In construction, we tend to think risk happens on site — workplace accidents, bad weather, unreliable subcontractors.
But one of the costliest risks builders face isn’t something that happens to them, it’s something they have no one to blame for but themselves: failing to put written contracts in place.
At Builtin, we see three recurring issues:
- Builders operating with no written contract,
- Builders agreeing to contracts that have gaping holes in them, and
- Builders signing contracts that transfer more risk onto them than the law requires.
The first two have big problems, while the third one can also create liability that insurance may not fully respond to.
In construction, we tend to think risk happens on site — workplace accidents, bad weather, unreliable subcontractors.
The Risk of No Contract
Many smaller projects still begin with:
- A quote
- An email or text
- A handshake
- A “we’ll sort it out later”
But legally, a contract can still exist under the Contract and Commercial Law Act 2017 — even if nothing is signed. In this situation, the problem is not that there’s no contract. The problem is that you don’t control the terms.
For residential building work, the Building Act 2004 automatically implies warranties, including that:
- Work will be done with reasonable skill and care
- Materials will be suitable
- The work will comply with the Building Code
- The home will be suitable for occupation
Those obligations apply whether you have a written contract or not, and you cannot contract out of them, regardless of what clauses you include in your contract (if you have one).
By the way, for any residential work over $30,000 you’re legally required to have a written contract and failure to do so can result in a $500 fine per offence.
What is the Purpose of a Contract?
A contract is a structured agreement defining:
- Scope
- Exclusions
- Variations process
- Timeframes
- Delay mechanisms
- Payment terms
Without one, any dispute may have to rely on:
- Emails, text messages, diary notes
- “He said” vs “she said”
- Industry custom
- What a court thinks was “reasonable”
Any ambiguity rarely favours the builder.
Payment and Variation Risk
Without a proper contract:
- Was that upgrade included?
- Was the extra work authorised?
- Was there a provisional sum?
- What happens if site conditions change?
Even though the Construction Contracts Act 2002 provides payment claim protections, many builders weaken their position because their documentation isn’t properly structured from the outset.
A good contract does not create risk, it creates clarity.
A Common Problem: Amending the Contract to Please Your Client
It’s another feature of jobs that end in dispute that contracts (if there is one) have been bastardised, often at the behest of clients. Builders end up removing critical features that would have protected them, had they been retained, just to keep their clients happy.
The better approach is to establish early in your relationship with clients that “you’re the boss” and they will need to follow your process, including your contract and payment terms. Delivered the right way this is a sign of professionalism and actually increases trust.
The Hidden Danger: The Wrong Contract
If having no contract is risky, having the wrong contract can be worse.
Standard forms like NZS 3910 allocate risk in a relatively balanced way for traditional build-only projects. But when a builder signs a design-and-build contract such as NZS 3915, the risk profile changes significantly.
NZS 3915 typically includes: fitness for purpose warranties; centralised design responsibility; performance-based obligations and broad coordination risk.
Under common law, a builder is usually responsible for exercising reasonable skill and care. However, under NZS 3915, the contractor may warrant that the completed works will be fit for their intended purpose. That is a much higher standard.
For example, if a building underperforms thermally, or has acoustic deficiencies or experiences system integration failure then the contractor may be liable. That can be true according to the contract even if: the design was prepared by consultants; the work complied with the Building Code and everyone acted reasonably.
That’s what it means to take on contractual liability above the liability that is imposed automatically in law.
Why This Matters for Insurance
Most liability policies respond to:
- Negligence
- Breach of professional duty
- Resulting third-party damage
They often exclude or limit cover for:
- Pure contractual warranties
- Liability assumed in contract over and above that imposed by common law
- Fitness-for-purpose guarantees
So, if you sign a contract that expands your obligations beyond negligence, you may be creating exposure that sits outside your insurance cover.
Example
A contractor signs NZS 3915 to deliver a commercial building with defined energy efficiency targets. The building is compliant with the Building Code and constructed correctly. However, it does not achieve the specified energy performance metrics. There is no defective workmanship, but there may be a breach of contractual warranty. That exposure exists because of the contract — not because of the law.
The Practical Takeaway
There are four broad positions a builder can find themselves in:
- No contract — the law fills the gaps, often unpredictably and to the detriment of the builder and in favour of the client
- A poor contract – amendments have been made that fundamentally reduce the contractual protections afforded to the builder
- A balanced contract — risk is allocated clearly and insurance can be mapped to the key exposures
- A risk-loaded contract — liability exceeds what the law would otherwise impose
The goal is not to avoid contracts. The goal is to use the right contract, aligned with:
- The scope of responsibility for you and your client
- Your insurance structure
- Your appetite for risk
Before signing, ask:
“Do I understand all the provisions and am I agreeing to something broader than doing the work with reasonable skill and care?”
Because if you are, and your insurance does not match it, the exposure sits with your business — not your insurer. And that is a risk worth managing before the first nail is ever driven.
