Common Contractual Clauses That Lead to Building Disputes

unfinished house made of bricks

Building disputes don’t just happen because of bad workmanship or dodgy materials. Often, the root cause lies in the contract specifically, unclear or unfair clauses that leave too much room for argument. Whether you’re a homeowner, contractor, project manager or site inspector, knowing which contract clauses typically spark conflict can save you serious time, money and stress. And that’s where Owner Inspections comes in. With expert eyes on your building contracts, we help you spot the red flags before they cause real trouble.

The Most Dispute-Prone Contractual Clauses

In the construction world, it’s not the rare, unusual clauses that cause most headaches. It’s the common, everyday provisions, especially when they are loosely worded, open to interpretation, or poorly aligned with project realities. These contract clauses often deal with scope, payments, delays, liability, and changes during construction. When not properly drafted, they become the spark for everything from minor disagreements to full-scale legal battles. Below are the contract elements most often at the centre of building disputes, particularly across projects in Australia and other common-law jurisdictions.

These are not just theoretical concerns—they frequently show up in defect claims, tribunal cases, and legal mediation. To minimise risk, it’s essential that these clauses are specific, balanced, and supported by documentation like drawings, timelines, and specifications. Incorporating terms like indemnity limits, liquidated damages calculations, and change order procedures is critical to keeping your project on track and out of court.

Comparison Table: Safe vs. Risky Contract Clauses

Clause Type

Safe Clause Example

Risky Clause Example

Scope of Work

Clearly defines tasks with supporting specs and plans

Vague description with no drawings or acceptance process

Variation / Change Orders

Requires written approval before proceeding with changes

Allows verbal or informal variations without cost/time updates

Payment Terms

Itemised progress payments tied to milestones

Lump-sum or unclear schedule with no reference to timeline or outputs

Liquidated Damages

Reasonable cap aligned to actual loss

Uncapped penalties or arbitrary fees not tied to project value

Dispute Resolution

Multi-tiered: negotiation → mediation → arbitration

Litigation as first and only resolution method

Forum Selection

Agreed upon neutral state jurisdiction

Forum biased toward one party’s legal system

Indemnity Clauses

Limits to direct damages and negligence clearly defined

Broad indemnity for any third-party claims or indirect losses

Force Majeure

Specific list of events and notice procedures

Catch-all language without notification or proof requirements

Time of the Essence

Tied to critical milestones with reasonable delays allowed

Applies to every deadline, including minor or administrative tasks

Termination Clause

Clear triggers, cure periods, and process steps

Allows one-sided termination without notice or remedy

Acceleration Clause

Cost and timing outlined in mutual agreement

One party can demand fast-tracking without compensation

Each clause discussed below has triggered thousands of disputes between builders, owners, developers, and subcontractors. They have also prompted regulatory reforms and contract interpretation battles in courts and building commissions nationwide. Knowing what to watch for is your best protection.

Scope of Work & Changes / Variation Clauses

A clear scope of work is the cornerstone of any construction contract. But disputes erupt when it’s vague, incomplete, or doesn’t evolve as the project does. The same goes for variation clauses. Changes are inevitable, but without a proper paper trail, they can quickly lead to disagreements.

Why it causes disputes:

  • Ambiguity over what’s included and excluded
  • Disputes over extra charges or who authorised a variation
  • Misalignment with attached drawings or technical plans

How to avoid it:

  • Provide detailed descriptions, plans and drawings
  • Include a clear variation/change order process, requiring written approval before any work begins
  • Tie the scope to milestones and agreed deliverables to limit “scope creep”

Payment Terms & Liquidated Damages

Money can be a major flashpoint. Vague or inconsistent payment schedules, late payments, or unclear retainage terms are recipe for conflict. Meanwhile, poorly worded liquidated damages clauses can turn delays into legal battlegrounds.

Why it causes disputes:

  • Misunderstanding of due dates and payment stages
  • Excessive or unenforceable penalty clauses for delays
  • No linkage between project milestones and payments

How to avoid it:

  • Create a clear, itemised payment schedule
  • Set realistic liquidated damages with enforceable caps and timelines
  • Clarify how progress claims are assessed and processed

Dispute Resolution, Forum Selection & Choice of Law

When a dispute does happen, the contract should guide how it’s resolved. But if it’s vague or overly rigid, it can make things worse.

Why it causes disputes:

  • Disagreement over how and where to resolve disputes
  • Clauses that favour one party’s local court or legal system unfairly
  • Lack of tiered process (e.g. mediation before arbitration or litigation)

How to avoid it:

  • Use step-by-step dispute resolution (e.g. negotiation, then mediation, then arbitration)
  • Clearly identify jurisdiction and governing law
  • Ensure the clause does not conflict with applicable Australian laws

Indemnity, Liability & Exculpatory Clauses

These clauses are about who pays if things go wrong. But if they’re written too broadly, or attempt to waive responsibility for serious issues like gross negligence, they often end up in court.

Why it causes disputes:

  • Overreaching indemnity requirements shifting all liability to one party
  • Exculpatory clauses attempting to avoid liability for major failures or legal breaches

How to avoid it:

  • Keep language balanced and specific
  • Limit indemnity to direct damages and lawful risks only
  • Make sure waivers don’t breach consumer protection laws or statutory warranties

Force Majeure & Time-of-the-Essence Clauses

Unexpected events like bushfires or supply chain issues can throw timelines into chaos. That’s where force majeure and time clauses come in—but only if they’re written well.

Why it causes disputes:

  • Unclear definitions of what counts as force majeure
  • Misuse of “time is of the essence” to unfairly penalise minor delays
  • Disagreement over entitlement to time extensions or relief

How to avoid it:

  • Define force majeure events precisely, including natural disasters, pandemic restrictions, or government delays
  • Allow reasonable extensions where justified and notify procedures in writing
  • Include time-of-the-essence language only where truly necessary

Termination & Acceleration Clauses

These determine how either party can exit the contract or speed up delivery. Poor drafting can lead to claims of wrongful termination or unfair pressure to finish early.

Why it causes disputes:

  • No clear conditions for termination
  • Ambiguous acceleration triggers that leave costs or liabilities unaddressed
  • Disputes over whether notice was adequate or if cause for termination was valid

How to avoid it:

  • Spell out termination rights, notice periods and breach consequences
  • Define when acceleration is allowed, who pays, and how it impacts the construction schedule
  • Clarify mutual rights in the event of contract frustration

How Disputes Typically Manifest

Disputes often come to light in the form of:

  • Late payments
  • Claims for variations not approved
  • Arguments over quality or defective work
  • Finger-pointing about delays or miscommunication
  • Disagreements about forum selection or contract interpretation

These conflicts drain budgets, ruin timelines and often end up souring long-term working relationships. Even minor oversights in contracts can spiral into major legal issues.

Related Reading:

Best Practices to Avoid Disputes

  • Always use plain English—not legal jargon
  • Tie every clause back to referenced drawings or specs
  • Include a fair and logical dispute resolution pathway
  • Ensure termination, payment and variation processes are crystal clear
  • Don’t skip the contract review. Get a professional set of eyes on it before signing

Need help spotting risky clauses in your contract? Contact Owner Inspections for a comprehensive review and protect your project from disputes.

Frequently Asked Questions (FAQs)