Construction projects often begin with a handshake, a phone call or a quick conversation on site. A builder may agree to complete a renovation for a certain price, a subcontractor may accept a job based on a conversation, or a property owner may ask a contractor to start work before the paperwork is finalised.
At the time, it can seem straightforward. Everyone understands what needs to be done, the work starts and payments are made.
The problems usually appear later.
A disagreement about the price, scope of work, completion date or additional work can quickly turn into a serious construction dispute. Without a written contract, one of the biggest challenges is establishing exactly what the parties agreed to in the first place.
In Australia, contracts can generally be made verbally. However, construction work is an area where relying solely on a verbal agreement can create significant practical and legal difficulties. In NSW, there are also specific requirements for certain residential building contracts.
Can a Verbal Construction Agreement Be Legally Binding?
A common misconception is that a contract only exists when both parties sign a document.
That is not necessarily the case. NSW Government guidance explains that contracts can be made verbally, including through an agreement over the phone, provided the necessary elements of a contract are present. These generally include offer, acceptance and consideration.
This means a builder and client could potentially form an agreement through conversations, emails, text messages and their conduct.
The real difficulty is often not whether an agreement existed, but what its terms were.
For example, imagine a homeowner tells a builder:
“Can you renovate the kitchen for around $50,000?”
The builder agrees and starts work.
Later, they disagree about whether the price included appliances, electrical work, painting and rubbish removal.
Without a detailed written contract, proving what was actually agreed can become much harder.
Why Verbal Agreements Become Risky on Building Projects
Construction projects involve far more than simply agreeing on a price.
There may be discussions about:
- The scope of work
- Materials and finishes
- Project deadlines
- Progress payments
- Variations
- Defects and rectification
- Responsibility for delays
- Site access
- Subcontractors
- Approvals and plans
- Additional work
- Insurance
- Completion and handover
A conversation at the beginning of a project may not cover all of these issues.
People can also remember the same conversation differently. The builder might believe a particular item was excluded, while the owner believes it was included in the agreed price.
As the project progresses, informal conversations can become increasingly difficult to reconstruct.
NSW Government specifically notes that written contracts help minimise misunderstandings and disputes, while verbal contracts can make it difficult to establish exactly what was agreed or even whether a contract existed.
NSW Residential Building Work Has Specific Contract Requirements
There is an important distinction between saying that verbal contracts can exist and saying that a verbal agreement is sufficient for every type of construction work.
For residential building work in NSW, a builder or tradesperson must generally provide a written contract where the contract price is more than $5,000, including GST, or where the price is unknown but the reasonable market cost of labour and materials exceeds $5,000. Different requirements apply depending on the value of the work.
For work above $20,000, additional requirements apply to the contract.
This is why a homeowner should not assume that a verbal agreement is adequate simply because both parties have discussed the work and agreed to proceed.
There can be legal consequences where required documentation has not been properly prepared.
What If Work Has Already Started Without a Written Contract?
This is where things can become complicated.
Suppose a contractor has already started work after agreeing to the project verbally. The owner has paid several invoices, materials have been delivered and substantial work has been completed.
The absence of a signed contract does not automatically mean that nothing was agreed.
The parties' conduct, communications and payment history may become important in establishing what arrangement existed. Emails, text messages, invoices, quotes, receipts, plans and other project records can help demonstrate what was discussed.
However, these records may still leave important questions unanswered.
For example:
Was the quoted amount fixed or only an estimate?
Was a particular item included in the price?
Who agreed to the additional work?
Was the completion date firm?
Who was responsible for delays?
These are the types of questions that can become central when a construction disagreement escalates.
Can Emails and Text Messages Help Prove the Agreement?
Absolutely, they can be important evidence.
Even where there is no formal signed contract, project communications may provide evidence of what the parties discussed and how they understood their arrangement.
Useful records may include:
- Emails between the parties
- Text messages
- WhatsApp conversations
- Quotes
- Invoices
- Receipts
- Bank transfers
- Purchase orders
- Architectural drawings
- Building plans
- Site instructions
- Progress reports
- Photographs
- Variation requests
- Meeting notes
For example, if a builder sends a message saying, “The additional bathroom work will cost $8,000,” and the owner replies, “Approved, please proceed,” that exchange may become highly relevant if the additional payment is later disputed.
It is still important to obtain appropriate legal advice about how particular evidence may be used and what it proves.
What Happens When the Parties Remember the Agreement Differently?
This is one of the most common problems with informal arrangements.
The owner may say:
“We agreed on $80,000 for the entire renovation.”
The contractor may respond:
“That was only the estimate for the main building work. The electrical and plumbing work were extra.”
If there is no written document clearly setting out the scope and price, both sides may rely on different evidence to support their position.
The longer the project continues, the more difficult it may become to separate the original agreement from later conversations and changes.
This is why documenting decisions as the project progresses is important, even where the relationship between the parties is initially friendly.
What About Changes and Variations?
Variations are a major source of construction disagreements.
A project rarely remains exactly the same from beginning to end. A client may request different tiles, additional rooms, upgraded fixtures or changes to the original design.
The contractor may also identify additional work that was not apparent at the beginning.
If those changes are agreed verbally, another dispute can arise later:
- Was the variation actually approved?
- What was the additional price?
- Was the work necessary?
- Was the price agreed before the work started?
- Who authorised it?
- Was the variation already included in the original scope?
For NSW residential building contracts, NSW Government guidance states that variations to the contract or plans and specifications are required to be in writing and signed by the owner and contractor.
That makes proper documentation particularly important.
What Should You Do If a Dispute Has Already Started?
If a disagreement has developed, avoid relying solely on further informal conversations.
Start by gathering everything connected with the project.
Create a timeline showing:
- When the parties first discussed the work.
- What was originally agreed.
- When work commenced.
- What payments were made.
- What changes were requested.
- When problems first appeared.
- What communications took place afterwards.
- What remains unfinished or disputed.
Keep copies of emails, messages, invoices, photographs, plans and payment records.
NSW Government recommends discussing building problems with the builder or tradesperson as soon as they arise and then confirming the discussion in writing. If the issue cannot be resolved, Building Commission NSW may assist with dispute resolution in eligible circumstances.
The Better Approach: Put Construction Agreements in Writing
A written contract is not simply paperwork.
It gives everyone a common reference point.
A properly prepared construction contract can set out the scope, price, payment schedule, timeframe, responsibilities, variations, insurance requirements and procedures for dealing with problems.
It also gives the parties something concrete to refer back to when memories differ.
The NSW Small Business Commissioner similarly recommends written contracts or quotes before work begins because they help establish a shared understanding of expectations, obligations and roles.
For larger or more complicated projects, professional legal advice before work starts can be considerably cheaper than trying to resolve a major disagreement after the relationship has broken down.
Final Thoughts
A verbal agreement can sometimes create a legally binding contract, but that does not make it a good way to manage a construction project.
Construction involves too many moving parts for important decisions to remain based on memory alone. A handshake may be enough to start a conversation, but it is rarely enough to protect both parties when thousands of dollars and months of work are involved.
If there is no written contract, the key issue may eventually become proving what was agreed. That can make an already stressful construction problem much more difficult to resolve.
For homeowners, builders, developers and subcontractors, putting the agreement and subsequent changes in writing is one of the simplest ways to reduce uncertainty and prevent disagreements from becoming expensive disputes.
This article provides general information about construction contracts in Australia and is not legal advice. Contract requirements can vary depending on the type of project, parties involved and applicable state or territory laws.
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