Builder Charging More for Construction

Hi

We brought a house and land package in Sydney. The land was registered and we signed the contract for the building for a value of $410k. The construction started last year in November (2021). The invoices were raised and the payments have gone through the bank as well. The construction was delayed due to COVID but now we are in the brick & roof stages for which the invoice is also raised. Two days earlier the builder has sent an email stating that there is going to be an increase in the contract price by 10% which means $40k increase.

My question is, is this possible? I understand that there is price increase off late but for us the building materials were all ordered last year the invoices raised and paid.

We did not go for Fixed price contract. But with that said there is a clause in the contract for price rise and fall as well. The contract favours the builders a lot and if we go and handle this legally it is going to be a long process. We are already paying the mortgage and also the rent. Its too much for us to handle at the present moment.

Can you please pour in your insights on this. Thanks

Comments

  • My question is, is this possible?
    We did not go for Fixed price contract

    Even if you did sign a 'fixed' price contract, the price can still go up!

    Its a con job indeed to call them fixed price contact, but in your case, you didn't sign one, so what does your contract say?

    But with that said there is a clause in the contract for price rise and fall as well. The contract favours the builders a lot

    Contract favour those who write it.

    You're not alone, builders ramping up costs everywhere on people with contacts, the normal is 10-20%.

  • A friend of mine had this happen and his solicitor recommended that they argue that he price increase was more than it should have been (20%).
    I guess that is an angle you can take.

    He ended up having to cancel and lost his deposit and grants.

  • Sounds like you are boned. You didn't sign a fixed price contract. And yes there has been costs increases in material

  • +3

    Focusing purely on your question. Have you paid the full $410k and had handover? Or are you still building and paying in stages? Based on the fact that construction only started in November, I would assume you are still paying in stages.

    It is irrelevant that your builder ordered materials last year (even under an old price list). It is also irrelevant if they have already paid their suppliers materials invoices (if in fact they have, as some builders may have really long payment terms).

    There are probably many factors that a builder can point to in terms of justifying a cost increase. Current on site labour, transportation, fuel, health and safety (covid) and obviously materials. And obviously they don’t need to give you full transparency on their internal costs, as the HIA standard contract doesn’t permit this. My advice, just accept it.

    • +6

      I think OP is well within his right to ask for a breakdown of the cost increase. There'd be no chance that he'd get the increase dropped or even reduced, but asking the right questions might be a deterrent for the builder to ask for subsequent price increases.

      OP also needs to be mindful of project delays. The builder might work on other projects that are paid on time (including price hikes) and come back to you when material and labour costs have come back down.

      • Thanks.

      • And if the builder delays it long enough then you'll probably be in for more increases due to inflation if nothing else.

  • +1

    Stressful!! Suddenly I'm happy with my bowed roof and cracked walls.

  • +2

    Seriously though, what happens in this scenario? If you can't afford the increase does the builder just keep everything you've paid so far and abandon it?

  • +8

    With a building contract, the contract is for the total build, paid in installments at set times. Generally, as has been the case here, on the pouring of the slab, first fix etc.

    The contract is NOT for the specific payment of those stages. No building contract is ever written like that. For example, whilst the preparation for the slab is underway, the orders for the framing, the roofing, the bricks and all the other first and then second fix materials is going in. In the current climes, not only are all of these experiencing rapid price increases (which the OP acknowledges), but the delivery and acquisition time frames are just blowing out. Where goods could be counted on for a 2-4 week delivery time frame, we're now looking at 12-20 weeks.

    That time delay and material increase (on top of transport costs) now has to be added to the additional labour costs (for the staff that you're trying to keep on (because if you let your subbies go you won't get them back) and the storage of existing materials.

    So yes, whilst a payment may align with the pouring of the slab (this is more for the bank's benefit as it is seen as a major milestone at which the build advances), the payment is not for the slab.

    Therefore, the increase, any increase in a non-fixed contract is perfectly acceptable and the OP needs to simply get on with getting on.

    • The fact that they have progressed to bricklaying, meaning frame is complete with minimal downtime means that the builder is paying top dollar for materials to bot be waiting 20 weeks.

  • +3

    The HIA contract is the worst, when you say it's not a fixed price, is it a cost-plus contract? Either way, you need to ask your builder to substantiate the cost increase in detail, including any letters, quotes from suppliers or subcontractors explaining cost increase. It needs to be include detail showing proof of price increase, of which if in doubt, you need to check with suppliers to confirm price increases are accurate. You need to be tough and measured otherwise they will take advantage of you, particularly if it is cost plus because you're extremely vulnerable.

