 to 31 December don’t count.

Red flag 9: does the payment schedule follow the work?

NSW Government guidance says progress payments should be for work actually done, not time on the job, and that the dollar value placed on each stage should be realistic.

A schedule is worth a second look if:

• early stages carry a much bigger share of the price than the work they involve
• stages are described loosely (“frame stage” with no description of what complete means)
• payments fall due on dates rather than on finished work
• the final payment is small, leaving little to hold back if there are defects at handover

For larger projects, NSW Government guidance suggests you may consider an independent progress inspection by a building consultant or architect before each payment, and puts the cost at roughly $250 to $500 per inspection.

Red flag 10: what happens if there’s a dispute?

Check how the contract handles disputes, and compare it with what the law already gives you.

NSW Government guidance says arbitration clauses aren’t permitted in a home building contract and are void. A contract can still set out notice and meeting steps.

If a dispute comes up, the usual path is:

1. Raise it with the builder in writing.
2. Lodge a complaint with Building Commission NSW. Its dispute resolution service uses building inspectors who may meet you on site, and an inspector can issue a rectification order if satisfied the builder is responsible for defective or incomplete work.
3. If it isn’t resolved, apply to the NSW Civil and Administrative Tribunal (NCAT).

Time limits matter here. Statutory warranty claims must be brought within 6 years for major defects and 2 years for other defects from completion. If you find a breach in the last 6 months of either period, you get a further 6 months. Building Commission NSW advises that if the warranty period is nearly over, you should lodge with NCAT as well as making a complaint, so you don’t lose your rights.

A contract that tries to cut these warranties down is a red flag. The statutory warranties apply even if they aren’t written into the contract.

Red flag 11: is the builder pushing you to sign fast?

NSW Government guidance lists warning signs about the contractor, not only the contract. Be wary of a builder who:

• pushes you to sign quickly to avoid a price increase
• suggests you get an owner-builder permit while they organise all the work, which can be a sign they don’t hold the right licence, can’t get HBC cover, or want to avoid responsibility
• quotes far below everyone else

None of these is proof of anything. They are reasons to slow down and check the record.

Red flag 12: is the checklist missing, or did you answer “no”?

Every contract over $20,000 must include the 17-item checklist from the Home Building Regulation 2014. It asks, among other things, whether the licence is current, covers your work and matches the name and number on the contract, whether the deposit is within 10%, whether you understand the variation process, whether you know who gets council approval, and whether the contract includes the Security of Payment Guide.

The contract must also caution you not to sign if you can’t answer yes to every item. That makes the checklist a useful final test. Go through it honestly. If any answer is “no”, NSW Government guidance says you may not be ready to sign.

What can the public record tell me before I sign?

The contract tells you what the builder promises. The public record tells you who you’re dealing with. Before signing, we suggest checking:

• Licence. Status, class, expiry, conditions and any disciplinary history on Verify NSW.
• Company. ASIC registration status and the ABN owner, matched to the licence holder.
• Regulator actions. NSW disciplinary records, regulatory actions and building orders.
• HBC. A certificate for your address on HBC Check.
• Complaints. The NSW Fair Trading Complaints Register, which lists businesses with 10 or more complaints in a month, so a blank result doesn’t mean no complaints.
• NCAT. Published decisions on NSW Caselaw.

Our free check covers the licence, company and regulator records for NSW and Queensland builders, with the date each source was read. A clean result means no matching record was found on the day. It isn’t a guarantee about the builder.

If you’re about to sign with a NSW builder, Build Watch (A$79 once) gives you a dated report and 24 months of change notices, so you hear if the licence, company or regulator records change during your build. Building outside NSW? See how to check a builder licence in any state.

Run a free builder check

Before-you-sign checklist

Print this, or keep it open beside the contract.

• The contracting party’s name and licence number match Verify NSW exactly
• The ABN or ACN on the contract belongs to the licence holder
• The licence is current and its class covers this work
• I have the HBC certificate for my address, naming this builder, and have confirmed it (work over $20,000)
• The deposit is 10% or less, and no other payment is due on signing
• The contract price is on page one, with a warning and explanation if it can change
• Plans and specifications are attached and match the quote
• I’ve totalled the PC and PS allowances and I’m comfortable with the share of the price they represent
• Progress payments are tied to described stages of finished work
• The variation clause requires written variations signed by both of us
• The cooling-off statement is there (over $20,000)
• There’s no arbitration clause and no clause making me responsible for termite control
• The 17-item checklist is included and I can answer yes to every item
• I’ve received the Consumer Building Guide and the Security of Payment Guide
• I’ve had legal advice on any special conditions or changes to a standard contract

Next, read Questions to ask a builder before you sign.

Frequently asked questions

What is the cooling-off period for a building contract in NSW?

