Preliminary Services Agreements in Australian Residential Building

What it is

A preliminary services agreement is the pre-construction agreement between a residential builder and a client that covers everything done before the fixed-price building contract is signed. It is the legal home for soil tests, contour surveys, engineering, design fees, energy reports and council application costs. It is also the document that keeps the client committed to the builder while those investigations happen.

In NSW the home building work is governed by the Home Building Act 1989. In Victoria the equivalent regime sits under the Domestic Building Contracts Act 1995. A preliminary agreement is not a residential building contract and it must not include any residential building work, because the moment it does the consumer protections of the major contract are triggered.

Why builders use them

A fixed-price contract needs a fixed price. To set that price honestly, the builder needs to know what is in the ground, what the council will allow, what the engineer says about footings, and what the energy assessor says about glazing and insulation. That work costs real money and takes real time. The preliminary agreement lets the builder charge for that work and protects the design and quoting investment if the client walks before contract signing.

For the client, the preliminary agreement gives them a real number to sign rather than a fantasy quote that gets revised the day before contracts.

What it should cover

Scope of preliminary work

The agreement should list every investigation and document the builder will produce. The standard list is soil classification report, contour survey, energy rating report, structural engineering, working drawings, basix or equivalent state energy certificate, and council or private certifier lodgement.

Fee structure

There are two common models. A fixed fee covers everything in the listed scope. A schedule of rates passes through third party costs at cost and charges builder time at an hourly rate. Either is legal but the agreement must be clear which it is.

Limits on fees

State law caps what a builder can hold before progressing to a residential building contract. NSW Fair Trading guidance and Consumer Affairs Victoria both treat preliminary fees as separate from the residential building contract deposit. In Victoria the preliminary agreement cannot itself be a domestic building contract. In NSW the work covered must not be residential building work as defined under section 3 of the Home Building Act 1989.

Conversion to fixed-price contract

The agreement should set out how the preliminary fee credits against the head contract price if the client proceeds. It should also set out what happens to the documents and intellectual property if the client does not proceed.

Cooling off and termination

Both NSW and Victoria provide cooling-off rights for residential building contracts. Preliminary agreements sit outside that regime but a well-drafted agreement still gives the client a short window to withdraw and gives the builder clarity on the documents and the fees that are payable on termination.

What to charge

Builders usually quote a preliminary fee in the range of 0.5 percent to 1.5 percent of the expected build price, with a floor of two to three thousand dollars on a smaller renovation. The fee covers third party costs at cost plus a builder coordination fee. The exact number depends on the soil test market in the area, the council fee schedule and how far through documentation the builder takes the client before contract.

A useful sanity check is to itemise the third party invoices the builder expects to receive and add a coordination margin. If the line items do not justify the fee, the agreement will not survive a complaint to fair trading.

How it works in practice

The flow is almost always the same. Client signs the preliminary agreement and pays a deposit. Builder commissions the soil test and contour survey. The engineer and energy assessor produce reports off those documents. The designer finalises working drawings against the engineering. The builder produces a final fixed price based on the actual documents rather than the napkin quote. Client signs the residential building contract or walks away with the documents the agreement says they get.

Common mistakes

The first mistake is putting residential building work into the preliminary agreement. Demolition, site clearing, footing excavation and slab pours are all residential building work and including them turns the preliminary agreement into a building contract. The Australian Securities and Investments Commission and state fair trading bodies treat that as a contracting offence.

The second mistake is treating the preliminary fee as a non-refundable retainer. If the builder fails to deliver the documents the agreement promises, the client can pursue a refund under the Australian Consumer Law in Schedule 2 of the Competition and Consumer Act 2010.

The third mistake is not setting out the credit against the head contract. A client who pays twelve thousand dollars in preliminary fees and then sees the same line items in the fixed-price contract will rightly object.