    • ^^^ This - a good builder will absolutely be able to substantiate why the costs have changed.

      You may simply not enjoy the reading of the invoice!

    • +3

      And yes you're correct, they should be only be charging cost increase on any work not yet complete/any materials not yet on site. So the 10% should only be on the contract price minus the remaining price.

      This is helpful from HIA:
      Any price adjustment or rise and fall clause will have to be carefully drafted with the increase in contract price based on a formula, which will require disclosure of the contracted price of the material with the actual cost. Actual increases will need to be substantiated.

      https://hia.com.au/resources-and-advice/covid-19/managing-yo…

      • Thank you. You understood what my question was. I will go through each and every invoice if it is going to help me.

        • +2

          Generally this does not happen and builders don't want to delay builds. Normally I would not recommend signing a cost plus contract at all - HOWEVER, given the current market circumstances, both parties would have no choice but to do cost plus contracts. The worse case scenario is your builder goes bankrupt as he doesn't have enough cashflow left due to the increase in wages and materials.

          I would still be looking at the explanation for the increase in costs.

          To be honest, I've seen material and labour increases of 25%-60%. 10% would be on the extremely low side overall as your builder is probably absorbing a lot of the 'costs' and breaking into their margin.

          • @CalmLemons: Govt figures for Syd is 5.6% so 10% isn't that bad .
            Are you drinking to get your figures ?

            • +1

              @popsiee: The government figures are often delayed and wrong.

              This obviously isn't ALL items.

              Get a quote for a staircase/swimming pool/windows/tapware.

    • smartest poster here

  • +1

    Normally in a build contract they state the price is guranteed for x amount of time. If x amount goes by and construction is not* commenced, the price can go higher.

    This is my experience after doing 2 builds with 2 different builders.

  • Ask for a complete breakdown of the costs…do not mention already paid invoices for materials / Labour, wait and see what they come to the table with. They may try to! as you say charge for materials already used in the construction.

    Then as mentioned above you should be charged increases only on outstanding amounts based on substantiated cost increases.

  • You've entered yourself into a ponzi scheme which this useless government offers little protection from.
    There are 0 regulations for these things, and you're lucky the builder didn't demand 100K due to timber shortages.
    Same deal with a**hole builders that built apartments in Mascot and Olympic Park that are falling apart, guess what - they still have their building license.

    • -3

      Tradies will cry about it but it isn't exactly like you need to be academically gifted to get into the industry (you don't even need to finish high school), even then you don't have to hit the books for 2 years full time.

      You have to do practical experience, basically following those who are not academically gifted. You don't see history books written by builders, plumbers and electricians for a reason.

      • I wonder how many history book authors (I’m pretty sure they’d have at least a doctorate if not a professorship) would know how to build their own home or do their own electrical work or plumbing.

        • And how many builders and electricians can get a doctorate even if they wanted to?

          If I was an engineer I can be an electrician easy. Not necessarily the other way around.

          They put in prerequisites to get into uni for a reason. It isn't like you did literature and got 99% will get you into engineering if you failed physics.

          • @netjock:

            It isn't like you did literature and got 99% will get you into engineering if you failed physics.

            Didn’t they teach you grammar at University?

            • @kev98: Obviously not a literature major. Else would be flipping burgers right now.

  • I had the same thing happen to me. The builder chooses 10% as anything over that gives you the option to terminate the contract. I asked the builder to provide a full breakdown and it essentially came down to labour (at the time), the cost per brick had essentially tripled since I signed the contract.

  • -2

    All builders are scum. You are screwed. Luckily it was not by more.

    • +1

      Although some are scum, most are just trying to make a living, albeit a good living, just like most people want to in any job. But certainly in today’s market of skyrocketing labour and material costs, and incessant supply delays, it seems they have the vulnerable new homeowner by the short and curlies.

  • +1

    Like, has a building ever been built for the initial quote?

    I thought you were meant to budget for 20% increase of costs over the quote to accommodate for this exact situation.

    • Like, has a building ever been built for the initial quote?

      yes why? built 2 and not a cent over what was signed on contract. There were certain appliances that weren’t available at the time builder was going to order them with both instances and they instead offered upgraded units from their lineup without a cost to us.