For residential building contracts over $20,000, you can cancel by written notice within 5 clear business days after you’re given a copy of the signed contract. The builder can keep reasonable out-of-pocket expenses and must refund the rest. The period can only be shortened or removed if your own independent lawyer signs a certificate.

What is the maximum deposit a NSW builder can ask for?

10% of the contract price. This applies to small job contracts (over $5,000 up to $20,000) and large job contracts (over $20,000). For work over $20,000, the builder can’t ask for any payment, including the deposit, until you have the HBC certificate.

When does a NSW building contract have to be in writing?

When the contract price is over $5,000 including GST, or the price isn’t known but the reasonable market cost of labour and materials is over $5,000. Work over $20,000 needs a fuller contract with the HBC cost, a payment schedule, a cooling-off statement and the 17-item checklist.

Can a builder’s company sign the contract if the director holds the licence?

No. NSW Government guidance says a licence held by an individual doesn’t let their company or partnership make the contract, even if the individual is a director. The company must hold the licence in its own name.

Are verbal variations binding in NSW?

The law requires a large job contract to say any agreement to vary it must be in writing and signed by both parties. The variation should show the cost and its effect on the total price. There’s an exception where work is urgent because of likely danger or damage, and then the written variation can follow.

Can a NSW building contract include an arbitration clause?

No. NSW Government guidance says arbitration clauses aren’t permitted in home building contracts and are void. Disputes go to Building Commission NSW and, if needed, NCAT.

How long are the statutory warranties in NSW?

6 years for major defects and 2 years for other defects, starting from completion. If a breach becomes apparent in the last 6 months, you get a further 6 months to start proceedings. The warranties apply even if the contract doesn’t mention them.

Does a clean BuilderVet check mean the contract is safe to sign?

No. Our check shows what the public records say about the builder on the day, with source dates. It doesn’t review your contract or predict how a build will go. Use it alongside the contract checks in this guide, and get legal advice on anything you’re unsure about.

Sources

All checked 2 November 2026.

• NSW Government, Contracts for residential building work (contract thresholds, required contents, deposits, variations, progress payments, prime cost items, arbitration, termite clause, licence held by individual vs company, warning signs, statutory warranties): https://www.nsw.gov.au/housing-and-construction/building-or-renovating-a-home/preparing/contracts
• NSW Government, Guide to providing home building contracts (small and large job contract contents, deposit cap applies to both, Consumer Building Guide over $5,000, Building Commission NSW contracts): https://www.nsw.gov.au/housing-and-construction/compliance-and-regulation/your-obligations-to-your-customers/guide-to-providing-home-building-contracts
• NSW Government, Checklist for home owners signing a building contract worth more than $20,000 (the 17 items): https://www.nsw.gov.au/housing-and-construction/building-or-renovating-a-home/preparing/contracts/checklist
• NSW Government, Checking your contractor or tradesperson is qualified (licence over $5,000, specialist work at any value, what the licence check shows): https://www.nsw.gov.au/housing-and-construction/building-or-renovating-a-home/preparing/checking-your-contractor-or-tradesperson-qualified
• Home Building Act 1989 (NSW), section 7BA (cooling-off, notice, refund, lawyer’s certificate), via the official NSW legislation site: https://legislation.nsw.gov.au/view/html/inforce/current/act-1989-147 (text read from the AustLII mirror because the official site blocked automated access: https://www.austlii.edu.au/au/legis/nsw/consol_act/hba1989128/s7ba.html)
• Home Building Act 1989 (NSW), section 18E (warranty periods, major defect definition): https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/nsw/consol_act/hba1989128/s18e.html
• NSW Government, Resolving disputes between contractors and consumers (Building Commission NSW dispute service, rectification orders, NCAT): https://www.nsw.gov.au/housing-and-construction/compliance-and-regulation/your-obligations-to-your-customers/resolving-disputes
• Building Commission NSW, How we deal with building defect complaints (time limits, lodging with NCAT near expiry): https://www.nsw.gov.au/departments-and-agencies/building-commission/about-us/building-defect-complaints
• icare, HBCF: What am I covered for? (last resort cover, trigger events, $340,000 limit): https://www.icare.nsw.gov.au/builders-and-homeowners/homeowners/hbcf-what-am-i-covered-for
• icare, HBCF homeowner fact sheet PDF (20% sub-limit for incomplete work, periods of cover): https://edge.sitecorecloud.io/insuranceanf0c2-xmcprodf24d-xmprod74a5-5eb4/media/icare/unique-media/builders-and-homeowners/what-we-do/builders/media-files/files/hbcf-homeowner-fact-sheet.pdf
• NSW Fair Trading Complaints Register (10 or more complaints in a month): https://www.nsw.gov.au/departments-and-agencies/fair-trading/complaints-and-enquiries/complaints-register

Last reviewed 2 Nov 2026