Top 7 Hidden Risks in NSW Building Contracts — and How to Protect Yourself

Building a new home, renovating, or starting a knockdown rebuild in NSW is exciting — but it can also be risky if you don’t carefully review the contract before you sign. Many homeowners find themselves facing unexpected costs, construction delays, disputes, and even legal battles because they didn’t spot hidden risks in their building contracts.

At CM Lawyers, we help homeowners protect their rights and avoid costly mistakes with thorough building contract reviews. In this article, we’ll uncover the top 7 hidden risks lurking in many NSW building contracts — and how you can protect yourself.

1. Unfair Extension of Time Clauses

Some building contracts allow the builder to claim an unlimited number of time extensions, often without needing real proof.
This can result in:

Endless project delays
Higher holding costs (e.g., rent or mortgages)
No penalties imposed on the builder

Protect yourself:
Your contract should have strict conditions around time extensions and include liquidated damages — pre-agreed compensation for delays.

2. Hidden Provisional Sums and Prime Costs

Provisional sums (for incomplete work) and prime costs (for materials yet to be selected) are often understated.
When actual costs come in higher, the homeowner is left to pay the difference.

Protect yourself:
Demand clear specifications and realistic cost allowances. If possible, fix these costs before signing.

3. Poorly Defined Scope of Works

If your contract lacks a detailed description of what will be built, it becomes harder to hold the builder accountable for quality and standards later.

Protect yourself:
Insist on complete plans, a list of materials, and specifications before committing.

4. Payment Schedules That Don’t Match Progress

Some contracts require progress payments at stages that don't properly match the work completed.
This exposes homeowners to:

Paying too much too soon
Having little leverage if disputes arise

Protect yourself:
Align payments with genuine milestones. Never pay ahead of completed work.

A good read: Construction law - A Guide to Navigating Your Contract

5. Missing Home Building Compensation Insurance

In NSW, residential projects worth over $20,000 must have Home Building Compensation (HBC) insurance.
If the builder becomes insolvent, dies, or disappears, this insurance protects the homeowner.

Protect yourself:
Always request a copy of the builder’s HBC insurance certificate.
You can verify insurance certificates directly through NSW Fair Trading.

6. One-Sided Dispute Resolution Clauses

Many contracts push homeowners into builder-controlled mediation processes or arbitration that's expensive and difficult.

Protect yourself:
Your contract should allow access to neutral bodies such as NSW Fair Trading or NCAT if needed.

7. Shifting Responsibility for Site Conditions

Some contracts shift the risk of unknown site conditions (like contaminated soil or unexpected rock) onto the homeowner, creating massive unforeseen costs.

Protect yourself:
Negotiate clauses that place this responsibility with the builder or at least fairly share the risk.

How to Protect Yourself: Get Your Contract Reviewed

Many of these hidden risks are difficult to spot without legal expertise. Before signing, it’s critical to have an experienced construction lawyer review your contract to:

Identify unfair terms
Clarify your rights
Suggest amendments to better protect you
Give you peace of mind before major financial commitments

At CM Lawyers, we offer fixed-fee building contract reviews for homeowners across Sydney and NSW. Our team provides practical advice, fast turnaround times, and ongoing support if issues arise during construction.