      • I reckon you would be the exception to the rule than the rule itself, unless you had something in the contract that absolutely binded the contractor to that price.

  • +1

    Just lay the bricks and roof yourself.

  • +1

    Only increases never decreases that I've seen in these non fixed contracts

  • +1

    Bought… not Brought… I cannot stress that enough. You Brought the money that bought you the house!
    Also Contract does what contract says, welcome to building :)

  • Happened with some of my friends too. They tried everything like complaining to MBA and HIA but its of no use. Since it's not a fixed price contract, everything in the contract is in favour of builder. You have to pay the amount unfortunately.

    • +3

      MBA and HIA are paid by their members, so you know who they are going into bat for.

      • That's right. But people generally trust builders who are associated with them.
        Because some of them who are not associated have caused problems to their customers like stopping their work mid-way by saying they are bankrupt and all.

        But, after my friends experiences, I feel you should build with a person whom you know personally. Else, it is very hard trusting builders.

        • But, after my friends experiences, I feel you should build with a person whom you know personally

          Good way to lose a mate or never talk to that relative again!

          • +1

            @serpserpserp: Or a good way to find out whether you got dodgy relatives or mates.

            Usually they either ask you to buy the materials and they just supply the labor or alternatively just give you the invoices for reimbursement.

            Worst are the dodgy ones and math isn't their strong suite, causes awkward conversations.

            • @netjock: I don't agree on that mate.
              I know few people personally who are 100% trust worthy and never tried to oversell anything.

  • +1

    Sounds scummy but if it was in the contract, nothing to do. Tradies have too many power here. Nobody should pursue stem in this country. Its completely illogical.

  • +1

    Coove read your contract again- I find this interesting that they can change the price after construction has commenced. My situation: I am currently building with Coral Homes in QLD. I signed the contract with them in June 2020 (back when everyone thought it was going to be the end of the world). At that time market sentiment was low so for a breif 3 week period Coral offered 12 months fixed price contract. I started just within that 12 month period and we are still constructing but the base price of the house has gone up $97k in that time.

    However Coral cannot charge me anything more as we had already started construction and based on the contract the price only changes if you cant start within 28 days or the original start date. The only way people are now getting hit with price rises is if they are not starting in time; once the construction starts whatever was the contract price is what it remains as. Coral is a large volume builder mind you so maybe your one is a little more smaller and has less room to move?

    Sidebar: much better to negotiate a middle ground with the builder rather than them going bust- too many headaches trying to find someone to complete a job that has already started.

    • Sometimes if it is a labour cost rise you can negotiate your delivery date to be much longer so they can manage their labour costs. An option if you can afford to rent another 6-12 months etc.

    • base price of the house has gone up $97k in that time

      Sounds like they are way over quoting to try to recover their losses.

      Unless your build is more than half a million otherwise on a $300k build that is a 33% increase. Unless it is a Woolworths/Coles/Aldi facial tissue house there is no way everything has gone up 30%.

      Even at the best of times the building industry was full of bad apples. Usually they will send a company under and rip off the tax office and subcontractors but right now it is like robbery.

      Imagine everything at Bunnings going up 30%, it will basically be an election issue!

      • Looks its hard to say. Base cost of the house was $327k when I signed (as displayed on my tender letter) and its now $439,800 (so $112k over now). I feel like you are right….they are trying to claw back losses made- which my build will definitely be one on which they are making nothing.

  • The contract contains the reasons for price increase and on what category. In your case, this might be the prime cost and provisional sum items. Our friend who is currently building had this clause removed before build so material or labour increase does not affect the contract price.

    • He might have. But he would have paid a premium to do so.

  • +2

    People paying out OP for not going a fixed price contact. Well many builders have clauses to rise prices in those contracts as well. Or if prices go up and a solution is not found they'll walk away from the build (which is the worse outcome for home builder).

    OP - you should hopefully have some contingency finance for this endeavor. You know, the money you were putting away for rate rises and generally for unexpected build costs. Sounds like you haven't. Best of luck with it all. Hopefully you can absorb the cost or sell your half done property in this hot market and make your money back.

    TLDR - Builders can charge anything. Fix priced contacts often unenforceable unless in a quiet market.

