Can my Builder Pass on Increased Construction Costs?

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It’s now common knowledge that the cost of living has increased significantly in the last few years, especially in relation to a significant hike in the cost of building materials.

As builders struggle to keep up with building cost increases from rising building material prices, any homeowner who has entered into a Residential Building Contract in the last few years may be faced with a builder seeking to recover some of these costs.

So, can your builder pass on increased costs if you have entered a fixed-priced Residential Building Contract to build or renovate your home?

In summary, a builder can only pass on increasing construction costs in very limited circumstances, including:

Provisional or Prime Cost Item

Provision and Prime Costs items are items that are not fixed prices under the contract. Instead, an allowance is made for these items. If the costs of these items are over and above the allowance made, the builder is entitled to pass on these additional costs to you.

Increase in Statutory Costs

Residential Building contracts usually have a clause providing for additional statutory charges to be passed on by the builder. Statutory charges can include charges, levies, regulations, taxes or other authority fees; however, they will not cover the rise in the price of material or labour.

A Specific Provision Within the Building Contract

While it is not common, there may be a provision with your building contract that allows for a builder to pass on the costs to you. Such a provision is called a Rise and Fall clause.

A ‘Rise and Fall’ provision is not a standard clause in most commonly used Residential Building Contracts (QBCC, HIA, Master Builders); however can be included in special conditions.

To be clear, increased costs (as a result of COVID or increased costs of materials) are not able to be recovered from the homeowner unless there has been a specific clause to provide for this within the building contract.

If your builder attempts to pass on costs to you (which would usually be by way of a variation) make sure you review your building contract in detail and only allow an increase if there has been a provision made for it in the Residential Building Contract.

If you have been served with a variation by the builder seeking to recover increasing costs, you need to ensure you respond to any variation within the time frames required under the contract (which are usually very strict) to clearly avoid any increase in costs.

Building Cost Increase in Australia

Should you be faced with an increased cost on a build, please contact Melissa Ban of Stephens & Tozer Solicitors to discuss it in further detail.

Melissa has extensive experience in a wide range of commercial litigation and Building & Construction. Melissa has acted for builders, subcontractors, developers, and homeowners, including proceedings against the QBCC. 

Category: All / Contractual Law