Fixed price residential building contracts – is the price really fixed?

Posted on Sep 13, 2018 by Janine Wilson   |   Categories: Building & Construction

Residential building is booming in the Hunter and builders are busy.

Its increasingly common for homeowners to sign a fixed price contract for the building works but have no actual building work start for 12 to 18 months after the contract is signed.

In some cases, shortly before building works are due to start, the Builder approaches the Homeowner with a generalised price increase which they demand be paid before construction starts. In one instance, one of my clients was asked to pay an increase of $70,000 to get the building work underway just because “costs of things have gone up over 12 months”.

This is a predicament for most homeowners. By that time, the homeowners have paid a generally non-refundable deposit, paid for plans, Council fees and perhaps some preliminary works. The homeowners have also invested much time and energy into selecting the builder and design in the first place. The homeowners, in most cases, are working within a fixed budget themselves and simply do not have the funds to pay for a generalised increase sought to be imposed by the builder.

As a starting point:

1. Carefully review the building contract. This includes all of the documents incorporated into the contract like the tender, quote or special conditions particular to the builder. There can often be some clauses incorporated into those documents which can create a serious risk of the homeowner being subject to a generalised price increase.

2. Ask the Builder to identify the clause in the contract that they rely upon to demand the price increase and ask for a breakdown explanation of the increase.

3. Have you changed the building plans or have you been the cause of the delay? Many of the commonly used residential building contract contain very limited provisions in the contract which would allow the builder to increase the price of the works. Those provisions are limited to variations to the priced works, adjustment for prime cost and provision sum items, survey or consultant’s cost if required to report on site conditions and increased charges from statutory authorities. Check if any of these provisions apply.

There is rarely a provision in the contract which would entitle a builder to a general price increase due to inflation or as a result of a long delay which is not the fault of the homeowner.

If you find yourself in this situation, please get in touch if we can assist.