  • Are you protected if ur builder go bust?

    https://www.afr.com/property/commercial/home-builder-lp-warr…

  • Read your contract again?
    Having built something during covid I had similar concerns. It was however fixed price but that was ONLY if the first stage was started within 12 months of the initial interaction with the builder to obtain quotes and start planning. It got to 10 months and due to land title delays was looking like it was going to go up, we were even advised that if land was not ready and building could not begin in the remaining 60 days of the increase in price that we would have to pay, even as part of a fixed contract agreement.

    Is there anything in your contract that states that once construction has begun that prices can't be changed (up or down) or are you exposed to variation between stages?
    Have there been delays that could push the contract toward a sunset clause where as it won't be completed within X period they are able to re estimate the cost of remaining works to complete and increase your price?

    Knowing a few others without fixed price contracts that left them open to this, many have struggled to refinance to cover the new costs. Was a huge drama with the bank as the drawdown stages had already begun on the loan.
    From what I'm aware banks won't allow a single drawdown to pay the full costs of build (100%) on new builds so this couldn't have been done to avoid price increases, as if building stops or something happens the banks are left exposed (even while insured).

  • +2

    You signed a contact that was not fixed price.
    You have no recourse.

  • +1

    To be honest a 10% increase is quite fair considering the increase in labour and material cost.
    Your property value probably has gone up way more than this 10% anyway.
    I would just be thankful that the builder is committed to build the house and not bankrupted -> that will be way more headache for you.
    All the best!

    • If your shares went up 10% and your share trading platform raises prices would you hand it back?

      Don't forget you had to put up the capital and put your finances on the line to acquire the property. If you got told you can buy this property but you'll have to hand some of the profits to the builder in 12 months.

  • -1

    Declare bankruptcy tell them they may need to deal with the bank.

    See if they will negotiate on price or long payment timeframe for the additional costs.

  • Agree to the initial 10 percent increase. Since property is cooling off now and prices decreasing you have grounds for demanding a 10 percent decrease after a few months. That way you will hit even.

  • +1

    No case.

  • If the house is $410k and you have already paid $150k id expect that they should only be able to increase the price on the remaining $260k ($26k instead of $41k).

    That said, they could probably argue 17% on the remaining amount and you’d be in exactly the same position.

    • Just too much mental math. Why bother when you can hold everything hostage.

  • Everything has seriously gone up 20% at least depending on the product. 10% is actually not that bad, a fixed priced contract would easily be 100k more to safe guard the builder. Just take it as a small increase. My build, starting now went up 300k based on material from last years rough quote and thats family building it.

    Also things are not ordered in advance until you need them, my family had another build, ordered the bricks and paid, got call said they wont ship, they went up 5c a brick, had no choice to pay extra and pass it onto the owner.

    • Also things are not ordered in advance until you need them, my family had another build, ordered the bricks and paid, got call said they wont ship, they went up 5c a brick

      Isn't there a word for that. Starts with black and ends with mail. Imagine buying an Ozito battery and ordered it online for $48 and arriving at pick up and they won't release it unless you paid $99.

  • +1

    I want to know where in Sydney you got a house and land package for 410k

  • I think lots of people are missing the point here… What OP is trying to say is the builder can't have their cake and eat it too. I'm not sure which side of the fence I'm on in this case, but it sounds like it's more than fair to at least question a hindsight price correction.

    For example, say the roofing was quoted but hadn't been paid for, then the builder came back and said "well actually the quote increased", then that would be absolutely fair game. But in OP case the roofing was already paid and done (from OP side).

    • What OP is trying to say is the builder can't have their cake and eat it too

      Doesn't stop people trying. Did they spot that on the note pad of some minister in the UK heading out of the PM's office.

  • +3

    I work for a truss and frame supplier. Without knowing when you signed contracts it's quite plausible that the builder has had a 10% increase. From our prospective precovid we were normally out to about 3-4 weeks lead time from the time of ordering to the time of delivery. For your average house we would quote the job and then in approx 3 months we would get given the go ahead and normally our quote would still be current in that time frame.

    Fast forward to the covid construction boom and we have been between 3-6 months lead time. The issue with this is due to all the material shortages we are having large and frequent price increases on pretty much everything. From the time we have been given job acceptance to delivery there have been substantial price increases, not only that due to the timber shortage sometimes we have had to make more expensive substitutions to keep projects moving forward. Over a 12 month period our timber prices increased by 36%. So we had situations where our quote was valid at the time of ordering but by the time the job went out several price increases meant we would giving the stuff away if we didn't pass on some of the costs.

    We have split the difference with clients to try and spread the burden as best as possible. It really is a terrible time in the industry, I know many builders who have never been so busy but yet barely broke even last year.

