Variations to building contracts during construction are a common source of dispute between builders and property owners. The rules are simple!
1. What are we talking about?
Construction contracts are incredibly detailed and attempt to cover a myriad of different situations and scenarios. Despite best efforts, occasionally changes will be required by either the home owner, the builder or both. The property owner may change their mind, unknown issues are discovered or both parties agree that changes are required. Sometimes it is just impossible to consider all the issues and facts at the beginning of the construction journey. These changes may have cost implications. Understanding the rules is critical to avoid disputes.
What the WA Building Commission advises us:
It is the builder’s responsibility to ensure that a written contract that accurately reflects the agreement reached is in place between themselves and their client.
Contracts will vary depending on whether the type of building work that is proposed is residential or commercial. Any agreement for the performance of ‘home building work’, as defined by the Home Building Contracts Act 1991, must be in writing and be signed and dated by both parties. The contract documentation should include all specifications, addenda and working drawings.
If you are unsure what type of contract to use or what should be included, contact a building association such as the Master Builders Association, Housing Industry Association or Australian Institute of Architects, who may be able to provide advice as well as a selection of contract templates.
Failure to have proper contracts in place or contracts that do not accurately reflect the agreement between the parties can result in proceedings being brought against the builder or property owner. If you are unsure about contractual requirements or a particular aspect of the contract you should seek independent professional advice.
2. Home building contracts
Home building contract provisions in WA fall under the Home Building Contracts Act 1991 (HBC Act) apply to fixed price contracts for ‘home building work’ valued between $7,500 and $500,000. Under the HBC Act, limited provisions apply to cost plus contracts.
‘Home building work’ is constructing a new home, renovating an existing dwelling, placing a transportable home on land or carrying out any associated work, ie installing a swimming pool, kitchen cabinetry, constructing a garage or shed or performing landscaping work.
Under the HBC Act a ‘builder’ is any person who performs home building work for others and is not necessarily a registered builder.
The main provisions of the HBC Act are:
- must be in writing;
- must contain all the terms, conditions and provisions of the agreement; and
- must be signed and dated by both parties.
- ‘Rise and fall’ clauses are prohibited; and
- some exceptions apply to costs incurred due to an increase in government charges or duty.
- Deposits and progress payments
A home building contract cannot provide for a payment that exceeds 6.5% of the total cost before the commencement of building work. After the commencement of the work, any progress payment must be for work actually performed or materials already supplied.
- must be in writing;
- must be signed and dated by both parties; and
- a copy must be given to the home owner prior to any work commencing.
In short, and generally speaking: Any variation to a home building work contract is to be in writing, show the date and be signed by both parties, with a copy given to the home owner before the variation work commences. Exceptions can include changes resulting from directions given by a building surveyor or from circumstances that could not have been foreseen when the contract was entered into.
3. Some examples
Variations can be a common concern for either the builder or the property owner.
From the Builder’s Perspective
- If a wall-tiler is on site and the client requests another grout colour (potential rework required) because it has a different appearance to what they expected or
- The electrician is on site and the client wants another power point or
- The property owner visit to a supplier may trigger a desire for a different type of flooring.
- The owner may want to enlarge the glass doors to the outside
- The owner may want to change the location of the kitchen sink
- On occasions it may be difficult to expect the tradesperson to stop work immediately until all the contract variation paperwork is completed at the builder’s head office. Such requests pose a dilemma for the builder because under the Home Building Contracts Act any variation must be put in writing, detailing the nature and cost of work to be performed, and signed by both parties before the variation work begins. While a simple change in direction during the build may appear a small and simple issue, all parties need to agree the impacts and costs prior to proceeding.
Many builders have suffered losses by agreeing with the client’s variation request in good faith and completing the work only to find at a later date that payment is refused because the variation form was not completed before work began as required by the Act.
From the Owner’s Perspective
A builder may request a variation to the agreed scope of works in a contract as a result of unforeseen circumstances or issues. This may be particularly relevant in relation to building renovations where the true extent of the existing building may not be known until construction starts. While the builder and client may legitimately verbally agree a “variation” unless this variation is agreed, costed and signed by all parties, the impacts of that variation may not be able to be implemented, especially the cost impacts which may be to the favour of either the builder or the property owner. Builders and owners be warned. Section 7 of the Home Building Contracts Act specifically requires that:
7. Variation of contract to be in writing and given to owner
(1) A variation of a contract —
(a) must be in writing —
(i) setting out all of the terms of, and the cost of, the variation;
(ii) showing the date of the variation; and
(b) must be signed by the builder and the owner or their respective agents.
(2) The owner or his agent must be given a copy of the signed variation —
(a) as soon as is reasonably practicable after it has been signed by both parties; and
(b) before the work to which the variation relates is commenced.
4. In Conclusion
WA Home Building Contracts are complex. The majority of these contracts are templates written by Builders Associations. Given who writes the contracts, they are likely to be skewed in favour of the builder. Conversely the Home Building Contracts Act provides protection for the Homer Owners. In this complex environment do not think you can just change the agreed position without impacts.
Contract variations are not that complex! Both builders and owners must follow the rules detailed above. The rules are not onerous and they do provide clarity, transparency and confidence to all parties. Many building disputes between builders and owners are a result of variations which have not been property documented and agreed. Protect yourselves irrespective if you are a builder or property owner.
Houspect WA prepares independent expert reports on behalf of builders, owners or lawyers in building disputes. Often there are no winners in these disputes. Follow the rules on variations and avoid disputes on these issues.
Build, Buy, Invest in property with confidence (without litigation!)