    All though well intentioned the federal government home builder program was a terrible idea, the construction industry was already booming as it was before the announcement, the $25k just amplified the demand on the industry to unprecedented levels. Those who got in very early (as in were already in the process of signing contracts at the time of announcement) did all right out of it, for the rest it was basically just a 25k price increase on the tax payers wallet as with the increased demand come the price increases as supply chains were crippled, shortage of subbies meant they could name their price.

    All that said and I encourage home owners to ask questions if builders want to increase the contract price as I feel some builders might try and take advantage of losing $$ on some jobs over the last 18 months by claiming price increases that may not be relevant to the current job. I'm sorry to all those trying to build but there has never been a worse time to build, from a cost prospective and from the quality of work.

    • I work for a truss and frame supplier

      Timber I assume?

      Over a 12 month period our timber prices increased by 36%

      Makes steel a no brainer? I see more steel frames going up

      It really is a terrible time in the industry, I know many builders who have never been so busy but yet barely broke even last year.

      I remember the saying. If you aren't getting the desired results, might be time to stop what you are doing. Given it is a heavy physical role I'd be more inclined to stay at home.

      All that said and I encourage home owners to ask questions if builders want to increase the contract price as I feel some builders might try and take advantage of losing $$ on some jobs over the last 18 months by claiming price increases that may not be relevant to the current job. I'm sorry to all those trying to build but there has never been a worse time to build, from a cost prospective and from the quality of work.

      Good summary.

      • Yes Timber, steel has gone up proportionally the same and are now beginning to suffer the same supply issues. I know a truss plant that has tried to hedge their bets and put on a steel production line, well they have already invested significant time and $$$ and now they can't get supply of the steel coils to manufacturer.

        For most builders with their own business they don't spend a lot of time on the tools these days and more act as project managers. Building these days is just as much paperwork as it is physical work.

  • PikachuShocked.jpg

  • +1

    It could be worth asking your builder to detail the additional expenses that they have incurred that result in the need for your contract price to increase. Without seeing your contract we can't tell exactly what burden of proof is on them to justify increased costs so they might not provide anything of value, but they might.

    Once they provide that info, you could then look at how those costs match up against stages that are already completed and paid for vs remaining construction activity to be completed. If they have just put a flat increase across the entire contract and their detailing to you of expenses includes things that have already been paid for then you could pose the argument that the contract price should have been varied prior to those amounts being paid.

    In all liklihood none of it will amount to anything as build contracts in Australia are incredibly biased towards the builders, however there is an element of security for the industry in that so there are arguments to be made that it isn't necessarily bad for the country as a whole, even if it sucks for individuals. I know the penalties for my house being delivered late are insignificant compared with the penalties for me making a late progress payment, or some additional fees that I was hit with due to the developer changing things prior to settlement however given the current supply and demand, finding a builder who will sign a contract with you that doesn't fall in their favour is going to be a challenge.

  • Not sure what case you would have "if we go and handle this legally". You signed a contract which is not a fixed price and allows the builder to vary the price, which he is now doing. I'd start by having a sensible discussion with the builder to understand the drivers of the cost increase, but at the end of the day you probably only have 2 options. Pay up, or terminate the contract. If you are considering the latter, you need to fully understand the termination clauses and what that means for the monies already paid.

    Life lesson learnt - Never sign an open ended contract which favours another party.

  • +1

    This is why I made sure to pay for a fixed contract when I built. I understood the risks and chose to fix it.

  • +2

    Loophole in the HIA contracts that allows builders to claim clause 19.1 on a contract.

    And charge so they don't build at below cost price.

    Fixed price contracts do not exist anymore. It's dangerous for the builder. If they do you you will be paying a crap load more to cover just in case.

    I noticed I got seriously downvoted for stating they builders doing it tough and tradies reaping all the benefits in an anti builders post and now there is an an entire forum post discussing it.

    10% is about right, builders also absorbing some profit too.

    • And charge so they don't build at below cost price.

      I would agree with that if it is substantiated. Substantiation is the problem.

  • Brought = did bring

  • I guess the builder has worked out that the whole job will cost 10% more.

    And so is charging you 10% more for the whole job.

    What was your question again?

    • The builder is entitled to pass on cost increases as per the contract but he still has to justify increase is reasonable. Unfortunately building contracts are written to favor the builder as is the building legislation.

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